Finance (No. 2) Act 1997 (c. 58)

(The document as of February, 2008)

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Chapter VA of Part VI of the Taxes Act 1988

3 (1) Sections 246A to 246Y of the Taxes Act 1988 (foreign income dividends) shall cease to have effect.

(2) The repeal of sections 246A to 246E and 246G of the Taxes Act 1988 has effect in relation to distributions made on or after 6th April 1999.

(3) The repeal of sections 246F, 246H to 246J and 246N to 246Y of the Taxes Act 1988 has effect for accounting periods beginning on or after 6th April 1999.

(4) The repeal of sections 246K to 246M of the Taxes Act 1988 has effect for accounting periods of the parent (within the meaning of those sections) beginning on or after 6th April 1999.

Section 247 of the Taxes Act 1988

4 (1) In section 247 of the Taxes Act 1988 (dividends etc paid by one member of a group to another) subsections (5A) to (5D) (which relate to foreign income dividends) shall cease to have effect.

(2) This paragraph has effect in relation to distributions made on or after 6th April 1999.

Section 431 of the Taxes Act 1988

5 (1) In section 431(2) of the Taxes Act 1988 (interpretation of Chapter I of Part XII) the definition of "foreign income dividends" shall cease to have effect.

(2) This paragraph has effect for accounting periods beginning on or after 6th April 1999.

Section 434 of the Taxes Act 1988

6 (1) Section 434 of the Taxes Act 1988 (franked investment income etc) shall be amended as follows.

(2) Subsections (3B) to (3D) (which relate to foreign income dividends) shall cease to have effect.

(3) In subsection (6A), paragraphs (aa) to (ac) (which define expressions used in subsections (3B) to (3D)) shall cease to have effect.

(4) This paragraph has effect for accounting periods beginning on or after 6th April 1999.

Section 458 of the Taxes Act 1988

7 (1) In section 458 of the Taxes Act 1988 (capital redemption business) in subsection (2) (certain foreign income dividends treated as part of profits in ascertaining loss) the words "and foreign income dividends arising to" shall cease to have effect.

(2) This paragraph has effect in relation to distributions made on or after 6th April 1999.

Chapter III of Part XII of the Taxes Act 1988

8 (1) In section 468H of the Taxes Act 1988 (interpretation of sections 468I to 468R)--

(a) subsection (5) (construction of references to foreign income dividends) shall cease to have effect; and

(b) in subsection (6), for "to 468R" there shall be substituted "to 468Q".

(2) In section 468I of the Taxes Act 1988 (distribution accounts)--

(a) in subsection (2), the words "which are not foreign income dividends" shall cease to have effect; and

(b) subsections (3), (5), (5A) and (7) shall cease to have effect.

(3) In section 468J of the Taxes Act 1988 (dividend distributions)--

(a) in subsection (1), the words "or a part of the total amount" and "which are not foreign income dividends" shall cease to have effect;

(b) in subsection (2), the words "or, as the case may be, the part" shall cease to have effect; and

(4) Section 468K of the Taxes Act 1988 (foreign income distributions) shall cease to have effect.

(5) In section 468M of the Taxes Act 1988 (deduction of tax: simple case) in subsection (5) (definition of "eligible income") paragraph (c) shall cease to have effect.

(6) In section 468Q of the Taxes Act 1988 (dividend distribution to corporate unit holder)--

(a) in subsection (2)(a), the words "a foreign income distribution" shall cease to have effect;

(b) in subsection (3)--

(i) for the formula there shall be substituted the following formula--

---

(ii) the definition of "B" shall cease to have effect; and

(7) Section 468R of the Taxes Act 1988 (foreign income distribution to corporate holder) shall cease to have effect.

(8) Sub-paragraphs (1)(a), (5) and (6) above have effect for distribution periods beginning on or after 6th April 1999.

(9) Sub-paragraphs (1)(b), (2) to (4) and (7) above have effect for distribution periods the distribution date for which falls on or after 6th April 1999.

Section 490 of the Taxes Act 1988

9 (1) Section 490 of the Taxes Act 1988 (companies carrying on a mutual business or not carrying on a business) shall be amended as follows.

(2) In subsection (1) (which contains a reference to foreign income dividends) the words "or out of foreign income dividends" shall cease to have effect.

(3) In subsection (4) (which contains a reference to foreign income dividends) the words "or foreign income dividends" shall cease to have effect.

(4) Subsection (5) (definition of "foreign income dividends") shall cease to have effect.

(5) This paragraph has effect in relation to distributions made on or after 6th April 1999.

Section 687 of the Taxes Act 1988

10 (1) In section 687 of the Taxes Act 1988 (payments under discretionary trusts) in subsection (3), paragraph (aaa) (which concerns any sums treated under section 246D(4) as income of trustees) shall cease to have effect.

(2) This paragraph has effect in relation to distributions made on or after 6th April 1999.

Section 689B of the Taxes Act 1988

11 (1) In section 689B of the Taxes Act 1988 (order in which expenses to be set against income) in subsection (2)(b) the words "246D(4) or" shall cease to have effect.

(2) This paragraph has effect in relation to distributions made on or after 6th April 1999.

Section 699A of the Taxes Act 1988

12 (1) In section 699A of the Taxes Act 1988 (untaxed sums comprised in the income of the estate)--

(a) in subsection (1)(a), and

(b) in subsection (4)(a),

the word "246D(3)" shall cease to have effect.

(2) This paragraph has effect in relation to distributions made on or after 6th April 1999.

Section 701 of the Taxes Act 1988

13 (1) In section 701 of the Taxes Act 1988 (interpretation) in subsection (8) (subjection for section 246D(3) etc) the word "246D(3)" shall cease to have effect.

(2) This paragraph has effect in relation to distributions made on or after 6th April 1999.

Section 731 of the Taxes Act 1988

14 (1) Section 731 of the Taxes Act 1988 (application and interpretation of sections 732 to 734) shall be amended as follows.

(2) In subsection (9A) (application of references to interest in relation to a qualifying distribution other than a foreign income dividend) the words "other than a foreign income dividend" shall cease to have effect.

(3) Subsections (9B) to (9D) (which make provision in relation to foreign income dividends) shall cease to have effect.

(4) This paragraph has effect in relation to distributions made on or after 6th April 1999.

Section 802 of the Taxes Act 1988

15 (1) Section 802 of the Taxes Act 1988 (UK insurance companies trading overseas) shall be amended as follows.

(2) In subsection (2) (which contains a reference to foreign income dividends) the words "foreign income dividends" shall cease to have effect.

(3) Subsection (4) (definition of "foreign income dividends") shall cease to have effect.

(4) This paragraph has effect in relation to distributions made on or after 6th April 1999.

Schedule 13 to the Taxes Act 1988

16 (1) Schedule 13 to the Taxes Act 1988 shall be amended as follows.

(2) In paragraph 1 (duty to make returns), in sub-paragraph (1)--

(a) paragraph (b) (duty to make returns of foreign income dividends paid and received) shall cease to have effect;

(b) in paragraph (c), the words "and foreign income dividends paid" shall cease to have effect; and

(c) the words following paragraph (c) (construction of references to foreign income dividends) shall cease to have effect.

(3) In sub-paragraph (4) of that paragraph--

(a) the word "4A(2),", and

(b) paragraph (b) and the word "and" immediately preceding it,

shall cease to have effect.

(4) In paragraph 2 (content of returns)--

(a) in sub-paragraph (1)--

(i) for "paragraphs 7(2), 3A(2) and 9A(2)" there shall be substituted "paragraph 7(2)"; and

(ii) paragraphs (d) to (f) (which require the return to include information in relation to foreign income dividends) shall cease to have effect; and

(b) sub-paragraphs (5) and (6) (which supplement paragraphs (e) and (f) of sub-paragraph (1)) shall cease to have effect.

(5) In paragraph 3 (payment of tax)--

(a) in sub-paragraph (1), the words "and foreign income dividends", and

(b) in sub-paragraph (3), the words "or foreign income dividend",

shall cease to have effect.

(6) Paragraphs 3A and 3B (which make provision in relation to international headquarters companies paying foreign income dividends) shall cease to have effect.

(7) In paragraph 4 (receipt of franked investment income after payment of advance corporation tax) in sub-paragraph (2) the words "or paid any foreign income dividends" shall cease to have effect.

(8) Paragraph 4A (receipt of foreign income dividends after payment of advance corporation tax) shall cease to have effect.

(9) Paragraph 6A (claims for set-off in respect of foreign income dividends received by a company) shall cease to have effect.

(10) In paragraph 7 (qualifying distributions which are not payments and payments of uncertain nature) in sub-paragraph (3) the words "and no foreign income dividend is paid" shall cease to have effect.

(11) Paragraph 9A (manufactured foreign income dividends) shall cease to have effect.

(12) Sub-paragraph (2) above has effect for accounting periods beginning on or after 6th April 1999.

(13) Sub-paragraphs (3) to (10) above have effect for return periods beginning on or after 6th April 1999.

(14) Sub-paragraph (11) above has effect in relation to manufactured dividends which are representative of dividends paid on or after 6th April 1999.

Schedule 23A to the Taxes Act 1988

17 (1) Schedule 23A to the Taxes Act 1988 (manufactured dividends and interest) shall be amended as follows.

(2) In paragraph 1(1) (interpretation) the definition of "foreign income dividend" shall cease to have effect.

(3) In paragraph 2 (manufactured dividends on UK equities: general) in sub-paragraph (6) the words "Subject to paragraph 2B(2)(b) below" shall cease to have effect.

(4) Paragraph 2B (manufactured dividends representative of foreign income dividends) shall cease to have effect.

(5) This paragraph has effect in relation to manufactured dividends which are representative of dividends paid on or after 6th April 1999.

Section 88A of the Finance Act 1989

18 (1) In section 88A of the [1989 c. 26.] Finance Act 1989 (lower corporation tax rate on certain insurance company profits) in subsection (3)--

(a) paragraph (d)(ii) (which relates to foreign income distributions) shall cease to have effect; and

(b) the words "(or by that subsection as applied by section 468R(2) of that Act)" shall cease to have effect.

(2) This paragraph has effect in relation to distributions made on or after 6th April 1999.

Section 89 of the Finance Act 1989

19 (1) Section 89 of the Finance Act 1989 (policy holders' share of profits) shall be amended as follows.

(2) In subsection (2), paragraph (c) (which provides for Case I profits to be reduced by the shareholders' share of any foreign income dividends from investments held in connection with life assurance business) shall cease to have effect.

(3) Subsection (2A) (which explains certain expressions used in subsection (2)(c)) shall cease to have effect.

(4) This paragraph has effect in relation to distributions made on or after 6th April 1999.

Section 171 of the Finance Act 1993

20 (1) Section 171 of the [1993 c. 34.] Finance Act 1993 (taxation of profits and allowance of losses of Lloyd's underwriters) shall be amended as follows.

(2) Subsection (2A) (which makes provision in relation to foreign income dividends) shall cease to have effect.

(3) This paragraph has effect in relation to distributions made on or after 6th April 1999.

Schedule 7 to the Finance Act 1997

21 (1) Schedule 7 to the [1997 c. 16.] Finance Act 1997 shall be amended as follows.

(2) Paragraph 2 (distributions treated as FIDs) shall cease to have effect.

(3) Paragraphs 4 to 6 (exceptions for stock options, dividends on fixed rate preference shares and pre-sale distributions) shall cease to have effect.

(4) Sub-paragraphs (2) and (3) above have effect in relation to distributions made on or after 6th April 1999.

Transitional provisions

22 (1) Where, in the case of an accounting period of a company beginning before 6th April 1999 and ending on or after 5th April 1999 ("a transitional period"), there would (apart from this sub-paragraph) be such an excess as is mentioned in section 246F(3) of the Taxes Act 1988, no such excess shall be deemed to have arisen.

(2) In their application in relation to foreign income dividends paid in an accounting period of a company beginning before 6th April 1999, sections 246J(5) and 246K(10) of the Taxes Act 1988 shall have effect as if the reference to any subsequent accounting period--

(a) included an accounting period which immediately follows a transitional period, but

(b) did not include any later accounting period.

23 Where a foreign income dividend paid by a company before 6th April 1999--

(a) is received by a person on or after that date, and

(b) is not one in relation to which section 246D of the Taxes Act 1988 applies,

the recipient shall be treated, for all purposes of the Tax Acts, as receiving instead a qualifying distribution made by a company resident in the United Kingdom of an amount equal to nine tenths of the amount of the foreign income dividend.

Section 41.

SCHEDULE 7 Restrictions on group relief

Introductory

1 Chapter IV of Part X of the Taxes Act 1988 (group relief) shall be amended in accordance with paragraphs 2 to 7 below.

New limits

2 The following sections shall be inserted after section 403--

" 403A Limits on group relief

(1) The amount which, on a claim for group relief, may be set off against the total profits of the claimant company for an accounting period ("the claim period"), and accordingly the amount to which any consent required in respect of that claim may relate, shall not exceed whichever is the smaller of the following amounts--

(a) the unused part of the surrenderable amount for the overlapping period; and

(b) the unrelieved part of the claimant company's total profits for the overlapping period.

(2) For the purposes of any claim for group relief--

(a) the unused part of the surrenderable amount for the overlapping period is the surrenderable amount for that period reduced by the amount of any prior surrenders attributable to the overlapping period; and

(b) the unrelieved part of the claimant company's total profits for the overlapping period is the amount of its total profits for that period reduced by the amount of any previously claimed group relief attributable to the overlapping period.

(3) For the purposes of any claim for group relief--

(a) the surrenderable amount for the overlapping period is so much of the surrenderable amount for the accounting period of the surrendering company to which the claim relates as is attributable, on an apportionment in accordance with section 403B, to the overlapping period;

(b) the surrenderable amount for an accounting period of the surrendering company is the total amount for that accounting period of the losses and other amounts which (disregarding this section and section 403C) are available in that company's case for set off by way of group relief; and

(c) the amount of the claimant company's total profits for the overlapping period is so much of its total profits for the claim period as is attributable, on an apportionment in accordance with section 403B, to the overlapping period.

(4) In relation to any claim for group relief ("the relevant claim") the amount of the prior surrenders attributable to the period which is the overlapping period in the case of the relevant claim is equal to the aggregate amount (if any) produced by--

(a) taking the amount of every claim for group relief (whether a group claim or a consortium claim) which--

(i) has been made before the relevant claim,

(ii) was made in respect of the whole or any part of the amount which, in relation to the relevant claim, is the surrenderable amount for the accounting period of the surrendering company to which the claim relates, and

(iii) has not been withdrawn;

(b) treating the amount of group relief which (having regard to the provisions of this section) is allowable under each such claim as an amount of relief for the period which is the overlapping period in the case of that claim;

(c) determining how much of each amount treated in accordance with paragraph (b) above as an amount of relief for a particular period is attributable, on an apportionment in accordance with section 403B, to the period (if any) which is common to both--

(i) that period; and

(ii) the period which is the overlapping period in the case of the relevant claim;

and

(d) aggregating all the amounts determined under paragraph (c) above in respect of the previously made claims.

(5) In relation to any claim for group relief ("the relevant claim"), the amount of previously claimed group relief attributable to the period which is the overlapping period in the case of that claim is the aggregate amount produced by--

(a) taking the amount of every claim for group relief (whether a group claim or a consortium claim) which--

(i) has been made before the relevant claim,

(ii) was a claim to set off an amount by way of group relief against the claimant company's total profits for the period which, in relation to the relevant claim, is the claim period, and

(iii) has not been withdrawn;

(i) that period; and

(ii) the period which is the overlapping period in the case of the relevant claim;

and

(d) aggregating all the amounts determined under paragraph (c) above in respect of the previously made claims.

(6) For the purposes of this section the amount of group relief allowable on any claim ("the finalised claim") shall fall to be determined as at the time when that claim ceases to be capable of being withdrawn as if--

(a) every claim that became incapable of being withdrawn before that time were a claim made before the finalised claim; and

(b) every claim that remains capable of being withdrawn at that time were a claim made after the finalised claim.

(7) Subject to subsection (6) above and without prejudice to any power to withdraw and resubmit claims, where (but for this subsection) more than one claim for group relief would be taken for the purposes of subsections (4) and (5) above to have been made at the same time, those claims shall be deemed, instead, to have been made--

(a) in such order as the company or companies making them may, by notice to any officer of the Board, elect or, as the case may be, jointly elect; and

(b) if there is no such election, in such order as an officer of the Board may direct.

(8) In this section "the overlapping period", in relation to a claim for group relief, means (subject to subsection (9) below and section 406(3) and (7)) the period which is common to both--

(a) the claim period; and

(b) the accounting period of the surrendering company to which the claim relates.

(9) For the purposes of this section any time in the period which, in relation to any claim for group relief, is common to both the accounting periods mentioned in subsection (8) above but which is a time when the qualifying conditions were not satisfied--

(a) shall be treated as not comprised in the period which is the overlapping period in the case of that claim; and

(b) shall be treated instead, in relation to each of those accounting periods, as if it constituted a part of that accounting period which was not common to both periods.

(10) For the purposes of subsection (9) above the qualifying conditions are satisfied in relation to any claim for group relief at the following times, that is to say--

(a) if the claim is a group claim, whenever the claimant company and the surrendering company are both members of the same group; and

(b) if the claim is a consortium claim, whenever the conditions specified in section 402(3) for the making of that claim are satisfied in the case of the claimant company and the surrendering company.

403B Apportionments under section 403A

(1) Subject to subsection (2) below, where an apportionment falls to be made under section 403A for the purpose of determining how much of an amount for any period ("the first period") is attributable to any other period ("the second period") which comprises the whole or a part of the first period--

(a) the whole of that amount shall be attributed to the second period if the first and second periods begin and end at the same times; and

(b) in any other case, the apportionment shall be made on a time basis according to how much of the first period coincides with the second period.

(2) Where the circumstances of a particular case are such that the making on the time basis mentioned in subsection (1)(b) above of some or all of the apportionments to be made in that case would work in a manner that would be unjust or unreasonable in relation to any person, those apportionments shall be made instead (to the extent only that is necessary in order to avoid injustice and unreasonableness) in such other manner as may be just and reasonable.

403C Special rules for consortium cases

(1) Where--

(a) in the case of a consortium claim, the surrendering company is a member of the consortium, and

(b) the amount produced by multiplying the surrenderable amount for the overlapping period by the relevant fraction is less than the smaller of the amounts given by subsection (1)(a) and (b) of section 403A,

the amount which, on that claim, may be set off against the total profits of the claimant company for the claim period shall not exceed the amount produced by that multiplication.

(2) Where--

(a) in the case of a consortium claim, the claimant company is a member of the consortium, and

(b) the amount produced by multiplying the claimant company's total profits for the overlapping period by the relevant fraction is less than the smaller of the amounts given by subsection (1)(a) and (b) of section 403A,

the amount which, on that claim, may be set off against the total profits of the claimant company for the claim period shall not exceed the amount produced by that multiplication.

(3) For the purposes of this section the relevant fraction is the fraction equivalent to--

(a) in a case falling within subsection (1) above, the surrendering company's member's share in the consortium in the accounting period of that company which is or includes the overlapping period; and

(b) in a case falling within subsection (2) above, the claimant company's member's share in the consortium in the accounting period of that company which is or includes the overlapping period.

(4) Expressions used in this section and in section 403A have the same meanings in this section as in that section. "

Consequential amendments

3 Subsection (9) of section 403 (fraction limiting relief in the case of consortium claims) shall cease to have effect.

4 In section 405(4) (claims relating to losses of members of both groups and consortia), for the words from "a fraction" to "403(9)(b))" there shall be substituted "which an amount may by virtue of that claim be set off by way of group relief".

5 (1) In section 406 (consortium claims by or in relation to group members and consortium companies), in each of subsections (2) and (6) (which refer to the fraction in section 403(9))--

(a) for "appropriate under section 403(9)" there shall be substituted "the relevant fraction for the purposes of section 403C"; and

(b) for "that which would be appropriate" there shall be substituted "it would be".

(2) For subsection (3) of that section there shall be substituted the following subsection--

" (3) Sections 403A to 403C shall have effect in relation to a consortium claim made by a group member by virtue of subsection (2) above as if any time when the claimant company was not a member of the group--

(a) were not comprised in the period which is the overlapping period in the case of that claim; and

(b) were to be treated instead as if it constituted a part of the claim period which did not coincide with any part of the accounting period of the surrendering company to which the claim relates. "

(3) For subsection (7) of that section there shall be substituted the following subsection--

" (7) Sections 403A to 403C shall have effect in relation to a consortium claim made by a consortium company by virtue of subsection (5) above as if any time when the surrendering company was not a member of the group--

(a) were not comprised in the period which is the overlapping period in the case of that claim; and

(b) were to be treated instead as if it constituted a part of the claim period that did not coincide with any part of the accounting period of the surrendering company to which the claim relates. "

(4) In subsection (8) of that section, for the words from "that fraction" to "409(3)(b)" there shall be substituted "the maximum amount of relief available to the claimant company".

6 Sections 408, 409 and 411(2) to (9) (which limit group relief where the accounting periods of the claimant company and the surrendering company do not coincide and where companies join and leave groups and make other provision for excluding double relief) shall cease to have effect.

7 In section 413 (interpretation), after subsection (2) there shall be inserted the following subsection--

" (2A) For the purposes of group relief an accounting period of the claimant company which falls wholly or partly within an accounting period of the surrendering company shall be taken to correspond to that accounting period of the surrendering company. "

8 In section 179(4) of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (which specifies when a gain or loss on de-grouping is deemed to accrue), for the words after paragraph (b) there shall be substituted--

" and sections 403A and 403B of the Taxes Act (limits on group relief) shall have effect accordingly as if the actual circumstances were as they are treated as having been. "

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