186 Reduction of rates of PRT and interest repayments for taxable oil fields.
(1) With respect to chargeable periods ending after 30th June 1993 the rate of petroleum revenue tax (relevant only to taxable fields) shall be 50 per cent. and, accordingly, with respect to such periods, in section 1(2) of the principal Act for “75” there shall be substituted “ 50 ”.
(2) In paragraph 17 of Schedule 2 to the principal Act (limit on interest in the case of relief for losses carried back) at the end of sub-paragraph (2) there shall be added the words “ and, in relation to the appropriate repayment, the chargeable period for which the relevant assessment or amendment is made is referred to as “the repayment period” ”.
(3) In sub-paragraph (4) of that paragraph—
(a) at the beginning there shall be inserted the words “ Subject to sub-paragraph (6) below ”; and
(b) in paragraph (a) for the words “85 per cent.” there shall be substituted “ the relevant percentage of the amount ” and after the word “above” there shall be inserted “ which is treated as reducing the assessable profit of the repayment period ”.
(4) At the end of that paragraph there shall be added the following sub-paragraphs—
(5) For the purposes of sub-paragraph (4)(a) above—
(a) where the repayment period ends on or before 30th June 1993, the relevant percentage, in relation to the amount of the loss or losses which is treated as reducing the assessable profit accruing to the participator for that period is 85 per cent.; and
(b) in relation to the amount of the loss or losses which is treated as reducing the assessable profit accruing to the participator for any later repayment period, the relevant percentage is 60 per cent.
(6) If, in order to give effect to the relief for losses carried back, a repayment of APRT falls, or will on the making of a claim fall, to be made with respect to a chargeable period which is the repayment period in relation to the appropriate repayment, the reference in sub-paragraph (4)(b) above to the appropriate repayment shall be construed as a reference to the aggregate of that repayment and the repayment of APRT.
(7) In sub-paragraph (6) above “APRT” means advance petroleum revenue tax paid under Chapter II of Part VI of the Finance Act 1982.
(1) In section 5A of the principal Act (allowance of exploration and appraisal expenditure), in subsection (1) (conditions for expenditure to be allowable) after paragraph (a) there shall be inserted the following paragraph—
(aa) either is incurred before 16th March 1993 or is incurred within the period of two years beginning on that date and is expenditure to which that person or, if that person is a company, that company or a company associated with it in respect of the expenditure, is committed immediately before that date; and
.
(2) After subsection (1) of that section there shall be inserted the following subsections—
(1A) For the purposes of subsection (1)(aa) above, in respect of expenditure incurred on or after 16th March 1993, a person is to be regarded as committed to that expenditure immediately before that date if—
(a) he has an obligation under an exploration and appraisal contract entered into before that date to incur the expenditure; or
(b) the expenditure is incurred wholly and exclusively for the same purpose as that for which the contract referred to in paragraph (a) above was entered into and is so incurred pursuant to an obligation under an exploration and appraisal contract entered into on or after 16th March 1993 and before 16th June 1993.
(1B) In considering whether a person has at any time such a contractual obligation as is referred to in paragraph (a) or paragraph (b) of subsection (1A) above in respect of any expenditure,
(a) if the contract contains a power (however exercisable) by virtue of which the person concerned, or a company associated with him in respect of the expenditure, is able to bring any contractual obligations to an end, he shall not be regarded as committed to any expenditure which, if the power were to be exercised, would not be incurred; and
(b) if the person concerned (or a company associated with him in respect of the expenditure) has an option (however described) which was not exercised before 16th March 1993 but the exercise of which would increase his expenditure under the contract, he shall not be regarded as committed to any expenditure which would be incurred only as a result of the exercise of the option.
(1C) For the purposes of subsection (1A) above a contract is an exploration and appraisal contract if it is a contract for the provision of any services or other business facilities or assets for any of the purposes specified in subsection (2) below.
(3) In subsection (2) of that section for the words “subsection (1)” there shall be substituted “ subsections (1) to (1C) ”.
189 Transitional relief for certain exploration and appraisal expenditure.
(1) This section applies in any case where—
(a) a participator in an oil field or an associate incurs expenditure on or after 16th March 1993 and before 1st January 1995; and
(b) apart from this section, that expenditure would not be allowable under section 5A of the principal Act (as amended by section 188 above); and
(c) if section 188 above had not been enacted, the expenditure would be allowable in the case of the participator under section 5A of the principal Act; and
(d) on 16th March 1993 the participator or the associate was a licensee in respect of the area to which the expenditure related.
(2) In the following provisions of this section—
(a) expenditure falling within subsection (1) above is referred to as “transitional E and A expenditure”; and
(b) the participator in whose case that expenditure would be allowable as mentioned in paragraph (c) of that subsection is referred to as “the claimant”.
(3) Subject to the following provisions of this section, so much of the transitional E and A expenditure incurred by the claimant or an associate as does not in the aggregate exceed £10 million shall be allowable in the case of the claimant under section 5A of the principal Act (as exploration and appraisal expenditure).
(4) In subsections (1) to (3) above any reference to an associate of a participator applies only where the participator is a company and is a reference to another company—
(a) which on 16th March 1993 was a member of the same group of companies as the participator; and
(b) with which the participator is associated in respect of expenditure incurred by the other company;
and subsections (7) and (8) of section 5 of the principal Act (companies and associates etc.) apply for the purposes of this section as they apply for the purposes of that section.
(5) Where—
(a) the claimant is a company, and
(b) on 16th March 1993 the claimant was a member of a group of companies, and
(c) at least one other company which was a member of the group on that date was then a participator in an oil field, and
(d) that other company is also the claimant in relation to an amount of transitional E and A expenditure,
subsection (3) above shall have effect as if references therein to the claimant were references to the aggregate of all those companies which on that date were members of the group and are the claimants in relation to any transitional E and A expenditure.
(6) In this section, a group of companies means a company which is not a 51 per cent. subsidiary of any other company, together with each company which is its 51 per cent. subsidiary; and section 838 of the Taxes Act 1988 (subsidiaries) applies for the purposes of this section as it applies for the purposes of the Tax Acts (within the meaning of that Act).
190 Allowance of expenditure on certain assets limited by reference to taxable field use.
(1) Where, in the case of expenditure incurred as mentioned in section 1(1) of the 1983 Act (expenditure incurred on non-dedicated mobile assets),—
(a) the expenditure would, apart from this subsection, be allowable under section 4 of the principal Act for a claim period of a taxable field, and
(b) during that claim period, the asset becomes dedicated to a non-taxable field,
that proportion of the expenditure which is equal to the proportion of the claim period during which the asset is dedicated to a non-taxable field shall not be allowable as mentioned in paragraph (a) above.
(2) For the purpose of determining whether an asset becomes at any time dedicated to a non-taxable field, it shall be assumed that, in relation to a non-taxable field, any reference in section 2 of the 1983 Act (dedicated mobile assets) to a claim period is a reference to—
(a) the period ending at the end of December following the determination of the field; or
(b) the period of twelve months ending at the end of December in any later year.
(3) In paragraph 7 of Schedule 1 to the 1983 Act (brought-in assets) in sub-paragraph (1)(c) (which requires that during the initial period the asset should have been used otherwise than in connection with an oil field) for the words “an oil field” there shall be substituted “ a taxable field ”.
(4) In paragraph 8 of that Schedule (subsequent use of new asset otherwise than in connection with an oil field) in the heading and in sub-paragraphs (1) to (3) and (6) for the words “an oil field” there shall be substituted “ a taxable field ”.
(5) In paragraph 5 of Schedule 2 to the 1983 Act (acquisition otherwise than at arm’s length: limit on tariff and disposal receipts)—
(a) in paragraphs (a) and (c) of sub-paragraph (1) for the words “an oil field” there shall be substituted “ a taxable field ”;
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) in sub-paragraph (3)(a) for the words “an oil field” there shall be substituted “ a taxable field ”; and
(d) in sub-paragraph (3)(b) for the words “an oil field” there shall be substituted “ a taxable field or, if it is to a participator in a taxable field, the asset is to be used wholly or partly in connection with a non-taxable field ”.
(1) Subject to the following provisions of this section, where a claim is made under the principal Act for the allowance of any expenditure and the claim is received by the Board after 16th March 1993, an amount of expenditure is to be taken to be incurred for the purposes of the Oil Taxation Acts on the date on which the obligation to pay that amount becomes unconditional (whether or not there is a later date on or before which the whole or any part of that amount is required to be paid).
(2) Subject to subsection (3) below, where the amount of any expenditure incurred by any person at any time after 16th March 1993 under a contract—
(a) for the acquisition from any other person of, or of an interest in, an asset, or
(b) for the provision by any other person of services or other business facilities of whatever kind (whether in connection with the use of an asset or not), or
(c) for the grant or transfer to that person by any other person of any right, licence or interest (other than an interest in an asset)
is disproportionate to the extent to which that other person has, at or before that time, performed his obligations under the contract then, for the purposes of the Oil Taxation Acts, only so much of the expenditure shall be taken to have been incurred at that time as is proportionate to those obligations which have been so performed.
(3) If, in the case of a contract entered into after 16th March 1993 and falling within paragraph (a) or paragraph (b) of subsection (2) above—
(a) the expenditure referred to in that subsection is incurred before 1st July 1993, and
(b) the other person referred to in paragraph (a) or paragraph (b) (“the contractor”) has performed his obligations by entering into one or more further contracts,
the contractor shall be treated for the purposes of subsection (2) above as having at any time performed his obligations under the contract only to the extent that, at that time, the asset or interest in question has been acquired by, or, as the case may be, the services or other business facilities have been provided to, the person incurring the expenditure.
(4) In paragraph 2 of Schedule 4 to the principal Act (limitation of allowable expenditure on transactions between connected persons or otherwise than at arm’s length) for sub-paragraph (1) there shall be substituted the following sub-paragraphs—
(1) Where, in a transaction to which this paragraph applies, a person has incurred expenditure in acquiring, bringing into existence or enhancing the value of an asset, he shall at any time be treated for the purposes of—
(a) sections 3 and 4 of this Act, and
(b) sections 3 and 4 of and Schedule 1 to the Oil Taxation Act 1983,
as having incurred that expenditure only to the extent that it does not exceed expenditure (other than loan expenditure) incurred up to that time in a transaction to which this paragraph does not apply (or, if there has been more than one such transaction, the later or latest of them) in acquiring, bringing into existence or enhancing the value of, that asset.
(1A) Subsections (1) to (3) of section 191 of the Finance Act 1993 apply to determine for the purposes of this paragraph what expenditure has at any time been incurred under a transaction to which this paragraph does not apply, as they apply in relation to expenditure for the allowance of which a claim is received by the Board after 16th March 1993.
(1B) In sub-paragraph (1) above “loan expenditure” means expenditure in respect of interest or any other pecuniary obligation incurred in obtaining a loan or any other form of credit.
(5) For sub-paragraph (3) of paragraph 2 of Schedule 4 to the principal Act there shall be substituted the following sub-paragraphs—
(3) The preceding provisions of this section shall, with any necessary modification, apply in relation to expenditure incurred by any person in acquiring an interest in an asset or in bringing into existence an asset in which he is to have an interest, or in enhancing the value of an asset in which he has an interest, as those provisions apply in relation to expenditure incurred by a person in acquiring, bringing into existence, or enhancing the value of an asset, as the case may be.
(4) The provisions of sub-paragraphs (1) to (2) above shall, with any necessary modification, apply in relation to expenditure incurred by any person in respect of—
(a) the use of an asset (including expenditure on renting or hiring), or
(b) the provision of services or other business facilities of whatever kind in connection with the use, otherwise than by that person, of an asset,
as they have effect in relation to expenditure incurred in the acquisition of, or of an interest in, an asset.
(6) The amendments made by subsections (4) and (5) above have effect where the transaction to which paragraph 2 of Schedule 4 to the principal Act applies takes place on or after 16th March 1993.
192 Chargeable periods in which expenditure may be brought into account.
(1) Where a claim which—
(a) is made under Schedule 5 or Schedule 6 to the principal Act for the allowance of any expenditure, and
(b) is received by the Board after 16th March 1993,
has been allowed, the expenditure shall not be brought into account in determining the assessable profit or allowable loss of any chargeable period which ends earlier than the last day of the claim period in which the expenditure was incurred.
(2) Where a claim has been made under Schedule 7 to the principal Act for the allowance of any expenditure incurred after 31st March 1993 and that claim has been allowed, the expenditure shall not be brought into account in determining the assessable profit or allowable loss of any chargeable period which ends before the date on which the expenditure was incurred.
(3) The preceding provisions of this section have effect notwithstanding anything in subsection (9) of section 2 of the principal Act (under which expenditure which had been allowed might in certain cases be taken into account in earlier chargeable periods) and, accordingly, at the beginning of that subsection there shall be inserted “ Subject to section 192 of the Finance Act 1993 ”.
(1) In section 9 of the 1983 Act (tariff receipts allowance) in subsection (5) (definition of “user field”) in paragraph (a) after the words “other than the principal field” there shall be inserted “ or a non-taxable field ”, and at the end of that subsection there shall be inserted the following subsection—
(5A) No order may be made under subsection (5)(b) above on or after 1st July 1993.
(2) Where a participator in a taxable field incurs any expenditure and,—
(a) apart from this subsection, the expenditure would be taken into account in determining the assessable profit or allowable loss accruing to that participator from the taxable field in any chargeable period, and
(b) in the hands of the recipient, the expenditure would, on the relevant assumptions, constitute tariff receipts or disposal receipts of a participator in a non-taxable field attributable to that field for any period, and
(c) at the time the expenditure is incurred, the participator referred to in paragraph (a) above is or is connected with a participator in the non-taxable field referred to in paragraph (b) above,
the expenditure shall be disregarded in determining the assessable profit or allowable loss referred to in paragraph (a) above.
(3) For the purposes of subsection (2) above, the relevant assumptions are—
(a) that the non-taxable field is a taxable field; and
(b) that the asset which gives rise to the expenditure (by virtue of its use, the provision of services or other business facilities in connection with its use or its disposal) is a qualifying asset in relation to the participator in question.
(4) In section 12 of the 1983 Act (charge of receipts attributable to United Kingdom use of foreign field asset), in subsection (3) after the words “oil field”, in the first place where they occur, there shall be inserted “ which is a taxable field and ”.
(5) After subsection (3) of section 12 of the 1983 Act there shall be inserted the following subsection—
(3A) No order may be made under subsection (2)(a) above on or after 1st July 1993.
(6) In this section “disposal receipts”, “qualifying asset” and “tariff receipts” have the same meaning as in the 1983 Act; and section 1122 of the Corporation Tax Act 2010 (connected persons) applies for the purposes of subsection (2)(c) above.
195 Interpretation of Part III and consequential amendments of assessments etc.
(1) In this Part—
(a) “the principal Act” means the Oil Taxation Act 1975 ;
(b) “the 1983 Act” means the Oil Taxation Act 1983 ;
(c) “the Oil Taxation Acts” means Parts I and III of the principal Act, the 1983 Act and any other enactment relating to petroleum revenue tax; and
(d) “taxable field” and “non-taxable field” shall be construed in accordance with section 185 above.
(2) The Board may make all such amendments of assessments or determinations or of decisions on claims as may be necessary in consequence of the provisions of this Part.
(3) This Part... shall be construed as one with Part I of the principal Act.
The Table substituted by section 72(1) of the Finance (No.2) Act 1992 shall apply to chargeable transfers made in the year beginning 6th April 1993, and accordingly section 8(1) of the Inheritance Tax Act 1984 (indexation of rate bands)shall not apply to such transfers.
(1) In section 8 of the Inheritance Tax Act 1984 (indexation of rate bands)—
(a) in subsection (1) for “December in 1984” there shall be substituted “ September in 1993 ” and for “previous December” there shall be substituted “ previous September ”;
(b) in subsection (3) for “December” there shall be substituted “ September ”;
(c) in subsection (4) for “1985” there shall be substituted “ 1994 ”.
(2) This section shall apply in relation to chargeable transfers made on or after 6th April 1994.
(1) In the Inheritance Tax Act 1984, in Part VI (valuation) in Chapter III (sale of shares etc. from deceased’s estate) there shall be inserted after section 186—
Cancelled investments.
186A (1) Where any qualifying investments comprised in a person’s estate immediately before his death are—
(a) cancelled within the period of twelve months immediately following the date of the death without being replaced by other shares or securities, and
(b) held, immediately before cancellation, by the appropriate person,
they shall be treated for the purposes of this Chapter as having been sold by the appropriate person for a nominal consideration (one pound) immediately before cancellation.
(2) Where any qualifying investments are included in the calculation under section 179(1) above by virtue of this section, paragraph (b) of that subsection shall have effect, so far as relating to those investments, with the omission of the words from “or” to the end.
Suspended investments.
186B (1) This section applies to any qualifying investments comprised in a person’s estate immediately before his death in respect of which quotation on a recognised stock exchange or dealing on the Unlisted Securities Market is suspended at the end of the period of twelve months immediately following the date of the death (“the relevant period”).
(2) Where—
(a) any qualifying investments to which this section applies are, at the end of the relevant period, held by the appropriate person, and
(b) the value on death of those investments exceeds their value at the end of that period,
they shall be treated for the purposes of this Chapter as having been sold by the appropriate person immediately before the end of that period for a price equal to their value at that time.
(3) Where any qualifying investments are included in the calculation under section 179(1) above by virtue of this section, paragraph (b) of that subsection shall have effect, so far as relating to those investments, with the omission of the words from “or” to the end.
(2) This section shall have effect in relation to deaths occurring on or after 16th March 1992.
(1) In the Inheritance Tax Act 1984, in Part VI, in Chapter IV (sale of land from deceased’s estate) after section 197 there shall be inserted—
Sales in fourth year after death.
197A (1) Where an interest in land—
(a) is comprised in a person’s estate immediately before his death, and
(b) is sold by the appropriate person in the fourth year immediately following the date of the death, otherwise than in circumstances in which section 197(1) above has effect,
the interest shall be treated, for the purposes of section 191(1) above, as having been sold within the period of three years immediately following the date of the death.
(2) Subsection (1) above shall not have effect in relation to an interest if its sale value would exceed its value on death.
(3) In determining the period referred to in section 192(1) above, no account shall be taken of the sale of an interest in relation to which subsection (1) above has effect; and if the claim relates only to such interests, section 192 shall not apply in relation to the claim.
(4) In applying section 196(1) above, no account shall be taken, for the purposes of paragraph (a) of that subsection, of an interest in relation to which subsection (1) above has effect.
(2) This section shall have effect in relation to deaths occurring on or after 16th March 1990.
(1) In section 222 of the Inheritance Tax Act 1984 (appeals against determinations) for subsection (4) there shall be substituted the following subsections—
(4) An appeal on any question as to the value of land in the United Kingdom may be to the appropriate tribunal.
(4A) If and so far as the question in dispute on any appeal under this section to the Special Commissioners or the High Court is a question as to the value of land in the United Kingdom, the question shall be determined on a reference to the appropriate tribunal.
(4B) In this section “the appropriate tribunal” means—
(a) where the land is in England or Wales, the Lands Tribunal;
(b) where the land is in Scotland, the Lands Tribunal for Scotland;
(c) where the land is in Northern Ireland, the Lands Tribunal for Northern Ireland.
(2) In section 242 of that Act (recovery of tax) in subsection (3) for the words “subsection (4)” there shall be substituted the words “ subsections (4) to (4B) ”.
(3) This section shall apply in relation to any appeal which—
(a) is made on or after the day on which this Act is passed, or
(b) is made, but has not begun to be heard, before that day.
(1) Subsection (2) below applies where—
(a) a person exercises the right to acquire on rent to mortgage terms under Part V of the Housing Act 1985, and
(b) in pursuance of the exercise of that right a conveyance of the freehold is executed in his favour as regards the dwelling-house concerned.
(2) For the purposes of the enactments relating to stamp duty chargeable under Part I of Schedule 13 to the Finance Act 1999 (conveyance or transfer on sale), the consideration for the sale shall be taken to be equal to the price which, by virtue of section 126 of the Housing Act 1985, would be payable for the dwelling-house on a conveyance if the person were exercising the right to buy under Part V of that Act.
(3) Subsection (4) below applies where—
(a) a person exercises the right to acquire on rent to mortgage terms under Part V of the Housing Act 1985, and
(b) in pursuance of the exercise of that right a lease is executed in his favour as regards the dwelling-house concerned.
(4) In such a case—
(a) the lease shall not be chargeable with stamp duty under Part II of Schedule 13 to the Finance Act 1999 (lease) but shall be chargeable with stamp duty under Part I of that Schedule (conveyance or transfer on sale) as if it were a conveyance on sale;
(b) for the purposes of the enactments relating to stamp duty chargeable under Part I of that Schedule the consideration for the sale mentioned in paragraph (a) above shall be taken to be equal to the price which, by virtue of section 126 of the Housing Act 1985, would be payable for the dwelling-house on a grant if the person were exercising the right to buy under Part V of that Act.
(5) This section shall apply where the conveyance or lease is executed after the day on which this Act is passed.
(1) Subsection (2) below applies where—
(a) a person exercises the right to purchase a house by way of the rent to loan scheme under Part III of the Housing (Scotland) Act 1987, and
(b) in pursuance of the exercise of that right a heritable disposition of the house is executed in favour of him.
(2) For the purposes of the enactments relating to stamp duty chargeable under Part I of Schedule 13 to the Finance Act 1999 (conveyance or transfer on sale), the consideration for the sale shall be taken to be equal to the price which, by virtue of section 62 of the Housing (Scotland) Act 1987, would be payable for the house if the person were exercising the right to purchase under section 61 of that Act.
(3) This section shall apply where the disposition is executed after the day on which this Act is passed.
(1) The Treasury may make regulations as to the method by which stamp duty is to be denoted.
(2) In particular, regulations under this section may—
(a) provide for duty to be denoted by impressed stamps or adhesive stamps or by a record printed or made by a machine or implement or by such other method as may be prescribed;
(b) provide for one method only to be used, whether generally or in prescribed cases;
(c) provide for alternative methods to be available, whether generally or in prescribed cases;
(d) make different provision for different cases;
and cases may be designated by reference to the type of instrument concerned, the geographical area involved, or such other factors as the Treasury think fit.
(3) Regulations under this section may provide that where stamp duty is denoted by a method which (in the case of the instrument concerned) is required or permitted by the law in force at the time it is stamped, for the purposes of section 14(4) of the Stamp Act 1891 (instruments not to be given in evidence etc. unless stamped in accordance with the law in force at the time of . . . execution) the method shall be treated as being in accordance with the law in force at the time when the instrument was . . . executed.
(4) Regulations under this section may include such supplementary, incidental, consequential or transitional provisions as appear to the Treasury to be necessary or expedient.
(5) Regulations under this section may make provision in such way as the Treasury think fit, and in particular may amend or repeal or modify the effect of any provision of any Act.
(6) In this section “prescribed” means prescribed by regulations under this section.
(7) The power to make regulations under this section shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.
(1) The Provisional Collection of Taxes Act 1968 shall be amended as follows.
(2) In section 1(1) (taxes to which section 1 applies)—
(a) after “income tax,” there shall be inserted “ corporation tax (including advance corporation tax) ”;
(b) the words “car tax” shall be omitted.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) In section 1(4) (resolution to cease to have statutory effect unless Bill read a second time within twenty-five sitting days) for “twenty-five” there shall be substituted “ thirty ”.
(6) In section 5 (resolution giving provisional effect to motions)—
(a) in subsection (1), paragraph (c) and the word “or” immediately preceding it shall be omitted;
(b) in subsection (2) for “, sections 8(5) and 822 of the 1988 Act” there shall be substituted “ and section 822 of the Income and Corporation Taxes Act 1988 ”.
(7) This section shall apply in relation to resolutions passed after the day on which this Act is passed.
(1) In section 50(2) of the Finance Act 1973 (period of temporary statutory effect of resolution affecting stamp duties)—
(a) in paragraph (a) (period by reference to twenty-fifth day of Commons sitting) for “twenty-fifth” there shall be substituted “ thirtieth ”;
(b) in paragraph (d) (period by reference to five months beginning with day resolution takes effect) for “five” there shall be substituted “ six ”.
(2) This section shall apply in relation to resolutions passed after the day on which this Act is passed.
(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) In section 9 of the Taxation of Chargeable Gains Act 1992 (residence, including temporary residence) the following subsection shall be inserted after subsection (3)—
(4) The question whether for the purposes of subsection (3) above an individual is in the United Kingdom for some temporary purpose only and not with any view or intent to establish his residence there shall be decided without regard to any living accommodation available in the United Kingdom for his use.
(3) In consequence of subsection (1) above, in section 267(4) of the Inheritance Tax Act 1984 (residence in United Kingdom determined as for purposes of income tax) the words “but without regard to any dwelling-house available in the United Kingdom for his use” shall be omitted.
(4) Subsections (1) and (2) above shall have effect for the year 1993-94 and subsequent years of assessment.
(5) Subsection (3) above shall have effect where the year of assessment concerned is 1993-94 or a subsequent year of assessment.
The enactments specified in Schedule 23 to this Act (which include provisions which are already spent) are hereby repealed to the extent specified in the third column of that Schedule, but subject to any provision of that Schedule.
SCHEDULE 1 Table of rates of duty on wine and made-wine
Section 1.
Part I Wine or made-wine of a strength not exceeding 22 per cent.
Description of wine or made-wine | Rates of duty per hectolitre
£
Wine or made-wine of a strength not exceeding 2 per cent. | 13.23
Wine or made-wine of a strength exceeding 2 per cent. but not exceeding 3 per cent. | 22.04
Wine or made-wine of a strength exceeding 3 per cent. but not exceeding 4 per cent. | 30.86
Wine or made-wine of a strength exceeding 4 per cent. but not exceeding 5 per cent. | 39.69
Wine or made-wine of a strength exceeding 5 per cent. but not exceeding 5.5 per cent. | 48.50
Wine or made-wine of a strength exceeding 5.5 per cent. but not exceeding 15 per cent. and not being sparkling | 132.26
Sparkling wine or sparkling made-wine of a strength exceeding 5.5 per cent. but not exceeding 15 per cent. | 218.40
Wine or made-wine of a strength exceeding 15 per cent. but not exceeding 22 per cent. | 220.43
Part II Wine or made-wine of a strength exceeding 22 per cent.
Description of wine or made-wine | Rates of duty per litre of alcohol in the wine or made-wine
£
Wine or made-wine of a strength exceeding 22 per cent. | 19.81
Section 49.
Misdeclaration penalty under section 14 of the 1985 Act
1 (1) In subsection (2) of section 14 of the 1985 Act (penalty for misdeclaration or neglect imposed where the tax lost equals or exceeds certain amounts), for paragraphs (a) and (b) there shall be substituted “ equals or exceeds whichever is the lesser of £1,000,000 and 30 per cent. of the relevant amount for that period. ”
(2) After subsection (4) of that section there shall be inserted the following subsections—
(4A) In this section “the relevant amount”, in relation to a prescribed accounting period, means—
(a) for the purposes of a case falling within subsection (1)(a) above, the gross amount of tax for that period; and
(b) for the purposes of a case falling within subsection (1)(b) above, the true amount of tax for that period.
(4B) In this section “the gross amount of tax”, in relation to a prescribed accounting period, means the aggregate of the following amounts, that is to say-
(a) the amount of credit for input tax which (subject to subsection (5A) below) should have been stated on the return for that period, and
(b) the amount of output tax which (subject to that subsection) should have been so stated.
(4C) In relation to any return which, in accordance with prescribed requirements, includes a single amount as the aggregate for the prescribed accounting period to which the return relates of—
(a) the amount representing credit for input tax, and
(b) any other amounts representing refunds or repayments of tax to which there is an entitlement,
references in this section to the amount of credit for input tax shall have effect (so far as they would not so have effect by virtue of subsection (5B) below) as references to the amount of that aggregate.
(3) In subsection (5A) of that section (account to be taken of corrections), for “subsection (5) above that the statement made by each of those returns is a correct statement” there shall be substituted “ subsections (4B) and (5) above that the statements made by each of those returns (so far as they are not inaccurate in any other respect) are correct statements ”.
(4) This paragraph shall have effect in relation to any prescribed accounting period beginning on or after such day as the Treasury may by order made by statutory instrument appoint, but an order under this sub-paragraph may appoint different days for the purposes of different provisions of this paragraph or for different purposes.
Misdeclaration penalty under section 14A of the 1985 Act
2 (1) In subsection (1)(b) of section 14A of the 1985 Act (misdeclaration resulting in understatements or overclaims), for the words from “whichever” to “period” there shall be substituted “ whichever is the lesser of £500,000 and 10 per cent. of the gross amount of tax for that period ”.
(2) For subsections (2) and (3) of that section (liability for penalty where there are misdeclarations on three or more occasions) there shall be substituted the following subsections—
(2) Subsection (3) below applies in any case where—
(a) there is a material inaccuracy in respect of any prescribed accounting period;
(b) the Commissioners serve notice on the person concerned (in this section referred to as a “penalty liability notice”) specifying a penalty period for the purposes of this section;
(c) that notice is served before the end of five consecutive prescribed accounting periods beginning with the period in respect of which there was the material inaccuracy; and
(d) the period specified in the penalty liability notice as the penalty period is the period of eight consecutive prescribed accounting periods beginning with that in which the date of the notice falls.
(3) If, where a penalty liability notice has been served on any person, there is a material inaccuracy in respect of any of the prescribed accounting periods falling within the penalty period specified in the notice, that person shall be liable, except in relation to the first of those periods in respect of which there is a material inaccuracy, to a penalty equal to 15 per cent. of the tax for the prescribed accounting period in question which would have been lost if the inaccuracy had not been discovered.
(3) In subsection (4) of that section, for “subsections (4) to (5B)” there shall be substituted “ subsections (4), (4B), (5A) and (5B) ”.
(4) In subsection (6) of that section (material inaccuracies not to be material in cases to which other sections apply), at the end there shall be inserted “ except, in the case of an inaccuracy by reason of which a person is assessed to a penalty under section 14 above, for the purposes of subsection (2)(a) above. ”
(5) Subject to sub-paragraph (6) below, this paragraph shall have effect in relation to any prescribed accounting period beginning on or after such day as the Treasury may by order made by statutory instrument appoint.
(6) No penalty liability notice shall be served on or after the day appointed under sub-paragraph (5) above by reference to any material inaccuracy in respect of a prescribed accounting period beginning before that day, and the penalty period specified in any penalty liability notice served before that day shall be deemed to end with the day before that day.
Mitigation of penalties
3 (1) After section 15 of the 1985 Act there shall be inserted the following section—
Mitigation of penalties under sections 13, 14, 14A and 15.
15A (1) Where a person is liable to a penalty under any of sections 13, 14, 14A and 15 above, the Commissioners or, on appeal, a value added tax tribunal may reduce the penalty to such amount (including nil) as they think proper.
(2) In the case of a penalty reduced by the Commissioners under subsection (1) above, a value added tax tribunal, on an appeal relating to the penalty, may cancel the whole or any part of the reduction made by the Commissioners.
(3) None of the matters specified in subsection (4) below shall be matters which the Commissioners or any value added tax tribunal shall be entitled to take into account in exercising their powers under this section.
(4) Those matters are—
(a) the insufficiency of the funds available to any person for paying any tax due or for paying the amount of the penalty;
(b) the fact that there has, in the case in question or in that case taken with any other cases, been no or no significant loss of tax;
(c) the fact that the person liable to the penalty or a person acting on his behalf has acted in good faith.
(2) Subsection (4) of section 13 of the 1985 Act (mitigation of penalty under section 13) shall cease to have effect; and—
(a) in subsection (1) of that section, for “subsections (4) and (7)” there shall be substituted “ subsection (7) ”;
(b) in paragraph (b) of subsection (5) of that section, for the words from “have power” to the end of that paragraph there shall be substituted “ have power under section 15A below to reduce a penalty under this section, ”; and
(c) in section 40(1A) of the Value Added Tax Act 1983 (tribunal not to modify penalties under the 1985 Act), for “section 13(4)” there shall be substituted “ section 15A ”.
(3) This paragraph shall have effect in relation to any penalty under section 13, 14, 14A or 15 of the 1985 Act, other than one to which any person was assessed before the day on which this Act is passed.
Interest on tax etc. recovered or recoverable by assessment
4 (1) In subsections (1) and (3) of section 18 of the 1985 Act (interest on tax etc. recovered or recoverable by assessment), after the word “shall”, in each subsection, there shall be inserted “ (subject to subsection (3A) below) ”.
(2) After subsection (3) of that section there shall be inserted the following subsection—
(3A) Where (apart from this subsection)—
(a) the period before the assessment in question for which any amount would carry interest under subsection (1) above; or
(b) the period for which any amount would carry interest under subsection (3) above,
would exceed three years, the part of that period for which that amount shall carry interest under that subsection shall be confined to the last three years of that period.
(3) This paragraph shall apply in relation to interest on amounts assessed or, as the case may be, paid on or after such day as the Treasury may by order made by statutory instrument appoint.
Default surcharge
5 (1) In section 19 of the 1985 Act, in subsection (2) (surcharge liability notice if default for two accounting periods)—
(a) in paragraph (a) for “any two prescribed accounting periods” there shall be substituted “ a prescribed accounting period ”,
(b) paragraph (b) shall be omitted, and
(c) in paragraph (c) for “later period referred to in paragraph (b)” there shall be substituted “ period referred to in paragraph (a) ”.
(2) In subsection (3) of that section for “defaults in respect of two prescribed accounting periods and the second of those periods” there shall be substituted “ a default in respect of a prescribed accounting period and that period ”.
(3) This paragraph shall apply in relation to any case where a person is in default for the purposes of section 19 of the 1985 Act and is so in default because of a failure of the Commissioners of Customs and Excise to receive a return, or an amount of tax, on or before a day falling on or after 1st October 1993; and in the case of sub-paragraph (2) above it is immaterial when the existing surcharge period began.
6 (1) For subsection (4) of section 19 of the 1985 Act (amount of surcharge) there shall be substituted the following subsection—
(4) Subject to subsections (6) to (9) below, if a taxable person on whom a surcharge liability notice has been served—
(a) is in default in respect of a prescribed accounting period ending within the surcharge period specified in (or extended by) that notice, and
(b) has outstanding tax for that prescribed accounting period,
he shall be liable to a surcharge equal to whichever is the greater of the following, namely, the specified percentage of his outstanding tax for that prescribed accounting period and £30.
(2) In subsection (5) of that section (specified percentages for default surcharge)—
(a) for “subsection (4)(a) above” there shall be substituted “ subsection (4) above ”, and
(b) after “surcharge period” there shall be inserted “ and for which he has outstanding tax ”.
(3) After subsection (5) of that section there shall be inserted the following subsection—
(5A) For the purposes of subsections (4) and (5) above a person has outstanding tax for a prescribed accounting period if some or all of the tax for which he is liable in respect of that period has not been paid by the last day on which he is required (as mentioned in subsection (1) above) to make a return for that period; and the reference in subsection (4) above to a person’s outstanding tax for a prescribed accounting period is to so much of the tax for which he is so liable as has not been paid by that day.
(4) This paragraph shall apply in relation to any case where a person—
(a) is in default for the purposes of section 19 of the 1985 Act in respect of a prescribed accounting period ending within a surcharge period, and
(b) is so in default because of a failure of the Commissioners of Customs and Excise to receive a return, or an amount of tax, on or before a day falling on or after 30th September 1993.
7 (1) In subsection (5) of section 19 of the 1985 Act (specified percentages for default surcharge)—
(a) at the end of paragraph (b) there shall be inserted “ and ”, and
(b) for paragraphs (c) and (d) there shall be substituted the following paragraph—
(c) in relation to each such period after the second, the specified percentage is 15 per cent.
(2) Sub-paragraph (1) above shall apply in relation to any liability to a surcharge arising on or after 1st April 1993.
(3) In section 19(5) of the 1985 Act (as amended by sub-paragraph (1) above), for paragraphs (a) to (c) there shall be substituted the following paragraphs—
(a) in relation to the first such prescribed accounting period, the specified percentage is 2 per cent.;
(b) in relation to the second such period, the specified percentage is 5 per cent.;
(c) in relation to the third such period, the specified percentage is 10 per cent.;
(d) in relation to each such period after the third, the specified percentage is 15 per cent.
(4) Sub-paragraph (3) above shall apply in relation to any liability to a surcharge arising on or after 1st October 1993.
Meaning of “the 1985 Act”
8 In this Schedule “the 1985 Act” means the Finance Act 1985.
Section 87.
Part I Retirement relief etc.
Extension of references to “family company”
1 (1) In sections 157 and 163 to 165 of the Taxation of Chargeable Gains Act 1992 and in paragraph 12(2) of Schedule 6 and paragraph 7(1) of Schedule 7 to that Act (which contain provisions relating to retirement relief and provisions which apply the definition of “family company” in Schedule 6 for other purposes), for the words “family company”, wherever they occur, there shall be substituted “ personal company ”.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Extension of references to full-time working directors etc.
2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part II Roll-over relief on re-investment
3 After Chapter I of Part V of that Act there shall be inserted the following Chapter—
Chapter IA Roll-over relief on Re-investment
Relief on re-investment for individuals.
164A (1) Subject to the following provisions of this Chapter, roll-over relief under this section shall be available where—
(a) a chargeable gain would (apart from this section) accrue to any individual (“the re-investor”) on any material disposal by him of shares in or other securities of any company (“the initial holding”); and
(b) that individual acquires a qualifying investment at any time in the qualifying period.
(2) Subject to section 164C, where roll-over relief under this section is available, the re-investor shall, on making a claim as respects the qualifying investment, be treated—
(a) as if the consideration for the disposal of the initial holding were reduced by whichever is the smallest of the following, that is to say—
(i) the amount of the chargeable gain which apart from this subsection would accrue on the disposal of the initial holding, so far as that amount has not already been held over by way of reductions under this subsection,
(ii) the actual amount or value of the consideration for the acquisition of the qualifying investment,
(iii) in the case of a qualifying investment acquired otherwise than by a transaction at arm’s length, the market value of that investment at the time of its acquisition, and
(iv) the amount specified for the purposes of this subsection in the claim;
and
(b) as if the amount or value of the consideration for the acquisition of the qualifying investment were reduced by the amount of the reduction made under paragraph (a) above,
but neither paragraph (a) nor paragraph (b) above shall affect the treatment for the purposes of this Act of the other party to the transaction involving the initial holding or of the other party to the transaction involving the qualifying investment.
(3) Subject to subsections (5) and (6) below, the disposal of shares in or other securities of a company is a material disposal for the purposes of this section if the conditions specified in subsection (4) below are satisfied in relation to a period of one year ending with—
(a) the date of the disposal; or
(b) if the company ceased at any time in the permitted period before the disposal to be a trading company or the holding company of a trading group, that time.
(4) The conditions mentioned in subsection (3) above are satisfied in relation to any period if throughout that period-
(a) the company has been a trading company or the holding company of a trading group;
(b) the company has been an unquoted company;
(c) the company has been the re-investor’s personal company; and
(d) the re-investor has been a full-time working officer or employee of the company or, if that company is a member of a group or commercial association of companies, of one or more companies which are members of the group or association.
(5) Where, throughout a period ending at the same time as the period mentioned in subsection (3) above and beginning at a time (“the time of partial retirement”) when the re-investor ceased to be such a full-time working officer or employee as is mentioned in subsection (4)(d) above—
(a) the conditions specified in subsection (4)(a) to (c) above were satisfied in relation to any company,
(b) the re-investor was an officer or employee of that company or, as the case may be, of one or more members of the group or association in question, and
(c) in that capacity, the re-investor devoted at least 10 hours per week (averaged over the period) to the service of the company or companies in a technical or managerial capacity,
the disposal of shares in or other securities of that company is a material disposal for the purposes of this section if the conditions specified in subsection (4) above were satisfied in relation to the period of one year ending with the time of partial retirement.
(6) Where—
(a) any company has ceased to be an unquoted company, and
(b) in the case of that company, all the conditions specified in subsection (4) above were satisfied in relation to the period of one year ending with the time when the company so ceased,
this section shall have effect in relation to an initial holding acquired by the re-investor at a time when the company in question was an unquoted company as if the company continued to be an unquoted company after that time until the disposal of that holding and as if the period mentioned in subsection (3) above included all such time (if any) as falls after the company’s ceasing to be an unquoted company and before what would, apart from this subsection, have been the beginning of that period.
(7) Any question for the purposes of subsection (6) above as to when the shares or other securities comprised in the initial holding were acquired shall be determined by assuming, in relation to any disposals of shares or other securities regarded as forming part of a single asset, that shares or other securities acquired later are disposed of before those acquired earlier.
(8) For the purposes of this section a person shall be regarded as acquiring a qualifying investment where he acquires any eligible shares in a qualifying company if—
(a) he holds 5 per cent. or more of the eligible shares in that company—
(i) at any time after making the acquisition and in the period of 3 years after the disposal of the initial holding, or
(ii) at such time after the end of that period as the Board may by notice allow;
(b) that company has not ceased to be a qualifying company between the acquisition of those shares and that time; and
(c) that company is neither the company in which the initial holding has subsisted nor a company that was a member of the same group of companies as that company at the time of the disposal of the initial holding or of the acquisition of the qualifying investment.
(9) For the purposes of this section the acquisition of a qualifying investment shall be taken to be in the qualifying period if, and only if, it takes place—
(a) at any time in the period beginning 12 months before and ending 3 years after the disposal of the initial holding, or
(b) at such time before the beginning of that period or after it ends as the Board may by notice allow.
(10) The provisions of this Act fixing the amount of the consideration deemed to be given for the acquisition or disposal of assets shall be applied before this section is applied; and, without prejudice to the generality of this subsection, section 42(5) shall apply in relation to an adjustment under this section of the consideration for the acquisition of any shares as it applies in relation to an adjustment under any enactment to secure that neither a gain nor a loss accrues on a disposal.
(11) The provisions of this section for making any reduction shall apply before any provisions for calculating the amount of, or giving effect to, any relief under section 163 of 164, and references in this section to chargeable gains shall be construed accordingly.
(12) Without prejudice to section 52(4), where consideration is given for the acquisition or disposal of any assets some of which are shares or other securities to the acquisition or disposal of which a claim under this section relates and some of which are not, the consideration shall be apportioned in such manner as is just and reasonable.
Roll-over relief on re-investment by trustees.
164B (1) Subject to the following provisions of this section, section 164A shall apply, as it applies in such a case as is mentioned in subsection (1) of that section, where there is—
(a) a disposal by the trustees of a settlement of any shares in or other securities of a company which are part of the settled property; and
(b) such an acquisition by those trustees of eligible shares in a qualifying company as would for the purposes of that section be an acquisition of a qualifying investment at a time in the qualifying period,
but as if the disposal were a material disposal if, and only if, the conditions specified in subsection (2) below are satisfied in relation to the period of one year mentioned in section 164A(3).
(2) The conditions mentioned in subsection (1) above are satisfied in relation to any period if—
(a) the company has been a trading company or the holding company of a trading group throughout that period;
(b) the company has been an unquoted company throughout that period;
(c) throughout that period the company has been a personal company of a relevant beneficiary; and
(d) that relevant beneficiary has throughout that period been a full-time working officer or employee of the company or, if that company is a member of a group or commercial association of companies, of one or more companies which are members of the group or association.
(3) References in this section, in relation to the disposal of any shares or other securities by the trustees of any settlement, to a relevant beneficiary are references to any beneficiary who, under the settlement, has an interest in possession in the whole of the settled property or, as the case may be, in a part of it which consists of or includes the shares or securities, but excluding, for this purpose, an interest for a fixed term.
(4) If, in the case of a disposal by any trustees of any shares or other securities, there is, in addition to the beneficiary in relation to whom the requirements of subsection (2)(d) above are satisfied (“the qualifying beneficiary”), at least one other beneficiary who, at the relevant time, has an interest in possession in, the whole of the settled property or, as the case may be, in a part of it which consists of or includes the shares or securities—
(a) only the relevant proportion of the gain which would accrue to the trustees on the disposal shall be taken into account for the purposes of section 164A(2)(a)(i); and
(b) no reduction under section 164A(2) shall be made in respect of the whole or any part of the balance of the gain.
(5) For the purposes of subsection (4) above the relevant proportion is the proportion which the interest specified in paragraph (a) below bears to the interests specified in paragraph (b) below, that is to say—
(a) the qualifying beneficiary’s interest at the relevant time in the income of the part of the settled property comprising the shares or other securities in question; and
(b) the interests at that time in that income of all the beneficiaries (including the qualifying beneficiary) who at that time have interests in possession in that part.
(6) The reference in subsection (5) above to the qualifying beneficiary’s interest is a reference to the interest by virtue of which he is the qualifying beneficiary and not to any other interest he may hold.
(7) Section 164A shall not apply by virtue of this section unless immediately after the acquisition mentioned in subsection (1)(b) above the qualifying beneficiary has an interest in possession in the whole of the settled property, or in the part of it in which the acquired shares are comprised, which is the same as or, as the case may be, is equivalent to the interest at the relevant time by virtue of which he is the qualifying beneficiary.
(8) In this section “the relevant time”, in relation to a disposal of any shares or other securities, means the time of the disposal or if, by virtue of paragraph (b) of subsection (3) of section 164A, the period mentioned in that subsection is treated in relation to that disposal as ending at any earlier time, that earlier time.
Restriction applying to retirement relief and roll-over relief on re-investment.
164C (1) Subject to the following provisions of this section, in the case of any disposal of shares in or other securities of any company in relation to which a claim is made under section 164A—
(a) the gains which (apart from sections 163 to 164B) would on the disposal accrue to the individual or, as the case may be, the trustees shall be aggregated,
(b) the amount available in respect of the disposal for relief under sections 163 and 164 and for the making of deductions under section 164A(2) above shall be deemed to be confined to the appropriate proportion of the aggregated gains, and
(c) so much of the aggregated gains as exceeds the amount so available shall be disregarded for the purposes of sections 163 to 164B and, accordingly, shall constitute chargeable gains.
(2) Subject to subsection (4) below, in this section “the appropriate proportion”, in relation to gains accruing on the disposal of shares in or other securities of a company that is not a holding company of a trading group, means the proportion which the amount specified in paragraph (a) below bears to the amount specified in paragraph (b) below, that is to say—
(a) that part of the value of the company’s chargeable assets at the relevant time which is attributable to the value of the company’s chargeable business assets; and
(b) the whole of the value of the company’s chargeable assets at that time.
(3) Subject to subsection (4) below, in this section “the appropriate proportion”, in relation to gains accruing on the disposal of shares in or other securities of a holding company of a trading group, means the proportion which the amount specified in paragraph (a) below bears to the amount specified in paragraph (b) below, that is to say—
(a) that part of the value of the trading group’s chargeable assets at the relevant time which is attributable to the value of the trading group’s chargeable business assets; and
(b) the whole of the value of the trading group’s chargeable assets at that time.
(4) Where a company or trading group has no chargeable assets, “the appropriate proportion”, in relation to the gains accruing on the disposal of shares in or other securities of that company or, as the case may be, of the holding company of that group, means the whole of those gains.
(5) Subject to subsection (6)(b) below, every asset of a company is for the purposes of this section a chargeable asset of that company except one, on the disposal of which by the company at the relevant time, no gain accruing to the company would be a chargeable gain.
(6) For the purposes of this section—
(a) any reference, in relation to a trading group, to the trading group’s chargeable assets or chargeable business assets is a reference to the chargeable assets or, as the case may be, chargeable business assets of every member of the trading group; and
(b) a holding by one member of the trading group of the ordinary share capital of another member of the group is not a chargeable asset.
(7) Where the whole of the ordinary share capital of a 51 per cent. subsidiary of a holding company is not owned directly or indirectly by that company, then, for the purposes of this section, the value of the chargeable assets and of the chargeable business assets of that subsidiary shall be taken to be reduced according to the formula—
Ax
B
C
(8) In subsection (7) above—
A is the value falling to be reduced of the chargeable assets or chargeable business assets of the subsidiary;
B is the amount of the ordinary share capital of the subsidiary owned, directly or indirectly, by the holding company;
C is the whole of the ordinary share capital of the subsidiary;
and section 838 of the Taxes Act (definition of expressions in relation to subsidiaries) shall apply for construing that subsection and this subsection.
(9) In this section “chargeable business asset”, in relation to any company, means a chargeable asset (including goodwill but not including any shares or other securities or any assets held as investments) which is, or is an interest in, an asset used for the purposes of a trade, profession, vocation, office or employment carried on by—
(a) the individual concerned,
(b) any personal company of that individual,
(c) a member of a trading group of which the holding company is a personal company of that individual, or
(d) a partnership of which that individual is a member.
(10) For the purposes of the application of this section to a case in which trustees dispose of any shares or other securities, the references in subsection (9) above to the individual concerned are references to the qualifying beneficiary.
(11) In this section “the relevant time” has the same meaning as in section 164B.
(12) This section shall be without prejudice to the provisions of paragraphs 7 to 11 of Schedule 6.
Relief carried forward into replacement shares.
164D (1) This section shall apply where a person has acquired any eligible shares in a qualifying company (“the acquired holding”) for a consideration which is treated as reduced, under section 164A or the following provisions of this section, by any amount (“the held-over gain”) .
(2) If—
(a) the person who acquired the acquired holding disposes of eligible shares in the company in question (“the acquired shares”),
(b) that person at any time in the relevant period acquires other eligible shares (“the replacement shares”) in a qualifying company which is not a relevant company;
(c) the acquisition of the replacement shares would, in relation to the disposal of the acquired shares, be treated (were the disposal a material disposal) as an acquisition of a qualifying investment for the purposes of section 164A, and
(d) roll-over relief is not available under section 164A in relation to the acquisition of the replacement shares,
that person shall, on making a claim as respects the acquisition of the replacement shares, be treated in relation to that acquisition in accordance with subsection (3) below.
(3) Where a person falls to be treated in accordance with this subsection in relation to the acquisition of the replacement shares, he shall be treated—
(a) as if the consideration for the disposal of the acquired shares were reduced by whichever is the smallest of the following, that is to say—
(i) the amount of the held-over gain on the acquisition of the acquired holding, so far as that amount has not already been carried forward under this section from any disposal of eligible shares in the company in question or been charged on a disposal or under section 164F,
(ii) the actual amount or value of the consideration for the acquisition of the replacement shares,
(iii) in the case of replacement shares acquired otherwise than by a transaction at arm’s length, the market value of the replacement shares at the time of their acquisition, and
(iv) the amount specified for the purposes of this subsection in the claim;
and
(b) as if the amount or value of the consideration for the acquisition of the replacement shares were reduced by the amount of the reduction made under paragraph (a) above,
but neither paragraph (a) nor paragraph (b) above shall affect the treatment for the purposes of this Act of the other party to the transaction involving the acquired shares or of the other party to the transaction involving the replacement shares.
(4) For the purposes of this section the whole or a part of any held-over gain on the acquisition of the acquired holding shall be treated—
(a) in accordance with subsection (5) below as charged on any disposal in relation to which the whole or any part of the held-over gain falls to be taken into account in determining the chargeable gain or allowable loss accruing on the disposal; and
(b) as charged under section 164F so far as it falls to be disregarded in accordance with subsection (11) of that section.
(5) In the case of any such disposal as is mentioned in subsection (4)(a) above, the amount of the held-over gain charged on that disposal—
(a) shall, except in the case of a part disposal, be so much of the amount taken into account as so mentioned as is not carried forward under this section from the disposal in question; and
(b) in the case of a part disposal, shall be calculated by multiplying the following, that is to say—
(i) so much of the amount of the held-over gain as is not carried forward under this section from the disposal in question and has not already been either charged on a previous disposal or carried forward under this section from a previous disposal; and
(ii) the fraction used in accordance with section 42(2) for determining, subject to any deductions in pursuance of this Chapter, the amount allowable as a deduction in the computation of the gain accruing on the disposal in question.
(6) Where section 58 applies to any disposal of the whole or any part of the acquired holding to any individual—
(a) that individual shall not be treated for the purposes of subsection (1) above as a person who has acquired eligible shares for a consideration which is treated as reduced under section 164A or this section; and
(b) the amount of the held-over gain which for the purposes of this section shall be treated as charged on the disposal shall be the amount that would have been charged on the disposal if it had been a disposal at market value.
(7) References in this section to an amount being carried forward from a disposal are references, in relation to the disposal of any shares, to the reduction by that amount, in accordance with subsection (3)(a) above, of the amount of the consideration for the disposal of those shares.
(8) Subsections (10) to (12) of section 164A shall apply in the case of any claim under this section as they apply in the case of a claim under that section.
(9) For the purposes of this section a company is a relevant company if it is—
(a) the company in which the acquired holding has subsisted or a company which was a member of the same group of companies as that company at the time of the disposal of the acquired holding or of the acquisition of the replacement shares;
(b) a company in relation to the disposal of any shares in which there has been a claim under this Chapter such that without that or an equivalent claim there would be no held-over gain in relation to the acquired holding; or
(c) a company which, at the time of the disposal or acquisition to which the claim relates, was a member of the same group of companies as a company falling within paragraph (b) above.
(10) In this section “the relevant period” means the period (not including any period before the acquisition of the acquired holding) which begins 12 months before and ends 3 years after the disposal of the acquired shares, together with any such further period after the disposal as the Board may by notice allow.
Application of Chapter in cases of an exchange of shares.
164E (1) Where—
(a) there is a transaction involving the issue of any shares in or debentures of any company in exchange for any shares in or debentures of another company (“the exchanged securities”),
(b) but for this section, section 127 would have effect in pursuance of section 135 for requiring the transaction to be treated for the purposes of this Act as one that does not involve a disposal of the exchanged securities,
(c) any person would be entitled, if the transaction were treated as involving such a disposal, to make a claim for relief under this Chapter by reference to that disposal and an acquisition of eligible shares in a qualifying company, and
(d) that person makes an election under this section for the transaction to be treated as involving the disposal of the exchanged securities and claims that relief,
this Chapter and the other provisions of this Act shall have effect as if section 127 did not apply in the case of that transaction and, accordingly, as if that transaction did involve such a disposal, together with an acquisition of the shares or debentures that are issued in exchange.
(2) An election under this section shall be made by notice given to the Board not more than 2 years after the end of, as the case may be—
(a) the qualifying period mentioned in section 164A; or
(b) the relevant period, within the meaning of section 164D;
and an election made under this section in connection with a claim for relief under section 164B shall be made jointly by the trustees of the settlement and the qualifying beneficiary.
(3) Where, in order to give effect (in pursuance of an election under this section) to subsection (1) above, it is necessary to make any adjustment by way of an assessment on any person, the assessment shall not be out of time if it is made within one year of the final determination of the claim for relief in connection with which the election is made.
(4) For the purposes of subsection (3) above a claim for relief shall not be deemed to be finally determined until the amount of the relief allowed by virtue of the claim can no longer be varied, whether on appeal or by the order of any court or otherwise.
Failure of conditions of relief.
164F (1) This section shall apply in any such case as is mentioned in section 164D(1), and references in this section to the acquired holding and the held-over gain shall be construed accordingly.
(2) Subject to the following provisions of this section, if at any time in the relevant period—
(a) the shares comprised in the acquired holding cease to be eligible shares,
(b) the company in which the acquired holding subsists ceases to be a qualifying company,
(c) the person who acquired the acquired holding becomes neither resident nor ordinarily resident in the United Kingdom, or
(d) any of the shares comprised in the acquired holding are included in the original shares (within the meaning of sections 127 to 130) in the case of any transaction with respect to which section 116 has effect,
a chargeable gain equal to the appropriate proportion of the held-over gain shall be treated as accruing to that person immediately before that time or, in a case falling within paragraph (d) above, immediately before the disposal assumed for the purposes of section 116(10)(a).
(3) For the purposes of this section the appropriate proportion of the held-over gain is so much, if any, of that gain as has not already been either—
(a) charged on any disposal or under this section; or
(b) carried forward under section 164D from any disposal;
or, in a case to which subsection (2) above applies by virtue of paragraph (d) of that subsection or in accordance with subsection (7) below, such part of that proportion of that gain as is just and reasonable having regard to the extent to which the acquired holding comprises the original shares.
(4) Subject to subsection (5) below, subsections (4), (5) and (7) of section 164D shall apply for the purposes of this section as they apply for the purposes of that section.
(5) Where the acquired holding or any asset treated as comprised in a single asset with the whole or any part of that holding has been disposed of under section 58 by the individual who acquired that holding to another person (“the spouse”)—
(a) the spouse shall not (subject to the following provisions of this subsection) be treated for the purposes of this section as a person who has acquired eligible shares for a consideration which is treated as reduced under section 164A or 164D;
(b) the disposal shall not be included in the disposals on which the whole or any part of the held-over gain may be treated as charged for the purposes of this section;
(c) disposals by the spouse, as well as disposals by that individual, shall be taken into account for the purposes of section 164D(4) and (5) above, as applied for the purpose of this section;
(d) any charge under subsection (2) above (other than one by virtue paragraph (c) of that subsection) shall be apportioned between that individual and the spouse according to the extent to which the appropriate proportion of the held-over gain would be charged on the disposal by each of them of their respective holdings (if any);
(e) paragraph (c) of that subsection shall have effect as if the reference in that paragraph to that individual included a reference to the spouse;
(f) a charge by virtue of that paragraph shall be imposed only on a person who becomes neither resident nor ordinarily resident in the United Kingdom; and
(g) the amount of the charge imposed on any person by virtue of that paragraph shall be that part of the charge on the appropriate proportion of the held-over gain which would be apportioned to that person in a case to which paragraph (d) above applies.
(6) Subject to subsection (7) below, where the qualifying company in which the acquired holding subsists ceases to be an unquoted company this section shall have effect as if the relevant period ended immediately before it so ceased.
(7) Where there is a transaction by virtue of which any shares in a company are to be regarded under section 127 as the same asset as the acquired holding or the whole or any part of an asset comprising that holding, this section shall not apply by virtue of subsection (2)(a) or (b) above except where—
(a) those shares are not, or cease to be, eligible shares in that company;
(b) neither that company nor (if different) the company in which the acquired holding subsisted —
(i) is or continues to be a qualifying company; or
(ii) would be or continue to be a qualifying company if it were an unquoted company;
(c) the transaction is one by virtue of which the shares comprised in the acquired holding cease to be eligible shares in pursuance of section 164L; or
(d) there is a transaction by virtue of which any shares at any time comprised in the acquired holding would have so ceased in pursuance of that section.
(8) This section shall not apply by virtue of subsection (2)(a) or (b) above where the company in which the acquired holding subsists is wound up or dissolved without winding up and—
(a) it is shown that the winding up or dissolution is for bona fide commercial reasons and not part of a scheme or arrangement the main purpose of which, or one of the main purposes of which, is the avoidance of tax; and
(b) the company’s net assets (if any) are distributed to its members or dealt with as bona vacantia before the end of the period of 3 years from the commencement of the winding up or, as the case may be, from the dissolution.
(9) This section shall not apply by virtue of subsection (2)(c) above in relation to any person if—
(a) the reason for his becoming neither resident nor ordinarily resident in the United Kingdom is that he works in an employment or office all the duties of which are performed outside the United Kingdom, and
(b) he again becomes resident or ordinarily resident in the United Kingdom within the period of 3 years from the time when he ceases to be so, without having meanwhile disposed of any eligible shares in the company in question;
and, accordingly, no assessment shall be made by virtue of subsection (2)(c) above before the end of that period in any case where the condition in paragraph (a) above is satisfied and the condition in paragraph (b) above may be satisfied.
(10) For the purposes of subsection (9) above a person shall be taken to have disposed of an asset if there has been such a disposal as would, if the person making the disposal had been resident in the United Kingdom, have been a disposal on which (within the meaning of section 164D) the whole or any part of the held-over gain would have been charged.
(11) Gains on disposals made after a chargeable gain has under this section been deemed to accrue in respect of the acquired holding to any person shall be computed as if so much of the held-over gain as is equal to the amount of the chargeable gain were to be disregarded.
(12) In this section “the relevant period” means (subject to subsection (6) above) the period of 3 years after the acquisition of the acquired holding.
Meaning of “qualifying company”.
164G (1) Subject to section 164H, a company is a qualifying company for the purposes of this Chapter if it complies with this section.
(2) Subject to the following provisions of this section, a company complies with this section if it is—
(a) an unquoted company which exists wholly for the purpose of carrying on one or more qualifying trades or which so exists apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of the company’s activities;
(b) an unquoted company whose business consists entirely in the holding of shares in or other securities of, or the making of loans to, one or more qualifying subsidiaries of the company; or
(c) an unquoted company whose business consists entirely in—
(i) the holding of such shares or securities, or the making of such loans; and
(ii) the carrying on of one or more qualifying trades.
(3) A company does not comply with this section if—
(a) it controls (whether on its own or together with any person connected with it) any company which is not a qualifying subsidiary or, without controlling it, has a 51 per cent. subsidiary which is not a qualifying subsidiary;
(b) it is under the control of another company (or of another company and a person connected with the other company) or, without being controlled by it, is a 51 per cent. subsidiary of another company; or
(c) arrangements are in existence by virtue of which the company could fall within paragraph (a) or (b) above;
and in this subsection “51 per cent. subsidiary” has the meaning given by section 838 of the Taxes Act.
(4) In this section “qualifying subsidiary”, in relation to a company (“the holding company”), means any company which is a member of a group of companies of which the holding company is the principal company, and of which each of the members, or each of the members other than the holding company, is a company falling within subsection (5) below.
(5) A company falls within this subsection if—
(a) it is such a company as is mentioned in subsection (2)(a) above;
(b) it exists wholly for the purpose of holding and managing property used by the holding company or any of the holding company’s other subsidiaries for the purposes of—
(i) research and development from which it is intended that a qualifying trade to be carried on by the holding company or any of those other subsidiaries will be derived, or
(ii) one or more qualifying trades so carried on;
(c) it would exist wholly for such a purpose apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of the company’s activities; or
(d) it has no profits for the purposes of corporation tax and no part of its business consists in the making of investments.
(6) Without prejudice to the generality of subsection (2) above or to section 164F(8), a company ceases to comply with this section if—
(a) a resolution is passed, or an order is made, for the winding up of the company;
(b) in the case of a winding up otherwise than under the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989, any other act is done for the like purpose; or
(c) the company is dissolved without winding up.
Property companies etc. not to be qualifying companies.
164H (1) For the purposes of this Chapter a company is not a qualifying company at any time when the value of the interests in land held by the company is greater than half the value of the company’s chargeable assets within the meaning of section 164C.
(2) For the purposes of this section the value of the interests in land held by a company at any time shall be arrived at by first aggregating the market value at that time of each of those interests and then deducting—
(a) the amount of any debts of the company which are secured on any of those interests (including any debt secured by a floating charge on property which comprises any of those interests);
(b) the amount of any unsecured debts of the company which do not fall due for payment before the end of the period of 12 months beginning with that time; and
(c) the amount paid up in respect of those shares of the company (if any) which carry a present or future preferential right to the company’s assets on its winding up.
(3) In this section “interest in land” means any estate or interest in land, any right in or over land or affecting the use or disposition of land, and any right to obtain such an estate, interest or right from another which is conditional on that other’s ability to grant the estate, interest or right in question, except that it does not include—
(a) the interest of a creditor (other than a creditor in respect of a rentcharge) whose debt is secured by way of a mortgage, an agreement for a mortgage or a charge of any kind over land; or
(b) in the case of land in Scotland, the interest of a creditor in a charge or security of any kind over land.
(4) For the purposes of this section, the value of an interest in any building or other land shall be adjusted by deducting the market value of any machinery or plant which is so installed or otherwise fixed in or to the building or other land as, in law, to become part of it.
(5) In arriving at the value of any interest in land for the purposes of this section—
(a) it shall be assumed that there is no source of mineral deposits in the land of a kind which it would be practicable to exploit by extracting them from underground otherwise than by means of opencast mining or quarrying; and
(b) any borehole on the land shall be disregarded if it was made in the course of oil exploration.
(6) Where a company is a member of a partnership which holds any interest in land—
(a) that interest shall, for the purposes of this section, be treated as an interest in land held by the company; but
(b) its value at any time shall, for those purposes, be taken to be such fraction of its value (apart from this subsection) as is equal to the fraction of the assets of the partnership to which the company would be entitled if the partnership were dissolved at that time.
(7) Where a company is a member of a group of companies all the members of the group shall be treated as a single company for the purposes of this section; but any debt owed by, or liability of, one member of the group to another shall be disregarded for those purposes.
Qualifying trades.
164I (1) For the purposes of this Chapter—
(a) a trade is a qualifying trade if it complies with the requirements of this section; and
(b) the carrying on of any activities of research and development from which it is intended that a trade complying with those requirements will be derived shall be treated as the carrying on of a qualifying trade.
(2) Subject to the following provisions of this section, a trade complies with this section if neither that trade nor a substantial part of it consists in one or more of the following activities, that is to say—
(a) dealing in land, in commodities or futures or in shares, securities or other financial instruments;
(b) dealing in goods otherwise than in the course of an ordinary trade of wholesale or retail distribution;
(c) banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities;
(d) leasing (including letting ships on charter or other assets on hire) or receiving royalties or licence fees;
(e) providing legal or accountancy services;
(f) providing services or facilities for any such trade carried on by another person as—
(i) consists, to a substantial extent, in activities within any of paragraphs (a) to (e) above; and
(ii) is a trade in which a controlling interest is held by a person who also has a controlling interest in the trade carried on by the company providing the services or facilities;
(g) property development;
(h) farming;
but this subsection shall have effect in relation to a qualifying trade carried on by a member of a group of companies, as if the reference in paragraph (f) above to another person did not include a reference to the principal company of the group.
(3) For the purposes of subsection (2)(b) above—
(a) a trade of wholesale distribution is one in which the goods are offered for sale and sold to persons for resale by them, or for processing and resale by them, to members of the general public for their use or consumption;
(b) a trade of retail distribution is one in which the goods are offered for sale and sold to members of the general public for their use or consumption; and
(c) a trade is not an ordinary trade of wholesale or retail distribution if—
(i) it consists, to a substantial extent, in dealing in goods of a kind which are collected or held as an investment, or of that activity and any other activity of a kind falling within subsection (2) above, taken together; and
(ii) a substantial proportion of those goods are held by the company for a period which is significantly longer than the period for which a vendor would reasonably be expected to hold them while endeavouring to dispose of them at their market value.
(4) In determining for the purposes of this Chapter whether a trade carried on by any person is an ordinary trade of wholesale or retail distribution, regard shall be had to the extent to which it has the following features, that is to say—
(a) the goods are bought by that person in quantities larger than those in which he sells them;
(b) the goods are bought and sold by that person in different markets;
(c) that person employs staff and incurs expenses in the trade in addition to the cost of the goods and, in the case of a trade carried on by a company, to any remuneration paid to any person connected with it;
(d) there are purchases or sales from or to persons who are connected with that person;
(e) purchases are matched with forward sales or vice versa;
(f) the goods are held by that person for longer than is normal for goods of the kind in question;
(g) the trade is carried on otherwise than at a place or places commonly used for wholesale or retail trade;
(h) that person does not take physical possession of the goods;
and for the purposes of this subsection the features specified in paragraphs (a) to (c) above shall be regarded as indications that the trade is such an ordinary trade and those in paragraphs (d) to (h) above shall be regarded as indications of the contrary.
(5) A trade shall not be treated as failing to comply with this section by reason only of its consisting, to a substantial extent, in receiving royalties or licence fees if—
(a) the company carrying on the trade is engaged in—
(i) the production of films; or
(ii) the production of films and the distribution of films produced by it within the period of 3 years before their distribution;
and
(b) all royalties and licence fees received by it are in respect of films produced by it within the preceding 3 years or sound recordings in relation to such films or other products arising from such films.
(6) A trade shall not be treated as failing to comply with this section by reason only of its consisting, to a substantial extent, in receiving royalties or licence fees if—
(a) the company carrying on the trade is engaged in research and development; and
(b) all royalties and licence fees received by it are attributable to research and development which it has carried out.
(7) A trade shall not be treated as failing to comply with this section by reason only of its consisting in letting ships, other than oil rigs or pleasure craft, on charter if—
(a) every ship let on charter by the company carrying on the trade is beneficially owned by the company;
(b) every ship beneficially owned by the company is registered in the United Kingdom;
(c) the company is solely responsible for arranging the marketing of the services of its ships; and
(d) the conditions mentioned in subsection (8) below are satisfied in relation to every letting of a ship on charter by the company;
but where any of the requirements mentioned in paragraphs (a) to (d) above are not satisfied in relation to any lettings, the trade shall not thereby be treated as failing to comply with this section if those lettings and any other activity of a kind falling within subsection (2) above do not, when taken together, amount to a substantial part of the trade.
(8) The conditions are that—
(a) the letting is for a period not exceeding 12 months and no provision is made at any time (whether in the charterparty or otherwise) for extending it beyond that period otherwise than at the option of the charterer;
(b) during the period of the letting there is no provision in force (whether by virtue of being contained in the charterparty or otherwise) for the grant of a new letting to end, otherwise than at the option of the charterer, more than 12 months after that provision is made;
(c) the letting is by way of a bargain made at arm’s length between the company and a person who is not connected with it;
(d) under the terms of the charter the company is responsible as principal—
(i) for taking, throughout the period of the charter, management decisions in relation to the ship, other than those of a kind generally regarded by persons engaged in trade of the kind in question as matters of husbandry; and
(ii) 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;
and
(e) no arrangements exist by virtue of which a person other than the company may be appointed to be responsible for the matters mentioned in paragraph (d) above on behalf of the company;
but this subsection shall have effect, in relation to any letting between a company and another company which is a member of the same group of companies as that company, as if paragraph (c) were omitted.
(9) A trade shall not comply with this section unless it is conducted on a commercial basis and with a view to the realisation of profits.
Provisions supplementary to section 164I.
164J (1) For the purposes of section 164I, in the case of a trade carried on by a company, a person has a controlling interest in that trade if—
(a) he controls the company;
(b) the company is a close company and he or an associate of his is a director of the company and either—
(i) the beneficial owner of, or
(ii) able, directly or through the medium of other companies or by any other indirect means, to control,
more than 30 per cent. of the ordinary share capital of the company; or
(c) not less than half of the trade could in accordance with section 344(2) of the Taxes Act be regarded as belonging to him;
and, in any other case, a person has a controlling interest in a trade if he is entitled to not less than half of the assets used for, or of the income arising from, the trade.
(2) For the purposes of subsection (1) above, there shall be attributed to any person any rights or powers of any other person who is an associate of his.
(3) References in section 164I(2)(f) or subsection (1) above to a trade carried on by a person other than the company in question shall be construed as including references to any business, profession or vocation.
(4) In this section “director” shall be construed in accordance with section 417(5) of the Taxes Act.
Foreign residents.
164K (1) This Chapter shall not apply in relation to any person in respect of his acquisition of any eligible shares in a qualifying company if at the time when he acquires them he is neither resident nor ordinarily resident in the United Kingdom.
(2) This Chapter shall not apply in relation to any person in respect of his acquisition of any eligible shares in a qualifying company if—
(a) though resident or ordinarily resident in the United Kingdom at the time when he acquires them, he is regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom; and
(b) by virtue of the arrangements, he would not be liable in the United Kingdom to tax on a gain arising on a disposal of those shares immediately after their acquisition.
Anti-avoidance provisions.
164L (1) For the purposes of this Chapter an acquisition of shares in a qualifying company shall not be treated as an acquisition of eligible shares if the arrangements for the acquisition of those shares, or any arrangements made before their acquisition in relation to or in connection with the acquisition, include—
(a) arrangements with a view to the subsequent re-acquisition, exchange or other disposal of the shares;
(b) arrangements for or with a view to the cessation of the company’s trade or the disposal of, or of a substantial amount of, its chargeable business assets; or
(c) arrangements for the return of the whole or any part of the value of his investment to the individual acquiring the shares.
(2) If, after any eligible shares in a qualifying company have been acquired by any individual, the whole or any part of the value of that individual’s investment is returned to him, those shares shall be treated for the purposes of this Chapter as ceasing to be eligible shares.
(3) For the purposes of this section there shall be treated as being a return of the whole or a part of the value of the investment of an individual who is to acquire or has acquired any shares in a company if the company—
(a) repays, redeems or repurchases any of its share capital or other securities which belong to that individual or makes any payment to him for giving up his right to any of the company’s share capital or any security on its cancellation or extinguishment;
(b) repays any debt owed to that individual, other than a debt which was incurred by the company—
(i) on or after the acquisition of the shares; and
(ii) otherwise than in consideration of the extinguishment of a debt incurred before the acquisition of the shares;
(c) makes to that individual any payment for giving up his right to any debt on its extinguishment;
(d) releases or waives any liability of that individual to the company or discharges, or undertakes to discharge, any liability of his to a third person;
(e) provides a benefit or facility for that individual;
(f) disposes of an asset to that individual for no consideration or for a consideration which is or the value of which is less than the market value of the asset;
(g) acquires an asset from that individual for a consideration which is or the value of which is more than the market value of the asset; or
(h) makes any payment to that individual other than a qualifying payment.
(4) For the purposes of this section there shall also be treated as being a return of the whole or a part of the value of the investment of an individual who is to acquire or has acquired any shares in a company if—
(a) there is a loan made by any person to that individual; and
(b) the loan is one which would not have been made, or would not have been made on the same terms, if that individual had not acquired those shares or had not been proposing to do so.
(5) For the purposes of this section a company shall be treated as having released or waived a liability if the liability is not discharged within 12 months of the time when it ought to have been discharged.
(6) References in this section to a debt or liability do not, in relation to a company, include references to any debt or liability which would be discharged by the making by that company of a qualifying payment, and references to a benefit or facility do not include references to any benefit or facility provided in circumstances such that, if a payment had been made of an amount equal to its value, that payment would be a qualifying payment.
(7) References in this section to the making by any person of a loan to an individual include references—
(a) to the giving by that person of any credit to that individual; and
(b) to the assignment or assignation to that person of any debt due from that individual.
(8) In this section “qualifying payment” means—
(a) the payment by any company of such remuneration for service as an officer or employee of that company as may be reasonable in relation to the duties of that office or employment;
(b) any payment or reimbursement by any company of travelling or other expenses wholly, exclusively and necessarily incurred by the individual to whom the payment is made in the performance of duties as an officer or employee of that company;
(c) the payment by any company of any interest which represents no more than a reasonable commercial return on money lent to that company;
(d) the payment by any company of any dividend or other distribution which does not exceed a normal return on any investment in shares in or other securities of that company;
(e) any payment for the supply of goods which does not exceed their market value;
(f) the payment by any company, as rent for any property occupied by the company, of an amount not exceeding a reasonable and commercial rent for the property;
(g) any reasonable and necessary remuneration which—
(i) is paid by any company for services rendered to that company in the course of a trade or profession; and
(ii) is taken into account in computing the profits or gains of the trade or profession under Case I or II of Schedule D or would be so taken into account if it fell in a period on the basis of which those profits or gains are assessed under that Schedule;
(h) a payment in discharge of an ordinary trade debt.
(9) In this section—
(a) any reference to a payment or disposal to an individual includes a reference to a payment or disposal made to him indirectly or to his order or for his benefit; and
(b) any reference to an individual includes a reference to an associate of his and any reference to a company includes a reference to a person connected with the company.
(10) This section shall have effect in relation to the acquisition of shares by the trustees of a settlement as if references to the individual acquiring the shares were references to those trustees or the individual who is the qualifying beneficiary by reference to whom this Chapter has or, as the case may be, would have effect in relation to that acquisition.
(11) In this section—
“arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable;
“chargeable business assets” has the same meaning as in section 164C; and
“ordinary trade debt” means any debt for goods or services supplied in the ordinary course of a trade or business where any credit given does not exceed six months and is not longer than that normally given to customers of the person carrying on the trade or business.
Exclusion of double relief.
164M Where a person acquires any shares in a company those shares shall not be eligible shares or, as the case may be, shall cease to be eligible shares if that person or any person connected with him has made or makes a claim for relief in relation to those shares under Chapter III of Part VII of the Taxes Act (business expansion scheme).
Interpretation of Chapter IA.
164N (1) In this Chapter—
“associate” has the meaning given in subsections (3) and (4) of section 417 of the Taxes Act, except that in those subsections, as applied for the purposes of this Chapter, “relative” shall not include a brother or sister;
“eligible shares” means (subject to sections 164L and 164M) any ordinary shares in a company which do not carry—
any present or future preferential rights to dividends or to that company’s assets on its winding up; or
any present or future preferential right to be redeemed;
“farming” has the same meaning as in the Taxes Act;
“film” means an original master negative of a film, an original master film disc or an original master film tape;
“oil exploration” means searching for oil (within the meaning of Chapter V of Part XII of the Taxes Act);
“oil rig” means any ship which is an offshore installation for the purposes of the Mineral Workings (Offshore Installations) Act 1971;
“ordinary share capital” has the meaning given by section 832(1) of the Taxes Act;
“ordinary shares” means shares forming part of a company’s ordinary share capital;
“pleasure craft” means any ship of a kind primarily used for sport or recreation;
“property development” means the development of land, by a company which has, or at any time has had, an interest in the land (within the meaning of section 164H), with the sole or main object of realising a gain from disposing of the land when developed;
“research and development” means any activity which is intended to result in a patentable invention (within the meaning of the Patents Act 1977) or in a computer program;
“sound recording” in relation to a film, means its sound track, original master audio disc or original master audio tape; and
“unquoted company” means a company none of the shares in or other securities of which are quoted on any recognised stock exchange or are dealt in on the Unlisted Securities Market.
(2) Section 170 shall apply for the interpretation of sections 164G and 164I as it applies for the interpretation of sections 171 to 181.
(3) Subject to subsection (2) above, paragraph 1 of Schedule 6 shall have effect for the purposes of this Chapter as it has effect for the purposes of sections 163 and 164 and that Schedule.
(4) References in this Chapter to the reduction of an amount include references to its reduction to nil.
SCHEDULE 8 Restriction on set-off of pre-entry losses
Section 88.
The following is the Schedule to be inserted after Schedule 7 to the Taxation of Chargeable Gains Act 1992.
Schedule 7A
Restriction on set-off of pre-entry losses
Section 177A.
Application and construction of Schedule
1 (1) This Schedule shall have effect, in the case of a company which is or has been a member of a group of companies (“the relevant group”), in relation to any pre-entry losses of that company.
(2) In this Schedule “pre-entry loss”, in relation to any company, means—
(a) any allowable loss that accrued to that company at a time before it became a member of the relevant group; or
(b) the pre-entry proportion of any allowable loss accruing to that company on the disposal of any pre-entry asset;
and for the purposes of this Schedule the pre-entry proportion of any loss shall be calculated in accordance with paragraphs 2 to 5 below.
(3) In this Schedule “pre-entry asset”, in relation to any disposal, means (subject to sub-paragraph (4) below) any asset which was held, at the time immediately before it became a member of the relevant group, by any company (whether or not the one which makes the disposal) which is or has at any time been a member of that group.
(4) Subject to paragraph 3 below, an asset is not a pre-entry asset if—
(a) the company which held the asset at the time it became a member of the relevant group is not the company which makes the disposal; and
(b) since that time that asset has been disposed of otherwise than by a disposal to which section 171 applies;
but (without prejudice to sub-paragraph (8) below) where, on a disposal to which section 171 does not apply, any asset would cease to be a pre-entry asset by virtue of this sub-paragraph but the company making the disposal retains any interest in or over the asset in question, that interest shall be a pre-entry asset for the purposes of this Schedule.
(5) References in this Schedule, in relation to a pre-entry asset, to the relevant time are references to the time when the company by reference to which that asset is a pre-entry asset became a member of the relevant group; and for the purposes of this Schedule—
(a) where a company has become a member of the relevant group on more than one occasion, an asset is a pre-entry asset by reference to that company if it would be a pre-entry asset by reference to that company in respect of any one of those occasions; but
(b) references in the following provisions of this Schedule to the time when a company became a member of the relevant group, in relation to assets held on more than one such occasion as is mentioned in paragraph (a) above, are references to the later or latest of those occasions.
(6) Subject to so much of sub-paragraph (6) of paragraph 9 below as requires groups of companies to be treated as separate groups for the purposes of that paragraph, if—
(a) the principal company of a group of companies (“the first group”) has at any time become a member of another group (“the second group”) so that the two groups are treated as the same by virtue of subsection (10) of section 170, and
(b) the second group, together in pursuance of that subsection with the first group, is the relevant group,
then, except where sub-paragraph (7) below applies, the members of the first group shall be treated for the purposes of this Schedule as having become members of the relevant group at that time, and not by virtue of that subsection at the times when they became members of the first group.
(7) This sub-paragraph applies where—
(a) the persons who immediately before the time when the principal company of the first group became a member of the second group owned the shares comprised in the issued share capital of the principal company of the first group are the same as the persons who, immediately after that time, owned the shares comprised in the issued share capital of the principal company of the relevant group; and
(b) the company which is the principal company of the relevant group immediately after that time—
(i) was not the principal company of any group immediately before that time; and
(ii) immediately after that time had assets consisting entirely, or almost entirely, of shares comprised in the issued share capital of the principal company of the first group.
(8) For the purposes of this Schedule, but subject to paragraph 3 below—
(a) an asset acquired or held by a company at any time and an asset held at a later time by that company, or by any company which is or has been a member of the same group of companies as that company, shall be treated as the same asset if the value of the second asset is derived in whole or in part from the first asset; and
(b) if—
(i) any asset is treated (whether by virtue of paragraph (a) above or otherwise) as the same as an asset held by a company at a later time, and
(ii) the first asset would have been a pre-entry asset in relation to that company,
the second asset shall also be treated as a pre-entry asset in relation to that company;
and paragraph (a) above shall apply, in particular, where the second asset is a freehold and the first asset is a leasehold the lessee of which acquires the reversion.
(9) In determining for the purposes of this Schedule whether any allowable loss accruing to a company under section 116(10)(b) is a loss that accrued before the company became a member of the relevant group, any loss so accruing shall be deemed to have accrued at the time of the relevant transaction within the meaning of section 116(2).
(10) In determining for the purposes of this Schedule whether any allowable loss accruing to a company on a disposal under section 212 is a loss that accrued before the company became a member of the relevant group, the provisions of section 213 shall be disregarded.
Pre-entry proportion of losses on pre-entry assets
2 (1) Subject to paragraphs 3 to 5 below, the pre-entry proportion of an allowable loss accruing on the disposal of a pre-entry asset shall be whatever would be the allowable loss accruing on that disposal if that loss were the sum of the amounts determined, for every item of relevant allowable expenditure, according to the following formula—
Ax
B
C
x
D
E
(2) In sub-paragraph (1) above, in relation to any disposal of a pre-entry asset—
A is the total amount of the allowable loss;
B is the sum of the amount of the item of relevant allowable expenditure for which an amount falls to be determined under this paragraph and the indexed rise in that item;
C is the sum of the total amount of all the relevant allowable expenditure and the indexed rises in each of the items comprised in that expenditure;
D is the length of the period beginning with the relevant pre-entry date and ending with the relevant time or, if that date is after that time, nil; and
E is the length of the period beginning with the relevant pre-entry date and ending with the day of the disposal.
(3) In sub-paragraph (2) above “the relevant pre-entry date”, in relation to any item of relevant allowable expenditure, means whichever is the later of—
(a) the date on which that item of expenditure is, or (on the assumption applying by virtue of sub-paragraphs (4) and (5) below) would be, treated for the purposes of section 54 as having been incurred; and
(b) 1st April 1982.
(4) Where any asset (“the second asset”) is treated by virtue of section 127 as the same as another asset (“the first asset”) previously held by any company, this paragraph and (so far as applicable) paragraph 3 below shall have effect, except in relation to the calculation of any indexed rise—
(a) as if any item of relevant allowable expenditure consisting in consideration given for the acquisition of the second asset had been incurred at the same time as the expenditure consisting in the consideration for the acquisition of the first asset; and
(b) where there is more than one such time as if that item were incurred at those different times in the same proportions as the consideration for the acquisition of the first asset.
(5) Without prejudice to sub-paragraph (4) above, this paragraph shall have effect in relation to any asset which—
(a) was held by a company at the time when it became a member of the relevant group, and
(b) is treated as having been acquired by that company for such a consideration as secured that on the disposal in pursuance of which it was acquired neither a gain nor a loss accrued,
as if that company and every person who acquired that asset or the equivalent asset at a material time had been the same person and, accordingly, as if the asset had been acquired by that company when it or the equivalent asset was acquired by the first of those persons to have acquired it at a material time and the time at which any expenditure had been incurred were to be determined accordingly.
(6) In sub-paragraph (5) above, the reference, in relation to any asset, to a material time is a reference to any time which—
(a) is before the occasion on which the company in question is treated as having acquired the asset for such a consideration as is mentioned in that sub-paragraph; and
(b) is or is after the last occasion before that occasion on which any person acquired that asset or the equivalent asset otherwise than by virtue of an acquisition which—
(i) is treated as an acquisition for such a consideration; or
(ii) is the acquisition by virtue of which any asset is treated as the equivalent asset;
and this paragraph shall have effect in relation to any asset to which that sub-paragraph applies without regard to the provisions of section 56(2).
(7) In sub-paragraphs (5) and (6) above, the reference in relation to the acquisition of any asset by any company, to the equivalent asset is a reference to any asset which (whether by virtue of paragraph 1(8) above or otherwise) would be treated in relation to that company as the same as the asset in question.
(8) The preceding provisions of this paragraph and (so far as applicable) paragraph 3 below shall have effect where—
(a) a loss accrues to any company under section 116(10)(b), and
(b) the old asset consists in or is treated for the purposes of that paragraph as including pre-entry assets,
as if the disposal on which the loss accrues were that disposal of the old asset which is assumed to have been made for the purposes of the calculation required by section 116(10)(a).
(9) In this paragraph—
“indexed rise” shall be construed in accordance with section 54 and, where the formula set out in sub-paragraph (1) above is applied for the purposes of paragraph 3 below, without regard to section 110; and
“relevant allowable expenditure”, in relation to any allowable loss, means the expenditure which falls by virtue of section 38(1)(a) or (b) to be taken into account in the computation of that loss.
Disposals of pooled assets
3 (1) This paragraph shall apply (subject to paragraphs 4 and 5 below) where any assets acquired by any company fall to be treated with other assets as indistinguishable parts of the same asset (“a pooled asset”) and the whole or any part of that asset is referable to pre-entry assets.
(2) For the purposes of this Schedule, where a pooled asset has at any time contained a pre-entry asset—
(a) the pooled asset shall be treated, until all the pre-entry assets included in that asset have (on the assumptions for which this paragraph provides) been disposed of, as incorporating a part which is referable to pre-entry assets; and
(b) the size of that part shall be determined in accordance with the following provisions of this paragraph.
(3) Where there is a disposal of any part of a pooled asset and the proportion of the asset which is disposed of does not exceed the proportion of that asset which is represented by any part of it which is not, at the time of the disposal, referable to pre-entry assets, that disposal shall be deemed for the purposes of this Schedule to be confined to assets which are not pre-entry assets so that—
(a) except where paragraph 4(2) below applies, no part of any loss accruing on that disposal shall be deemed to be a pre-entry loss, and
(b) the part of the pooled asset which after the disposal is to be treated as referable to pre-entry assets shall be correspondingly increased.
(4) Where there is a disposal of any part of a pooled asset and the proportion of the asset which is disposed of does exceed the proportion of that asset mentioned in sub-paragraph (3) above, that disposal shall be deemed for the purposes of this Schedule to relate to pre-entry assets only so far as required for the purposes of the excess, so that—
(a) any loss accruing on that disposal shall be deemed for the purposes of this Schedule to be an allowable loss on the disposal of a pre-entry asset;
(b) the pre-entry proportion of that loss shall be deemed (except where paragraph 4(3) below applies) to be the amount (so far as it does not exceed the amount of the loss actually accruing) which would have been the pre-entry proportion under paragraph 2 above of any loss accruing on the disposal of the excess if the excess were a separate asset; and
(c) the pooled asset shall be treated after the disposal as referable entirely to pre-entry assets.
(5) Where there is a disposal of the whole of a pooled asset or of any part of a pooled asset which, at the time of the disposal, is referable entirely to pre-entry assets, paragraphs (a) and (b) of sub-paragraph (4) above shall apply to the disposal of the asset or the part as they apply in relation to the assumed disposal of the excess mentioned in that sub-paragraph but, in the case of the disposal of the whole of a pooled asset only a part of which is referable to pre-entry assets, as if the reference in paragraph (b) of that sub-paragraph to the excess were a reference to that part.
(6) For the purpose of determining, under sub-paragraph (4) or (5) above, what would have been the pre-entry proportion of any loss accruing on the disposal of any assets as a separate asset it shall be assumed that none of the assets treated as comprised in that asset has ever been comprised in a pooled asset with any assets other than those which are taken to constitute that separate asset for the purposes of the determination.
(7) The assets which are comprised in any asset which is treated for any of the purposes of this paragraph as a separate asset shall be identified on the following assumptions, that is to say—
(a) that assets are disposed of in the order of the dates which for the purposes of paragraph 2 above are the relevant pre-entry dates in relation to the consideration for their acquisition;
(b) subject to that, that assets with earlier relevant times are disposed of before those with later relevant times;
(c) that disposals made when a company was not a member of the relevant group are made in accordance with the preceding provisions of this paragraph, as they have effect in relation to the group of companies of which the company was a member at the time of the disposal or, as the case may be, of which it had most recently been a member before that time; and
(d) subject to paragraphs (a) to (c) above, that a company disposes of assets in the order in which it acquired them.
(8) Where in the case of any asset there is more than one date which is the relevant pre-entry date in relation to the consideration for its acquisition, the date taken into account for the purposes of sub-paragraph (7)(a) above shall be the date which is the earlier or earliest of those dates if any date which is the relevant pre-entry date in relation to the acquisition of an option to acquire that asset is disregarded.
(9) In applying the formula set out in paragraph 2(1) above in relation to the disposal of an asset which is treated for any of the purposes of this paragraph as comprised in a separate asset—
(a) the amount or value of any consideration for the acquisition or disposal of that asset; and
(b) the incidental costs of the acquisition or disposal of that asset,
shall be determined (to the exclusion of any apportionment under section 129 or 130) by apportioning any consideration or costs relating to both that asset and other assets acquired or disposed of at the same time according to the proportion that is borne by that asset to all the assets to which the consideration or costs related.
(10) Where—
(a) any asset (“the latest asset”) falls (whether by virtue of paragraph 1(8) above or otherwise) to be treated as acquired at the same time as another asset (“the original asset”) which was acquired before the latest asset, and
(b) the latest asset is either comprised in a pooled asset a part of which is referable to pre-entry assets or is or includes an asset which is to be treated as so comprised,
sub-paragraph (7) above shall apply not only in relation to the latest asset as if it were the original asset but also, in the first place, for identifying the asset which is to be treated as the original asset for the purposes of this paragraph.
(11) Sub-paragraphs (3)(b) and (4)(c) above shall have effect in relation to any disposal without prejudice to the effect of any subsequent acquisition of assets falling to be treated as part of a pooled asset on the determination of whether, and to what extent, any part of that pooled asset is to be treated as referable to pre-entry assets.
Rule to prevent pre-entry losses on pooled assets being treated as post-entry losses
4 (1) This paragraph shall apply if—
(a) there is a disposal of any part of a pooled asset which for the purposes of paragraph 3 above is treated as incorporating a part which is referable to pre-entry assets;
(b) the assets disposed of are or include assets (“the post-entry element of the disposal”) which for the purposes of that paragraph are treated as having been incorporated in the part of the pooled asset which is not referable to pre-entry assets;
(c) an allowable loss (“the actual loss”) accrues on the disposal; and
(d) the amount which in computing the allowable loss is allowed as a deduction of relevant allowable expenditure (“the expenditure actually allowed”) exceeds the relevant allowable expenditure attributable to the post-entry element of the disposal.
(2) Subject to sub-paragraph (6) below, where the post-entry element of the disposal comprises all of the assets disposed of—
(a) the actual loss shall be treated for the purposes of this Schedule as a loss accruing on the disposal of a pre-entry asset; and
(b) the pre-entry proportion of that loss shall be treated as being the amount (so far as it does not exceed the amount of the actual loss) by which the expenditure actually allowed exceeds the relevant allowable expenditure attributable to the post-entry element of the disposal.
(3) Subject to sub-paragraph (6) below, where—
(a) the actual loss is treated by virtue of paragraph 3 above as a loss accruing on the disposal of a pre-entry asset, and
(b) the expenditure actually allowed exceeds the actual cost of the assets to which the disposal is treated as relating,
the pre-entry proportion of the loss shall be treated as being the amount which (so far as it does not exceed the amount of the actual loss) is equal to the sum of that excess and what would, apart from this paragraph and paragraph 5 below, be the pre-entry proportion of the loss accruing on the disposal.
(4) For the purposes of sub-paragraph (3) above the actual cost of the assets to which the disposal is treated as relating shall be taken to be the sum of—
(a) the relevant allowable expenditure attributable to the post-entry element of the disposal; and
(b) the amount which, in computing the pre-entry proportion of the loss in accordance with paragraph 3(4)(b) and (6) above, would be treated for the purposes of C in the formula in paragraph 2(1) above as the total amount allowable as a deduction of relevant allowable expenditure in respect of such of the assets disposed of as are treated as having been incorporated in the part of the pooled asset which is referable to pre-entry assets.
(5) Without prejudice to sub-paragraph (6) below, where sub-paragraph (2) or (3) above applies for the purpose of determining the pre-entry proportion of any loss, no election shall be capable of being made under paragraph 5 below for the purpose of enabling a different amount to be taken as the pre-entry proportion of that loss.
(6) Where—
(a) the pre-entry proportion of the loss accruing to any company on the disposal of any part of a pooled asset falls to be determined under sub-paragraph (2) or (3) above,
(b) the amount determined under that sub-paragraph exceeds the amount determined under sub-paragraph (7) below (“the alternative pre-entry loss”), and
(c) the company makes an election for the purposes of this sub-paragraph,
the pre-entry proportion of the loss determined under sub-paragraph (2) or (3) above shall be reduced to the amount of the alternative pre-entry loss.
(7) For the purposes of sub-paragraph (6) above the alternative pre-entry loss is whatever apart from this paragraph would have been the pre-entry proportion of the loss on the disposal in question, if for the purposes of this Schedule the identification of the assets disposed of were to be made disregarding the part of the pooled asset which was not referable to pre-entry assets, except to the extent (if any) by which the part referable to pre-entry assets fell short of what was disposed of.
(8) An election for the purposes of sub-paragraph (6) above with respect to any loss shall be made by the company to which the loss accrued by notice to the inspector given within—
(a) the period of two years beginning with the end of the accounting period of that company in which the disposal is made on which the loss accrues; or
(b) such longer period as the Board may by notice allow;
and paragraph 5 below may be taken into account under sub-paragraph (7) above in determining the amount of the alternative pre-entry loss as if an election had been made under that paragraph but shall be so taken into account only if the election for the purposes of sub-paragraph (6) above contains an election corresponding to the election that, apart from this paragraph, might have been made under that paragraph.
(9) For the purposes of this paragraph the relevant allowable expenditure attributable to the post-entry element of the disposal shall be the amount which, in computing any allowable loss accruing on a disposal of that element as a separate asset, would have been allowed as a deduction of relevant allowable expenditure if none of the assets comprised in that element had ever been comprised in a pooled asset with any assets other than those which are taken to constitute that separate asset for the purposes of this sub-paragraph.
(10) For the purpose of identifying the assets which are to be treated for the purposes of sub-paragraph (9) above as comprised in the post-entry element of the disposal, a company shall be taken to dispose of assets in the order in which it acquired them.
(11) Paragraph 3(9) above shall apply for the purposes of sub-paragraph (9) above as it applies for the purposes of the application as mentioned in paragraph 3(9) above of the formula so mentioned; and paragraph 3(10) above shall apply for the purposes of this paragraph in relation to sub-paragraph (10) above as it applies for the purposes of paragraph 3 above in relation to sub-paragraph (7) of that paragraph.
(12) In this paragraph references to an amount allowed as a deduction of relevant allowable expenditure are references to the amount falling to be so allowed in accordance with section 38(1)(a) and (b) and (so far as applicable) section 42, together with the indexed rises in the items comprised in that expenditure or, as the case may be, in the appropriate portions of those items.
(13) In sub-paragraph (12) above “indexed rise” has the same meaning as it has by virtue of paragraph 2(9) above in relation to the application for the purposes of paragraph 3 above of the formula set out in paragraph 2(1) above.
(14) Nothing in this paragraph shall affect the operation of the rules contained in paragraph 3 above for determining, for any purposes other than those of sub-paragraph (7) above, how much of any pooled asset at any time consists of a part which is referable to pre-entry assets.
Alternative calculation by reference to market value
5 (1) Subject to paragraph 4(5) above and the following provisions of this paragraph, if—
(a) an allowable loss accrues on the disposal by any company of any pre-entry asset; and
(b) that company makes an election for the purposes of this paragraph in relation to that loss,
the pre-entry proportion of that loss (instead of being the amount determined under the preceding provisions of this Schedule) shall be whichever is the smaller of the amounts mentioned in sub-paragraph (2) below.
(2) Those amounts are—
(a) the amount of any loss which would have accrued if that asset had been disposed of at the relevant time at its market value at that time; and
(b) the amount of the loss accruing on the disposal mentioned in sub-paragraph (1)(a) above.
(3) Where no loss would have accrued on the disposal assumed for the purposes of sub-paragraph (2)(a) above, the loss accruing on the disposal mentioned in sub-paragraph (1)(a) above shall be deemed not to have a pre-entry proportion.
(4) Sub-paragraph (5) below shall apply where—
(a) an election is made for the purposes of this paragraph in relation to any loss accruing on the disposal (“the real disposal”) of the whole or any part of a pooled asset; and
(b) the case is one in which (but for the election) paragraph 3 above would apply for determining the pre-entry proportion of a loss accruing on the real disposal.
(5) In a case falling within sub-paragraph (4) above, this paragraph shall have effect as if the amount specified in sub-paragraph (2)(a) above were to be calculated—
(a) on the basis that the disposal which is assumed to have taken place was a disposal of all the assets falling within sub-paragraph (6) below; and
(b) by apportioning any loss that would have accrued on that disposal between—
(i) such of the assets falling within paragraph (6) below as are assets to which the real disposal is treated as relating, and
(ii) the remainder of the assets so falling,
according to the proportions of any pooled asset whose disposal is assumed which would have been, respectively, represented by assets mentioned in sub-paragraph (i) above and by assets mentioned in sub-paragraph (ii) above,
and where assets falling within sub-paragraph (6) below have different relevant times there shall be assumed to have been a different disposal at each of those times.
(6) Assets fall within this sub-paragraph if—
(a) immediately before the time which is the relevant time in relation to those assets, they were comprised in a pooled asset which consisted of or included assets which fall to be treated for the purposes of paragraph 3 above as—
(i) comprised in the part of the pooled asset referable to pre-entry assets; and
(ii) disposed of on the real disposal;
(b) they were also comprised in such a pooled asset immediately after that time; and
(c) the pooled asset in which they were so comprised immediately after that time was held by a member of the relevant group.
(7) Where—
(a) an election is made under paragraph 4(6) above requiring the determination by reference to this paragraph of the alternative pre-entry loss accruing on the disposal of any assets comprised in a pooled asset, and
(b) in pursuance of that election any amount of the loss that would have accrued on an assumed disposal is apportioned in accordance with sub-paragraph (5) above to assets (“the relevant assets”) which—
(i) are treated for the purposes of that determination as assets to which the disposal related, but
(ii) otherwise continue after the disposal to be treated as incorporated in the part of that pooled asset which is referable to pre-entry assets,
then, on any further application of this paragraph for the purpose of determining the pre-entry proportion of the loss accruing on a subsequent disposal of assets comprised in that pooled asset, that amount (without being apportioned elsewhere) shall be deducted from so much of the loss accruing on the same assumed disposal as, apart from the deduction, would be apportioned to the relevant assets on that further application of this paragraph.
(8) An election under this paragraph with respect to any loss shall be made by the company in question by notice to the inspector given within—
(a) the period of two years beginning with the end of the accounting period of that company in which the disposal is made on which the loss accrues; or
(b) such longer period as the Board may by notice allow.
Restrictions on the deduction of pre-entry losses
6 (1) In the calculation of the amount to be included in respect of chargeable gains in any company’s total profits for any accounting period—
(a) if in that period there is any chargeable gain from which the whole or any part of any pre-entry loss accruing in that period is deductible in accordance with paragraph 7 below, the loss or, as the case may be, that part of it shall be deducted from that gain;
(b) if, after all such deductions as may be made under paragraph (a) above have been made, there is in that period any chargeable gain from which the whole or any part of any pre-entry loss carried forward from a previous accounting period is deductible in accordance with paragraph 7 below, the loss or, as the case may be, that part of it shall be deducted from that gain;
(c) the total chargeable gains (if any) remaining after the making of all such deductions as may be made under paragraph (a) or (b) above shall be subject to deductions in accordance with section 8(1) in respect of any allowable losses that are not pre-entry losses; and
(d) any pre-entry loss which has not been the subject of a deduction under paragraph (a) or (b) above (as well as any other losses falling to be carried forward under section 8(1)) shall be carried forward to the following accounting period of that company.
(2) Subject to sub-paragraph (1) above, any question as to which or what part of any pre-entry loss has been deducted from any particular chargeable gain shall be decided—
(a) where it falls to be decided in respect of the setting of losses against gains in any accounting period ending before 16th March 1993 as if—
(i) pre-entry losses accruing in any such period had been set against chargeable gains before any other allowable losses accruing in that period were set against those gains;
(ii) pre-entry losses carried forward to any such period had been set against chargeable gains before any other allowable losses carried forward to that period were set against those gains; and
(iii) subject to sub-paragraphs (i) and (ii) above, the pre-entry losses carried forward to any accounting period ending on or after 16th March 1993 were identified with such losses as may be determined in accordance with such elections as may be made by the company to which they accrued;
and
(b) in any other case, in accordance with such elections as may be made by the company to which the loss accrued;
and any question as to which or what part of any pre-entry loss has been carried forward from one accounting period to another shall be decided accordingly.
(3) An election by any company under this paragraph shall be made by notice to the inspector given—
(a) in the case of an election under sub-paragraph (2)(a)(iii) above, before the end of the period of two years beginning with the end of the accounting period of that company which was current on 16th March 1993; and
(b) in the case of an election under sub-paragraph (2)(b) above, before the end of the period of two years beginning with the end of the accounting period of that company in which the gain in question accrued.
(4) For the purposes of this Schedule where any matter falls to be determined under this paragraph by reference to an election but no election is made, it shall be assumed, so far as consistent with any elections that have been made—
(a) that losses are set against gains in the order in which the losses accrued; and
(b) that the gains against which they are set are also determined according to the order in which they accrued with losses being set against earlier gains before they are set against later ones.
Gains from which pre-entry losses are to be deductible
7 (1) A pre-entry loss that accrued to a company before it became a member of the relevant group shall be deductible from a chargeable gain accruing to that company if the gain is one accruing—
(a) on a disposal made by that company before the date on which it became a member of the relevant group (“the entry date”);
(b) on the disposal of an asset which was held by that company immediately before the entry date; or
(c) on the disposal of any asset which—
(i) was acquired by that company on or after the entry date from a person who was not a member of the relevant group at the time of the acquisition; and
(ii) since its acquisition from that person has not been used or held for any purposes other than those of a trade which was being carried on by that company at the time immediately before the entry date and which continued to be carried on by that company until the disposal.
(2) The pre-entry proportion of an allowable loss accruing to any company on the disposal of a pre-entry asset shall be deductible from a chargeable gain accruing to that company if—
(a) the gain is one accruing on a disposal made, before the date on which it became a member of the relevant group, by that company and that company is the one (“the initial company”) by reference to which the asset on the disposal of which the loss accrues is a pre-entry asset;
(b) the pre-entry asset and the asset on the disposal of which the gain accrues were each held by the same company at a time immediately before it became a member of the relevant group; or
(c) the gain is one accruing on the disposal of an asset which—
(i) was acquired by the initial company (whether before or after it became a member of the relevant group) from a person who, at the time of the acquisition, was not a member of that group; and
(ii) since its acquisition from that person has not been used or held for any purposes other than those of a trade which was being carried on, immediately before it became a member of the relevant group, by the initial company and which continued to be carried on by the initial company until the disposal.
(3) Where two or more companies become members of the relevant group at the same time and those companies were all members of the same group of companies immediately before they became members of the relevant group, then, without prejudice to paragraph 9 below—
(a) an asset shall be treated for the purposes of sub-paragraph (1)(b) above as held, immediately before it became a member of the relevant group, by the company to which the pre-entry loss in question accrued if that company is one of those companies and the asset was in fact so held by another of those companies;
(b) two or more assets shall be treated for the purposes of sub-paragraph (2)(b) above as assets held by the same company immediately before it became a member of the relevant group wherever they would be so treated if all those companies were treated as a single company; and
(c) the acquisition of an asset shall be treated for the purposes of sub-paragraphs (1)(c) and (2)(c) above as an acquisition by the company to which the pre-entry loss in question accrued if that company is one of those companies and the assset was in fact acquired (whether before or after they became members of the relevant group) by another of those companies.
(4) Paragraph 1(4) above shall apply for determining for the purposes of this paragraph whether an asset on the disposal of which a chargeable gain accrues was held at the time when a company became a member of the relevant group as it applies for determining whether that asset is a pre-entry asset in relation to that group by reference to that company.
(5) Subject to sub-paragraph (6) below, where a gain accrues on the disposal of the whole or any part of—
(a) any asset treated as a single asset but comprising assets only some of which were held at the time mentioned in paragraph (b) of sub-paragraph (1) or (2) above, or
(b) an asset which is treated as held at that time by virtue of a provision requiring an asset which was not held at that time to be treated as the same as an asset which was so held,
a pre-entry loss shall be deductible by virtue of paragraph (b) of sub-paragraph (1) or (2) above from the amount of that gain to the extent only of such proportion of that gain as is attributable to assets held at that time or, as the case may be, represents the gain that would have accrued on the asset so held.
(6) Where—
(a) a chargeable gain accrues by virtue of subsection (10) of section 116 on the disposal of a qualifying corporate bond,
(b) that bond was not held as required by paragraph (b) of sub-paragraph (1) or (2) above at the time mentioned in that paragraph, and
(c) the whole or any part of the asset which is the old asset for the purposes of that section was so held,
the question whether that gain is one accruing on the disposal of an asset the whole or any part of which was held by a particular company at that time shall be determined for the purposes of this paragraph as if the bond were deemed to have been so held to the same extent as the old asset.
Change of a company’s nature
8 (1) If—
(a) within any period of three years, a company becomes a member of a group of companies and there is (either earlier or later in that period, or at the same time) a major change in the nature or conduct of a trade carried on by that company, or
(b) at any time after the scale of the activities in a trade carried on by a company has become small or negligible, and before any considerable revival of the trade, that company becomes a member of a group of companies,
the trade carried on before that change, or which has become small or negligible, shall be disregarded for the purposes of paragraph 7(1)(c) and (2)(c) above in relation to any time before the company became a member of the group in question.
(2) In sub-paragraph (1) above the reference to a major change in the nature or conduct of a trade includes a reference to—
(a) a major change in the type of property dealt in, or services or facilities provided, in the trade; or
(b) a major change in customers, markets or outlets of the trade;
and this paragraph shall apply even if the change is the result of a gradual process which began outside the period of three years mentioned in sub-paragraph (1)(a) above.
(3) Where the operation of this paragraph depends on circumstances or events at a time after the company becomes a member of any group of companies (but not more than three years after), an assessment to give effect to this paragraph shall not be out of time if made within six years from that time or the latest such time.
Identification of “the relevant group” and application of Schedule to every connected group
9 (1) This paragraph shall apply where there is more than one group of companies which would be the relevant group in relation to any company.
(2) Where any loss has accrued on the disposal by any company of any asset, this Schedule shall not apply by reference to any group of companies in relation to any loss accruing on that disposal unless—
(a) that group is a group in relation to which that loss is a pre-entry loss by virtue of paragraph 1(2)(a) above or, if there is more than one such group, the one of which that company most recently became a member;
(b) that group, in a case where there is no group falling within paragraph (a) above, is either—
(i) the group of which that company is a member at the time of the disposal, or
(ii) if it is not a member of a group of companies at that time, the group of which that company was last a member before that time;
(c) that group, in a case where there is a group falling within paragraph (a) above, is a group of which that company was a member at any time in the accounting period of that company in which it became a member of the group falling within that paragraph;
(d) that group is a group the principal company of which is or has been, or has been under the control of—
(i) the company by which the disposal is made, or
(ii) another company which is or has been a member of a group by reference to which this Schedule applies in relation to the loss in question by virtue of paragraph (a), (b) or (c) above;
or
(e) that group is a group of which either—
(i) the principal company of a group by reference to which this Schedule so applies, or
(ii) a company which has had that principal company under its control,
is or has been a member;
and sub-paragraphs (3) to (5) below shall apply in the case of any loss accruing on the disposal of any asset where, by virtue of this sub-paragraph, there are two or more groups (“connected groups”) by reference to which this Schedule applies.
(3) This Schedule shall apply separately in relation to each of the connected groups (so far as they are not groups in relation to which the loss is a pre-entry loss by virtue of paragraph 1(2)(a) above) for the purpose of—
(a) determining whether the loss on the disposal of any asset is a loss on the disposal of a pre-entry asset; and
(b) calculating the pre-entry proportion of that loss.
(4) Subject to sub-paragraph (5) below, paragraph 6 above shall have effect—
(a) as if the pre-entry proportion of any loss accruing on the disposal of an asset which is a pre-entry asset in the case of more than one of the connected groups were the largest pre-entry proportion of that loss calculated in accordance with sub-paragraph (3) above; and
(b) so that, where the loss accruing on the disposal of any asset is a pre-entry loss by virtue of paragraph 1(2)(a) above in the case of any of the connected groups, that loss shall be the pre-entry loss for the purposes of paragraph 6 above, and not any amount which is the pre-entry proportion of that loss in relation to any of the other groups.
(5) Where, on the separate application of this Schedule in the case of each of the groups by reference to which this Schedule applies, there is, in the case of the disposal of any asset, a pre-entry loss by reference to each of two or more of the connected groups, no amount in respect of the loss accruing on the disposal shall be deductible under paragraph 7 above from any chargeable gain if any of the connected groups is a group in the case of which, on separate applications of that paragraph in relation to each group, the amount deductible from that gain in respect of that loss is nil.
(6) Notwithstanding that the principal company of one group (“the first group”) has become a member of another (“the second group”), those two groups shall not by virtue of section 170(10) be treated for the purposes of this paragraph as the same group if the principal company of the first group was under the control, immediately before it became a member of the second group, of a company which at that time was already a member of the second group.
(7) Where, in the case of the disposal of any asset—
(a) two or more groups which but for sub-paragraph (6) above would be treated as the same group are treated as separate groups by virtue of that sub-paragraph; and
(b) one of those groups is a group of which either—
(i) the principal company of a group by reference to which this Schedule applies by virtue of sub-paragraph (2)(a), (b) or (c) above in relation to any loss accruing on the disposal, or
(ii) a company which has had that principal company under its control,
is or has been a member,
this paragraph shall have effect as if that principal company had been a member of each of the groups mentioned in paragraph (a) above.
Appropriations to stock in trade
10 Where, but for an election under subsection (3) of section 161, there would be deemed to have been a disposal at any time by any company of any asset—
(a) the amount by which the market value of the asset may be treated as increased in pursuance of that election shall not include the amount of any pre-entry loss that would have accrued on that disposal; and
(b) this Schedule shall have effect as if the pre-entry loss of the last mentioned amount had accrued to that company at that time.
Continuity provisions
11 (1) This paragraph applies where provision has been made by or under any enactment (“the transfer legislation”) for the transfer of property, rights and liabilities to any person from—
(a) a body established by or under any enactment for the purpose, in the exercise of statutory functions, of carrying on any undertaking or industrial or other activity in the public sector or of exercising any other statutory functions;
(b) a subsidiary of such a body; or
(c) a company wholly owned by the Crown.
(2) A loss shall not be a pre-entry loss for the purposes of this Schedule in relation to any company to whom a transfer has been made by or under the transfer legislation if that loss—
(a) accrued to the person from whom the transfer has been made; and
(b) falls to be treated, in accordance with any enactment made in relation to transfers by or under that legislation, as a loss accruing to that company.
(3) For the purposes of this Schedule where a company became a member of the relevant group by virtue of the transfer by or under the transfer legislation of any shares in or other securities of that company or any other company—
(a) a loss that accrued to that company before it so became a member of that group shall not be a pre-entry loss in relation to that group; and
(b) no asset held by that company when it so became a member of that group shall by virtue of that fact be a pre-entry asset.
(4) For the purposes of this paragraph a company shall be regarded as wholly owned by the Crown if it is—
(a) a company limited by shares in which there are no issued shares held otherwise than by, or by a nominee of, the Treasury, a Minister of the Crown, a Northern Ireland department or another company wholly owned by the Crown; or
(b) a company limited by guarantee of which no person other than the Treasury, a Minister of the Crown or a Northern Ireland department, or a nominee of the Treasury, a Minister of the Crown or a Northern Ireland department, is a member.
(5) In this paragraph—
“enactment” includes any provision of any Northern Ireland legislation, within the meaning of section 24 of the Interpretation Act 1978; and
“statutory functions” means functions under any enactment, under any subordinate legislation, within the meaning of the Interpretation Act 1978, or under any statutory rules, within the meaning of the Statutory Rules (Northern Ireland) Order 1979.
Companies changing groups on certain transfers of shares etc.
12 For the purposes of this Schedule, and without prejudice to paragraph 11 above, where—
(a) a company which is a member of a group of companies becomes at any time a member of another group of companies as the result of a disposal of shares in or other securities of that company or any other company; and
(b) that disposal is one on which, by virtue of any enactment specified in section 35(3)(d), neither a gain nor a loss would accrue,
this Schedule shall have effect in relation to the losses that accrued to that company before that time and the assets held by that company at that time as if any time when it was a member of the first group were included in the period during which it is treated as having been a member of the second group.
Section 114.
1 The Capital Allowances Act 1990 shall be amended as follows.
2 (1) In subsection (1) of section 124 (expenditure qualifying for allowances)—
(a) for “this Part, including” there shall be substituted “ writing-down allowances or ”; and
(b) in paragraph (b), for “this Part” there shall be substituted “ writing-down allowances or, as the case may be, section 122 ”.
(2) In subsection (2) of that section, for “this Part” there shall be substituted “ writing-down allowances ”.
3 After section 124 there shall be inserted the following sections—
Initial allowances: contracts entered into between October 1992 and November 1993.
124A (1) Subject to the following provisions of this Part, if a person having a major interest in any agricultural land incurs any expenditure to which this section applies, there shall be made to him, for the chargeable period which is that related to the incurring of the expenditure, an allowance (“an initial allowance”) equal to 20 per cent. of the amount of that expenditure.
(2) This section applies to any expenditure falling within section 123 which is incurred under a contract which—
(a) is entered into either—
(i) in the period beginning with 1st November 1992 and ending with 31st October 1993; or
(ii) for the purpose of securing that obligations under a contract entered into in that period are complied with;
but
(b) is not entered into for the purpose of securing that obligations under a contract entered into before the beginning of that period are complied with.
(3) No expenditure on the construction of any building, fence or other works shall be taken into account for the purposes of any initial allowance under this Part unless it is incurred for the purposes of husbandry on the agricultural land in question; and no initial allowance shall be made under this Part in respect of expenditure on the construction of any building, fence or other works unless the building, fence or other works is or is to be first used for the purposes of husbandry on or before 31st December 1994.
(4) Where expenditure is incurred on a farmhouse or any asset (other than a farmhouse) which is to serve partly the purposes of husbandry and partly other purposes, the same apportionment of that expenditure shall be made for the purposes of any initial allowance under this Part as is required by section 124(1)(a) or (b) to be made for the purposes of writing-down allowances.
(5) In a case where—
(a) any expenditure to which this section applies is incurred on the construction of any building, fence or other works; and
(b) either—
(i) when the building, fence or other works comes to be used it is not used for the purposes of husbandry; or
(ii) it has not come to be so used by the end of 31st December 1994,
the expenditure shall be left out of account for the purposes of initial allowances under this Part and, accordingly, any initial allowance made in respect of the expenditure under this section shall be withdrawn and all such assessments and adjustments of assessments shall be made as may be necessary to give effect to that withdrawal.
(6) Subject to subsection (7) below, a person making a claim by virtue of this section as it applies for income tax purposes may require the initial allowance to be reduced to a specified amount; and a company may by notice given to the inspector not later than two years after the end of the chargeable period for which the allowance falls to be made disclaim the initial allowance or require it to be reduced to a specified amount.
(7) Subsection (6) above shall have effect as respects allowances falling to be made for accounting periods ending after the day appointed for the purposes of section 10 of the principal Act (pay and file) with the omission of the words “as it applies for income tax purposes” and the words from “and a company” onwards.
Restriction on writing-down allowance where initial allowance made.
124B Where an initial allowance under this Part is made for any chargeable period in respect of any expenditure on the construction of a building, fence or other works, a writing-down allowance in respect of that expenditure shall be made under this Part for the same chargeable period only if the building, fence or other works has come to be used for the purposes of husbandry before the end of that period.
4 (1) In subsection (1) of section 126 (transfers of relevant interest), for “a writing-down allowance” there shall be substituted “ an allowance under this Part ”.
(2) For subsection (2) of that section there shall be substituted the following subsection—
(2) If, in a case falling within subsection (1) above, the date of the acquisition occurs during a chargeable period of the former owner or its basis period, the former owner shall be entitled—
(a) to the whole of any initial allowance for the chargeable period related to the acquisition; but
(b) only to an appropriate proportion of any writing-down allowance for the chargeable period so related;
and, similarly, if the date of the acquisition occurs during a chargeable period of the new owner or its basis period, the new owner shall be entitled only to an appropriate proportion of any writing-down allowance for the chargeable period (of his) related to the acquisition.
(3) In subsection (6) of that section (balancing increase of last writing-down allowance in respect of allowance lost on transfers), after “total allowances” there shall be inserted “ (including any initial allowance) ”.
5 (1) After subsection (3) of section 127 (buildings etc. bought unused) there shall be inserted the following subsections—
(3A) The expenditure referred to in subsection (1) above includes neither—
(a) expenditure which falls to be disregarded for the purposes of writing-down allowances by virtue of section 124(1); nor
(b) expenditure some or all of which is expenditure to which section 124A applies.
(3B) Accordingly, any expenditure which is treated as incurred under subsection (2)(c) above shall be treated (without prejudice to section 124(2)) as incurred for the purposes mentioned in section 124(1).
(2) In subsection (4) of that section, for “and (3)” there shall be substituted “ (3) and (3B) ”.
6 After section 127 there shall be inserted the following section—
Purchases of buildings and structures: cases involving initial allowances.
127A (1) This section shall apply (subject to subsection (2) below) where—
(a) there is expenditure on the construction of any building, fence or other works (“the actual expenditure”) which—
(i) is expenditure falling within section 123; and
(ii) is not expenditure which would fall to be disregarded for the purposes of writing-down allowances by virtue of section 124(1);
(b) some or all of the actual expenditure is expenditure to which section 124A applies or would be such expenditure if it were capital expenditure; and
(c) before the building, fence or other works comes to be used, the relevant interest is sold.
(2) In relation to any case in which the relevant interest is sold in pursuance of a contract entered into in the period beginning with 1st November 1992 and ending with 31st October 1993 by a person who—
(a) carries on a trade which consists, in whole or in part, in the construction of buildings or structures with a view to their sale; and
(b) has been entitled to that interest since before 1st November 1992,
section 124A(2) above shall have effect for the purposes of subsection (1)(b) above and subsection (6) below as if for the words from “contract which” onwards there were substituted “contract entered into either before 1st November 1993 or for the purpose of securing that obligations under a contract entered into before that date are complied with.”
(3) Where this section applies—
(a) the actual expenditure shall be left out of account for the purposes of this Part and, accordingly—
(i) any initial allowance or writing-down allowance made in respect of the actual expenditure shall be withdrawn; and
(ii) all such assessments and adjustments of assessments shall be made as may be necessary to give effect to that withdrawal;
(b) section 126 shall not apply;
(c) the person who buys the relevant interest shall be treated for the purposes of this Part as having incurred, on the date when the purchase price becomes payable, expenditure falling within section 123 on the construction of the building, fence or other works (“the deemed expenditure”); and
(d) the deemed expenditure shall be treated (without prejudice to section 124(2) and 124A(5)) as incurred for the purposes of husbandry on the agricultural land in question.
(4) The deemed expenditure—
(a) shall be whichever is the lesser of the net price paid by the person concerned for the purchase of the relevant interest and the actual expenditure; and
(b) shall be regarded as comprising a section 124A element and a residual element.
(5) The section 124A element of the deemed expenditure shall be calculated in accordance with the formula—
A
x
B
C
(6) In subsection (5) above—
A is the deemed expenditure;
B is so much of the actual expenditure as is expenditure to which section 124A applies or expenditure that would be such expenditure if it were capital expenditure; and
C is the actual expenditure.
(7) The residual element of the deemed expenditure shall be so much (if any) of the deemed expenditure as does not comprise the section 124A element.
(8) Notwithstanding the provisions of subsection (3)(c) above—
(a) the section 124A element of the deemed expenditure shall be treated for the purpose only of determining entitlement to allowances as expenditure to which that section applies; and
(b) the residual element of the deemed expenditure shall be treated for that purpose as expenditure which is not expenditure to which that section applies.
(9) Where the relevant interest is sold more than once before the building, fence or other works is used, subsections (2) and (3)(c) and (d) above shall have effect only in relation to the last of those sales.
7 (1) In subsection (1) of section 128 (balancing allowances and charges), for “a writing-down allowance” there shall be substituted “ an allowance under this Part ”.
(2) In subsection (2) of that section, for “this Part less the aggregate of any writing-down allowances” there shall be substituted “ any allowances under this Part less the aggregate of any such allowances ”.
(3) In subsection (3) of that section, after “purposes of” there shall be inserted “ allowances under ”.
(4) In subsection (6) of that section, for “writing-down allowances” there shall be substituted “ allowances under this Part ”.
8 In section 129(1) (balancing events), for “a writing-down allowance” there shall be substituted “ an allowance under this Part ”.
9 In section 131(2) (application of Chapter I of Part V to forestry buildings etc.), in the words after paragraph (b), before “subject” there shall be inserted “ with the omission of sections 124A, 127(3A)(b) and 127A and ”.
10 In section 146(3) (allowances under Parts V and VI not to exceed expenditure), after “made under” there shall be inserted “ Part V or ”.
SCHEDULE 13 First-year allowances for machinery and plant
Section 115.
1 The Capital Allowances Act 1990 shall be amended as follows.
2 In section 23(6) (interpretation of information provisions relating to first-year allowances), at the end there shall be inserted “ and references in this section to a first-year allowance shall not include references to a first-year allowance in respect of expenditure to which section 22 applies by virtue only of subsection (3B) of that section. ”
3 In section 30(2)(c) (special provision for ships), for “section” there shall be substituted “ sections 46(8)(e) and ”.
4 In section 38(m) (assets attracting first-year allowances not to be treated as short-life assets), after “section 22” there shall be inserted “ (2), (3) or (3A) ”.
5 (1) In subsection (2)(a) of section 39 (definition of a qualifying purpose), for “subsections (2) and (3)” there shall be substituted “ subsections (2) to (3B) ”.
(2) In subsection (8)(b) of that section (anti-avoidance provision in respect of chartering), after “new expenditure,” there shall be inserted “ a first-year allowance by virtue of section 22(3B) or ”.
6 After subsection (8) of section 42 (modifications in relation to “old expenditure” of provisions relating to overseas leasing) there shall be inserted the following subsection—
(9) For the purposes of the application of this section to any expenditure to which section 22 applies by virtue only of subsection (3B) of that section, this section shall have effect—
(a) as if subsection (4) above included a reference to a first-year allowance made in respect of that expenditure; and
(b) for the purposes of paragraph (a) above, as if the reference in that subsection to an event occurring such that there is no right to that allowance included a reference to an event occurring such that, if subsection (3) included a reference to first-year allowances, there would be no such right.
7 (1) In subsection (1) of section 43 (cases where section applies), for “This section” there shall be substituted “ Subsections (2) and (3) below ”.
(2) After subsection (3) of that section there shall be inserted the following subsection—
(4) Section 22(6A)(a) shall not prevent a first-year allowance being made in respect of expenditure incurred by any person on the provision of machinery or plant for leasing where it appears that—
(a) the machinery or plant will be leased as mentioned in subsection (1) above; and
(b) the circumstances are such that subsection (2) above will require the whole or any part of the expenditure to be treated as not falling within section 42(1);
and any first-year allowance made by virtue of this subsection in respect of that expenditure shall be made on the same assumptions and subject to the same apportionments (if any) as it appears would, by virtue of subsection (3) above, be applicable in the case of a writing-down allowance.
8 In section 44 (further provisions in relation to joint lessees in cases involving new expenditure), after subsection (4) there shall be inserted the following subsection—
(5) For the purposes of the application of this section to any expenditure to which section 22 applies by virtue of subsection (3B) of that section, this section shall have effect as if—
(a) references to section 43(2) included references to section 43(4);
(b) references to a normal writing-down allowance included references to a first-year allowance; and
(c) the reference in subsection (2) above to the separate item of machinery or plant referred to in section 43(3)(a) were, in relation to a first-year allowance, a reference to the machinery or plant in respect of which, in accordance with section 43(4), that allowance is or is treated as made.
9 In section 46 (recovery of allowances made in respect of plant and machinery subsequently let to a foreign resident), after subsection (7) there shall be inserted the following subsection—
(8) For the purposes of the application of this section to any expenditure to which section 22 applies by virtue of subsection (3B) of that section, this section shall have effect as if—
(a) in subsection (1) above, after “qualified for a” there were inserted “first-year allowance or any”;
(b) in subsection (2) above—
(i) in paragraph (a), at the beginning there were inserted “the aggregate of any first-year allowance and”; and
(ii) in paragraph (b), after the word “no” there were inserted “first-year allowance or”;
(c) in subsection (5) above—
(i) after “and a” there were inserted “first-year allowance or”; and
(ii) in paragraph (a), for the words from “it referred” to the end of the paragraph there were substituted “that allowance were such a first-year allowance or, as the case may be, normal writing-down allowance as is referred to in paragraph (a) of that subsection and the references to the expenditure in respect of which an allowance is made were construed accordingly;”
(d) in subsection (6) above—
(i) in paragraph (a), after “for a” there were inserted “first-year allowance or”; and
(ii) in the words after paragraph (b), for “a normal writing-down allowance has been made” there were substituted “the allowance that has been made is a first-year allowance or normal writing-down allowance”;
and
(e) in subsection (7) above—
(i) in paragraph (a), after “section” there were inserted “30(2)(c) or”; and
(ii) for “section 31” there were substituted “section 30 or 31”.
10 In section 48 (information provisions in relation to joint lessees in cases involving new expenditure), after subsection (6) there shall be inserted the following subsection—
(7) For the purposes of the application of this section to any expenditure to which section 22 applies by virtue of subsection (3B) of that section, this section shall have effect as if the references in subsections (1) and (2) above to a normal writing-down allowance included references to a first-year allowance; but nothing in this subsection shall prevent subsection (1) above from continuing to apply where the use for permitted leasing is after the expenditure has qualified for one allowance and before it qualifies for another.
11 (1) In subsection (3) of section 50, in paragraph (i) of the definition of “old expenditure” (old expenditure to include expenditure falling within section 22) after “22” there shall be inserted “ other than expenditure to which that section applies by virtue only of subsection (3B) of that section ”.
(2) After subsection (4) of that section there shall be inserted the following subsection—
(4A) In the case of expenditure to which section 22 applies by virtue only of subsection (3B) of that section, any reference in this Chapter to the expenditure having qualified for a first-year allowance is a reference to such an allowance having fallen to be made in respect of the whole or any part of that expenditure.
12 (1) In section 81 (assets used for purposes not attracting capital allowances and assets received by way of gift), after subsection (1) there shall be inserted the following subsection—
(1A) Subject to section 63, in a case falling within subsection (1)(a) or (b) above, the assumptions applied by that subsection in relation to sections 24 to 26—
(a) shall apply in relation to section 22 as they apply in relation to those sections but only for the purposes of first-year allowances by virtue of section 22(3B); and
(b) where those assumptions require any person to be treated as having incurred expenditure in a chargeable period related to any event, shall apply for those purposes as if they required that person to be treated as having incurred that expenditure on the date of that event.
(2) After subsection (2) of that section there shall be inserted the following subsection—
(2A) Where a person is treated as having incurred capital expenditure on the provision of machinery or plant by virtue of subsection (1)(a) above, he shall be treated for the purposes of section 75(1), as it has effect in relation to first-year allowances by virtue of section 22(3B), as having done so by way of purchase from a person connected with him.
(3) Sub-paragraph (2) above shall have effect in cases where machinery or plant is brought into use on or after 14th April 1993.
13 (1) In subsection (1)(a) of section 147 (exclusion of double allowances), after “those Parts” there shall be inserted “ or section 22 ”.
(2) In subsection (2) of that section, after “any person” there shall be inserted “ an allowance is made under section 22 in respect of any capital expenditure or ”.
SCHEDULE 14 Pay and file: miscellaneous amendments
Section 120.
Failure to give notice of liability for corporation tax
1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Further claims etc. where assessment made
2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on overdue corporation tax: transitional cases
3 (1) Section 86 of that Act of 1970 (interest on overdue tax) shall be amended as follows.
(2) In subsection (3)(b), for “subject to subsection (3A)” there shall be substituted “ subject to subsections (3A) and (4A) ”.
(3) In subsection (3A), at the beginning there shall be inserted “ Subject to subsection (4A) below, ”.
(4) After subsection (4) there shall be inserted the following subsections—
(4A) For the purposes of this section where—
(a) a notice served under section 11 above at any time after the appointed day for the purposes of section 82 of the Finance (No. 2) Act 1987 (amendment of section 11 for the purposes of pay and file) is to be taken as requiring a company to make a return for any accounting period ending on or before the day appointed for the purposes of section 10 of the principal Act; and
(b) the tax charged by any assessment to corporation tax for that accounting period does not become due and payable until after the date nine months from the end of that accounting period,
the reckonable date, in relation to tax charged for that accounting period by that assessment, is the date mentioned in paragraph (b) above (instead of the date which would otherwise be determined under subsection (3) or (3A) above).
(4B) The Board may at their discretion mitigate (whether before or after judgment) any interest due under this section in a case where the reckonable date is determined under subsection (4A) above and may stay or compound any proceedings for the recovery thereof.
Interest on overdue corporation tax: pay and file cases
4 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) For subsection (6) of that section there shall be substituted the following subsections—
(6) In any case where—
(a) on a claim under section 393A(1) of the principal Act, the whole or any part of a loss incurred in an accounting period (“the later period”) has been set off for the purposes of corporation tax against profits of a preceding accounting period (“the earlier period”);
(b) the earlier period does not fall wholly within the period of twelve months immediately preceding the later period; and
(c) if the claim had not been made, there would be an amount or, as the case may be, an additional amount of corporation tax for the earlier period which would carry interest in accordance with this section,
then, for the purposes of the determination at any time of whether any interest is payable under this section or of the amount of interest so payable, the amount mentioned in paragraph (c) above shall be taken to be an amount of unpaid corporation tax for the earlier period except so far as concerns interest for any time after the date on which any corporation tax for the later period became (or, as the case may be, would have become) due and payable as mentioned in subsection (1) above.
(7) Where, in a case falling within subsection (6)(a) and (b) above—
(a) there is in the earlier period, as a result of the claim under section 393A(1) of the principal Act, an amount of surplus advance corporation tax, as defined in subsection (3) of section 239 of that Act; and
(b) pursuant to a claim under the said subsection (3), the whole or any part of that amount is to be treated for the purposes of the said section 239 as discharging liability for an amount of corporation tax for an accounting period before the earlier period,
the claim under the said subsection (3) shall be disregarded for the purposes of subsection (6) above but subsection (4) above shall have effect in relation to that claim as if the reference in the words after paragraph (c) to the later period within the meaning of subsection (4) above were a reference to the period which, in relation to the claim under the said section 393A(1), would be the later period for the purposes of subsection (6) above.
Effect on interest of reliefs
5 In section 91(1B) of that Act of 1970 (subsection (1A) subject to section 87A(4)), after “section 87A(4)” there shall be inserted “ (6) and (7) ”.
Failure to make return for corporation tax
6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Things to be done by companies
7 In section 108(1) of that Act of 1970 (which includes provision requiring companies to act for the purposes of the Taxes Acts through their proper officers), after “proper officer of the company” there shall be inserted “ or, except where a liquidator has been appointed for the company, through such other person as may for the time being have the express, implied or apparent authority of the company to act on its behalf for the purpose ”.
Relief under section 393 of the Taxes Act 1988
8 (1) In relation to any case in which by virtue of section 99 of the Finance Act 1990 losses may be set off under subsection (1) of section 393 or of section 396 of the Taxes Act 1988 without the making of a claim, the Taxes Act 1988 shall have effect with the following amendments.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) In section 398 (transactions in deposits), for the words from “he may” onwards there shall be substituted “ the amount of his loss may be set off in pursuance of a claim under section 392 or, as the case may be, against which the amount of his loss may be set off under section 396 ”.
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on tax overpaid
10 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) In subsection (7A) of that section, for “any increase in the amount of that repayment” there shall be substituted “ so much of the amount of that repayment as falls to be made ”.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) In subsection (7B) of that section, for “any increase in the amount of that payment” there shall be substituted “ so much of the amount of that payment as falls to be made ”.
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surrender of refunds
11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SCHEDULE 15 Exchange gains and losses: alternative calculation
Section 134.
Introduction
1 (1) This paragraph applies where regulations under this Schedule provide that the amount of an initial exchange gain or initial exchange loss accruing to a company as regards an asset, liability or contract for an accrual period shall be found in accordance with the alternative method of calculation.
(2) In such a case the amount shall not be found in accordance with section 125(2) or (4) of this Act or section 126(3) or (5) or section 127(3) or (4) (as the case may be) but shall be found by—
(a) taking the accrued amount for each day in the accrual period, and
(b) adding the amounts found under paragraph (a) above.
(3) Subject to regulations under this Schedule, the accrued amount for a day in the accrual period shall be found by—
(a) taking the amount of the initial exchange gain or initial exchange loss found in accordance with section 125(2) or (4) of this Act or section 126(3) or (5) or section 127(3) or (4) (as the case may be), and
(b) dividing it by the number of days in the period.
(4) Where an accrual period does not begin at the beginning of a day, the part of the day that falls within the accrual period shall be treated for the purposes of this Schedule as a complete day.
(5) Where an accrual period does not end at the end of a day, the part of the day that falls within the accrual period shall be treated for the purposes of this Schedule as a complete day.
Exempt circumstances
2 (1) Regulations may provide that where—
(a) as regards an asset, liability or contract an initial exchange gain or initial exchange loss accrues to a company for an accrual period under section 125, 126 or 127 of this Act or would so accrue apart from regulations under this Schedule,
(b) at any time on a day in the period the asset or contract was held, or the liability was owed, by the company in exempt circumstances, and
(c) such other conditions as may be prescribed are fulfilled,
the amount of the gain or loss shall be found in accordance with the alternative method of calculation.
(2) Regulations may also provide that as regards any such day as is mentioned in sub-paragraph (1) above the accrued amount shall be ascertained in accordance with prescribed rules.
(3) Regulations may be so framed that the accrued amount as regards a day depends on the extent to which an asset or contract is held, or a liability is owed, in exempt circumstances.
(4) For the purposes of this paragraph an asset or contract is held, or a liability is owed, in exempt circumstances at a given time if it is then held or owed—
(a) for the purposes of long-term insurance business;
(b) for the purposes of mutual insurance business;
(c) for the purposes of the occupation of commercial woodlands;
(d) by a housing association approved at that time for the purposes of section 488 of the Taxes Act 1988;
(e) by a self-build society approved at that time for the purposes of section 489 of that Act.
(5) In this paragraph—
“long-term insurance business” means business which consists of the effecting or carrying out of contracts which fall within Part II of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;
“commercial woodlands” means woodlands in the United Kingdom which are managed on a commercial basis and with a view to the realisation of profits.
Unremittable income
3 (1) Regulations may provide that where—
(a) as regards an asset falling within section 153(1)(a) or (b) of this Act an initial exchange gain or initial exchange loss accrues to a company for an accrual period under section 125 or 127 of this Act or would so accrue apart from regulations under this Schedule,
(b) at any time on a day in the period income represented by the asset was unremittable, and
(c) such other conditions as may be prescribed are fulfilled,
the amount of the gain or loss shall be found in accordance with the alternative method of calculation.
(2) Regulations may also provide that as regards any such day as is mentioned in sub-paragraph (1) above the accrued amount shall be ascertained in accordance with prescribed rules.
(3) Regulations may be so framed that the accrued amount as regards a day depends on the extent to which the income represented by an asset is unremittable.
(4) For the purposes of this paragraph income is unremittable if—
(a) a claim under subsection (2) of section 584 of the Taxes Act 1988 (relief for unremittable income) has been made in relation to the income,
(b) paragraphs (a) and (b) of that subsection apply to it, and
(c) those paragraphs have not ceased to apply to it.
Matched liabilities
4 (1) Regulations may provide that where—
(a) as regards a liability an initial exchange gain or initial exchange loss accrues to a company for an accrual period under section 125 or 127 of this Act or would so accrue apart from regulations under this Schedule,
(b) the liability falls within section 153(2)(a) of this Act,
(c) the liability is eligible to be matched on any day in the accrual period with an asset held by the company, and such other conditions as may be prescribed are fulfilled, and
(d) an election is made in accordance with the regulations to match the liability with the asset on any such day and the election has effect by virtue of the regulations,
the amount of the gain or loss shall be found in accordance with the alternative method of calculation.
(2) Regulations may also provide that as regards any day in respect of which an election has effect the accrued amount shall be ascertained in accordance with prescribed rules.
(3) The question whether a liability is eligible to be matched with an asset shall be determined in accordance with prescribed rules, and in particular regulations may include provision that—
(a) only liabilities of a prescribed description are eligible to be matched with assets;
(b) only assets of a prescribed description are eligible to be matched with liabilities;
(c) liabilities of a prescribed description are eligible to be matched only with assets of a prescribed description.
(4) Regulations may include provision that on any day—
(a) a liability may be partially matched;
(b) an asset may be partially matched;
(c) one asset may be matched with two or more liabilities (wholly or partially);
(d) one liability may be matched with two or more assets (wholly or partially).
(5) Regulations may include provision that an election relating to an asset or assets shall be treated as made in relation to another asset or other assets (as where assets are replaced by others).
(6) Regulations may include provision—
(a) that an election may in prescribed circumstances have effect from a time before it is made;
(b) that an election may be varied;
(c) that an election may not be revoked;
(d) that an election must be made by the company (subject to any provision under sub-paragraph (7) below).
(7) Regulations may provide that where the company is a relevant controlled foreign company an election may be made by a United Kingdom resident company which has (or may be made jointly by United Kingdom resident companies which together have) a majority interest in the company; and—
(a) a company is a relevant controlled foreign company if Chapter IV of Part XVII of the Taxes Act 1988 applies in relation to the accounting period of the company which constitutes the accrual period or in which the accrual period falls;
(b) paragraph 4(3) of Schedule 24 to that Act (majority interest) applies for the purposes of this sub-paragraph.
(8) Regulations may include provision—
(a) that prescribed conditions shall be treated as fulfilled in prescribed circumstances (subject to any provision under paragraph (b) below);
(b) that prescribed conditions shall be treated as not having been fulfilled if the inspector gives notification that he is not satisfied that they are fulfilled;
(c) for an appeal from the inspector’s notification;
(d) for a notification to be given to the company or companies making the election.
(9) Regulations may be so framed that the accrued amount as regards a day depends on the extent to which a liability is matched.
(10) Regulations may also provide as mentioned in one or more of the following paragraphs—
(a) that a chargeable gain (or chargeable gains) shall be treated as accruing to a relevant person for the purposes of the Taxation of Chargeable Gains Act 1992;
(b) that an allowable loss (or allowable losses) shall be treated as accruing to a relevant person for the purposes of that Act;
(c) that the operation of that Act as regards a relevant person shall be otherwise adjusted in accordance with prescribed rules (whether the adjustment results in the incidence of tax on the person being greater or smaller).
(11) For the purposes of sub-paragraph (10) above each of the following is a relevant person—
(a) the company mentioned in sub-paragraph (1) above;
(b) any person who has at any time acquired a matched asset (or part of a matched asset) since the company acquired it;
and a matched asset is an asset which has at any time been to any extent matched with a liability in pursuance of an election.
(12) Regulations may make provision—
(a) as to the occasion on which a chargeable gain or allowable loss mentioned in sub-paragraph (10) above is to be treated as accruing, as to the amount to be treated as the amount of the gain or loss, and as to other matters relating to the gain or loss;
(b) as to the timing and extent of any adjustment mentioned in sub-paragraph (10)(c) above and as to other matters relating to the adjustment.
Currency contracts: matching
4A (1) Regulations may provide that where—
(a) as regards a contract an initial exchange gain or initial exchange loss accrues to a company for an accrual period under section 126(5) of this Act or would so accrue apart from regulations under this Schedule,
(b) the relevant duty is eligible to be matched on any day in the accrual period with an asset held by the company, and such other conditions as may be prescribed are fulfilled, and
(c) an election is made in accordance with the regulations to match the duty with the asset on any such day and the election has effect by virtue of the regulations,
the amount of the gain or loss shall be found in accordance with the alternative method of calculation.
(2) Regulations may also provide that as regards any day in respect of which an election has effect the accrued amount shall be ascertained in accordance with prescribed rules.
(3) The reference in sub-paragraph (1) above to the relevant duty is to the duty to which, under the contract, the company becomes subject as regards the second currency (within the meaning given by section 126 of this Act).
(4) Where regulations are made under this paragraph, sub-paragraphs (3) to (12) of paragraph 4 above shall apply as they apply where regulations are made under that paragraph; but in the application of those sub-paragraphs by virtue of this sub-paragraph—
(a) the references to a liability in sub-paragraphs (3), (4), (9) and (11) shall be construed as references to a duty,
(b) the references to liabilities in sub-paragraphs (3) and (4) shall be construed as references to duties, and
(c) the reference in sub-paragraph (11)(a) to sub-paragraph (1) of paragraph 4 shall be construed as a reference to sub-paragraph (1) above.
Combination of circumstances
5 (1) This paragraph applies where regulations under more than one of paragraphs 2 to 4 above apply—
(a) as regards the same asset or liability, and
(b) for the same accrual period.
(2) Regulations may provide that, as regards any day falling within the period and identified in accordance with prescribed rules, the accrued amount shall be ascertained in accordance with rules prescribed under this paragraph (rather than provisions made under any of those paragraphs).
5A (1) This paragraph applies where regulations under both paragraph 2 and paragraph 4A above apply—
(a) as regards the same contract, and
(b) for the same accrual period.
(2) Regulations may provide that, as regards any day falling within the period and identified in accordance with prescribed rules, the accrued amount shall be ascertained in accordance with rules prescribed under this paragraph (rather than provisions made under either of those paragraphs).
Arm’s length test
6 Where regulations make provision under any of the relevant paragraphs, they may provide that for the purposes of section 136(11) of this Act amounts X and Y shall be found without regard to matters which are prescribed and would otherwise have had to be taken into account under the regulations ; and the relevant paragraphs are paragraphs 2, 3, 4 and 5 above..
Local currency
7 Where regulations make provision under any of paragraphs 2 to 5A above, section 149 of this Act shall have effect as if the references to sections 125 to 127 included references to this Schedule and the provisions of the regulations.
General
8 Regulations may be so framed that the accrued amount as regards a day is nil (so that, depending on the circumstances, an initial exchange gain or initial exchange loss may be extinguished).
9 Regulations may make different provision about exchange gains (on the one hand) and exchange losses (on the other).
SCHEDULE 16 Exchange gains and losses: transitionals
Section 165.
Introduction
1 For the purposes of this Schedule an existing asset, liability or contract is an asset, liability or contract to which this Chapter applies by virtue of section 165(2) or (3) of this Act or by virtue of regulations under section 165(4) of this Act.
General provision
2 (1) Regulations may make such provision as the Treasury think fit with regard to the application of this Chapter to an existing asset, liability or contract (such as provision for finding the basic valuation of an asset or liability).
(2) Nothing in the following provisions of this Schedule shall prejudice the generality of sub-paragraph (1) above.
Attributed gain or loss
3 (1) Regulations may provide that—
(a) an amount found in accordance with prescribed rules shall be attributed to an existing asset or liability, and
(b) the amount shall be characterised as a gain or loss in accordance with prescribed rules.
(2) The regulations may provide that an attributed gain or loss shall be set off against exchange losses or exchange gains accruing as regards the asset or liability; and for this purpose—
(a) an exchange gain is an exchange gain of a trade or an exchange gain of part of a trade or a non-trading exchange gain;
(b) an exchange loss is an exchange loss of a trade or an exchange loss of part of a trade or a non-trading exchange loss.
(3) The regulations may provide that if an event of a prescribed description occurs as regards the asset or liability at a time falling on or after the commencement day of the company concerned and at a time when all or part of an attributed gain or loss is outstanding—
(a) an initial exchange gain or initial exchange loss of an amount found in accordance with prescribed rules shall be treated as accruing to the company as regards the asset or liability, or
(b) a chargeable gain or allowable loss of an amount found in accordance with prescribed rules shall be treated as accruing to the company as regards the asset or liability for the purposes of the Taxation of Chargeable Gains Act 1992.
(4) The regulations may provide that where—
(a) apart from provision under this sub-paragraph, an allowable loss would be treated as accruing by virtue of provision made under sub-paragraph (3)(b) above, and
(b) the company concerned makes an election in accordance with prescribed rules,
the loss shall not be treated as accruing and relief of an amount equal to it shall be given to the company in such form and manner as may be prescribed.
(5) The regulations may provide that where provision under this paragraph has effect the outstanding attributed gain or loss shall be treated as reduced or extinguished.
(6) The regulations may make provision—
(a) as to the time when an initial exchange gain or initial exchange loss is to be treated as accruing and as to the extent to which it is to be treated as an exchange gain or loss of a trade or of part of a trade or as a non-trading exchange gain or loss;
(b) as to the occasion on which a chargeable gain or allowable loss is to be treated as accruing;
(c) as to other matters relating to setting off against, or the accrual of, gains or losses as mentioned in this paragraph.
Adjustment of exchange gain or loss
4 (1) Regulations may provide that where an exchange gain or exchange loss accrues to a company as regards an existing asset or liability (or would so accrue apart from the regulations)—
(a) the amount of the gain or loss shall be deemed to be increased in accordance with prescribed rules,
(b) the amount of the gain or loss shall be deemed to be reduced in accordance with prescribed rules, or
(c) the gain or loss shall be deemed not to accrue.
(2) For the purposes of this paragraph—
(a) an exchange gain is an exchange gain of a trade or an exchange gain of part of a trade or a non-trading exchange gain;
(b) an exchange loss is an exchange loss of a trade or an exchange loss of part of a trade or a non-trading exchange loss.
(3) The regulations may be framed by reference to—
(a) exchange differences arising as regards the asset or liability at any time while the company actually holds or owes it (whether any such time falls before, on or after the company’s commencement day);
(b) such other factors as the Treasury think fit;
and for this purpose exchange differences are gains and losses attributable to fluctuations in currency exchange rates.
(4) The regulations may include provision designed to prevent provision under them being avoided by the replacement (or partial replacement) of assets or liabilities by other assets or liabilities.
Allowable losses
5 (1) Regulations may provide that where—
(a) an allowable loss of a prescribed description has accrued to a qualifying company for the purposes of the Taxation of Chargeable Gains Act 1992,
(b) the loss has accrued before the company’s commencement day,
(c) all or part of the loss has not been allowed as a deduction under that Act, and
(d) prescribed conditions (whether relating to the making of a claim or otherwise) are fulfilled,
the loss shall be set off against exchange gains accruing to the company.
(2) For the purposes of this paragraph an exchange gain is an exchange gain of a trade or an exchange gain of part of a trade or a non-trading exchange gain.
(3) The regulations may provide that the loss may only be set off—
(a) to the extent that it has not been allowed as a deduction under the Taxation of Chargeable Gains Act 1992;
(b) against exchange gains accruing as regards assets or liabilities of a prescribed description.
(4) The regulations may include rules for ascertaining whether an allowable loss of a prescribed description has or has not been allowed as a deduction under the Taxation of Chargeable Gains Act 1992.
Miscellaneous
6 (1) Regulations may provide—
(a) that provision under paragraph 3 above or provision under paragraph 4 above or provision under neither of them shall apply in the case of an asset or liability according to the circumstances of the case;
(b) that provision under paragraph 3(3)(a) above or provision under paragraph 3(3)(b) above shall apply in the case of an asset or liability according to the circumstances of the case.
(2) The circumstances may be framed by reference to—
(a) whether, and how, exchange differences arising as regards the asset or liability would be taken into account for tax purposes apart from this Chapter;
(b) such other factors as the Treasury think fit;
and for this purpose exchange differences are gains and losses attributable to fluctuations in currency exchange rates.
SCHEDULE 17 Exchange gains and losses: chargeable gains
Section 169.
Introduction
1 In this Schedule “the 1992 Act” means the Taxation of Chargeable Gains Act 1992.
Currency
2 (1) In a case where—
(a) there is for the purposes of the 1992 Act a disposal of currency other than sterling by a qualifying company, and
(b) immediately before the disposal the company did not hold the currency in exempt circumstances (within the meaning given by paragraph 3 below),
for the purposes of that Act no chargeable gain or allowable loss shall accrue on the disposal.
(2) This paragraph applies to disposals on or after the company’s commencement day.
3 (1) For the purposes of paragraph 2 above a company holds currency in exempt circumstances at a given time if—
(a) the purposes for which it then holds the currency are or include any of the purposes mentioned in sub-paragraph (2) below,
(b) it is a housing association approved at that time for the purposes of section 488 of the Taxes Act 1988, or
(c) it is a self-build society approved at that time for the purposes of section 489 of that Act.
(2) The purposes referred to in sub-paragraph (1)(a) above are—
(a) the purposes of long-term insurance business;
(b) the purposes of mutual insurance business;
(c) the purposes of the occupation of commercial woodlands.
(3) In this paragraph—
“long-term insurance business” means business which consists of the effecting or carrying out of contracts which fall within Part II of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;
“commercial woodlands” means woodlands in the United Kingdom which are managed on a commercial basis and with a view to the realisation of profits.
Debts other than securities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
Debts on securities: disposals
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
Debts on securities: relief
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
Reconstructions, groups etc.
7 (1) This paragraph applies where there is for the purposes of the 1992 Act a disposal or acquisition of an asset which is—
(a) currency,
(b) a debt which is not a debt on a security and the right to settlement under which is a qualifying asset,
(c) a security (as defined in section 132 of the 1992 Act) where the right to settlement under the debt on the security is a qualifying asset, or
(d) an obligation which by virtue of section 143 of the 1992 Act (futures and options) is regarded as an asset to the disposal of which that Act applies and which is a duty under a currency contract.
(2) In a case where—
(a) the condition mentioned in sub-paragraph (3) below is fulfilled, and
(b) section 139 or 171 of the 1992 Act (reconstructions, groups etc.) would, apart from this paragraph, apply as regards the disposal or acquisition,
the section concerned shall not apply as regards the disposal and the corresponding acquisition or (as the case may be) shall not apply as regards the acquisition and the corresponding disposal.
(3) The condition is that stated in paragraph (a) or (b) below (as the case may be)—
(a) the disposal is by a qualifying company and immediately before the disposal the asset is held wholly for qualifying purposes;
(b) the acquisition is by a qualifying company and immediately after the acquisition the asset is held wholly for qualifying purposes.
(4) For the purposes of this paragraph qualifying purposes are purposes which constitute one or both of the following—
(a) purposes of long-term insurance business;
(b) purposes of mutual insurance business;
and “long-term insurance business” means business which consists of the effecting or carrying out of contracts which fall within Part II of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.
(5) This paragraph applies where the disposal or acquisition (as the case may be) is made on or after the commencement day of the company mentioned in sub-paragraph (3)(a) or (b) above (as the case may be).
Indexation allowance
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8