Finance Act 1998 (c. 36) (c. 36)

(The document as of February, 2008)

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(3) Where a company owned by a consortium--

(a) has in any relevant accounting period incurred a trading loss, and

(b) has profits (of whatever description) of that accounting period against which that loss could be set off under section 393A(1),

the amount of the loss available to a member of the consortium on a consortium claim shall be determined on the assumption that the company has made a claim under section 393A(1) requiring the loss to be so set off.

(4) Where the company mentioned in subsection (3) is a group/consortium company, the amount of the loss available under that subsection shall be determined before any reduction is made under section 405(1) to (3).

403ZB Amounts eligible for group relief: excess capital allowances.

(1) For the purposes of section 403 excess capital allowances means capital allowances falling to be made to the surrendering company for the surrender period which--

(a) are to be given by discharge or repayment of tax, and

(b) are to be available primarily against a specified class of income,

to the extent to which their amount exceeds the company's income of the relevant class arising in that period.

(2) In determining the amount of the allowances falling to be made for the surrender period, no account shall be taken of any allowances carried forward from an earlier period.

(3) The amount of the company's income of the relevant class means its amount before deduction of--

(a) losses of any other period, or

(b) capital allowances.

403ZC Amounts eligible for group relief: non-trading deficit on loan relationships.

(1) For the purposes of section 403 a non-trading deficit on its loan relationships means a deficit of the surrendering company to which section 83 of the [1996 c. 8.] Finance Act 1996 applies.

(2) Section 403 applies to such a deficit only to the extent that a claim is duly made under section 83(2) of the Finance Act 1996 for it to be treated as eligible for group relief.

403ZD Other amounts available by way of group relief.

(1) References in section 403 to charges on income, Schedule A losses and management expenses shall be construed as follows.

(2) Charges on income means the aggregate of the amounts paid by the surrendering company in the surrender period by way of charges on income.

(3) A Schedule A loss means a loss incurred by the surrendering company in the surrender period in a Schedule A business carried on by the company.

It does not include--

(a) an amount treated as such a loss by section 392A(2) (losses carried forward from earlier period), or

(b) a loss which would be excluded from section 392A by subsection (5) of that section (certain businesses not carried on with a view to gain).

(4) Management expenses means the aggregate of the amounts disbursed by the surrendering company for the surrender period which are deductible under section 75(1) (expenses of management of investment company).

It does not include an amount deductible only by virtue of section 75(3) or 392A(3) (amounts carried forward from earlier periods).

(5) References in this section to section 75 do not include that section as applied by section 76 to companies carrying on life assurance business.

403ZE Computation of gross profits.

(1) For the purposes of section 403 the surrendering company's gross profits of the surrender period means its profits for that period--

(a) without any deduction in respect of such losses, allowances and other amounts as are mentioned in paragraph (a) or (b) of subsection (1) of that section, and

(b) without any deduction falling to be made--

(i) in respect of losses, allowances or other amounts of any other period (whether or not of a description within subsection (1) of that section), or

(ii) by virtue of section 75(3) or 392A(3) (other amounts carried forward).

(2) References in this section to section 75 do not include that section as applied by section 76 to companies carrying on life assurance business. " .

30 In Chapter V of Part XII of the Taxes Act 1988 (oil extraction activities), after section 494 insert--

" 494A Computation of amount available for surrender by way of group relief.

(1) In section 403(3) (availability of charges, Schedule A losses and management expenses for surrender as group relief) the reference to the gross profits of the surrendering company for an accounting period does not include the company's relevant ring fence profits for that period.

(2) If for that period--

(a) there are no charges on income paid by the company that are allowable under section 338, or

(b) the only charges on income so allowable are charges to which section 494(3) above applies,

all the company's ring fence profits are relevant ring fence profits.

(3) In any other case the company's relevant ring fence profits are so much of its ring fence profits as exceeds the amount of the charges on income paid by the company as--

(a) are allowable under section 338 for that period, and

(b) are not charges to which section 494(3) above applies. " .

31 In Chapter VI of Part XVII of the Taxes Act 1988 (tax avoidance: miscellaneous provisions), after section 768C insert--

" 768D Change in ownership of company carrying on property business.

(1) This section applies where there is a change in the ownership of a company carrying on a Schedule A business and--

(a) in the case of an investment company, either--

(i) paragraph (a), (b) or (c) of section 768B(1) applies, or

(ii) section 768C applies;

(b) in the case of a company which is not an investment company, paragraph (a) or (b) of section 768(1) applies.

(2) Where this section applies the following provisions have effect to prevent relief being given under section 392A by setting a Schedule A loss incurred by the company before the change of ownership against profits arising after the change.

(3) The accounting period in which the change of ownership occurs is treated for that purpose as two separate accounting periods, the first ending with the change and the second consisting of the remainder of the period.

(4) The profits or losses of the period in which the change occurs are apportioned to those two periods--

(a) in the case of an investment company--

(i) where paragraph (a), (b) or (c) of section 768B(1) applies, in accordance with Parts II and III of Schedule 28A, or

(ii) where section 768C applies, in accordance with Parts V and VI of that Schedule, and

(b) in the case of a company which is not an investment company, according to the length of the periods,

unless in any case the specified method of apportionment would work unjustly or unreasonably in which case such other method shall be used as appears just and reasonable.

(5) Relief under section 392A(1) against total profits of the same accounting period is available only in relation to each of those periods considered separately.

(6) A loss made in any accounting period beginning before the change of ownership may not be set off under section 392A(2) against, or deducted by virtue of section 392A(3) from--

(a) in the case of--

(i) an investment company where paragraph (a), (b) or (c) of section 768B(1) applies, or

(ii) a company which is not an investment company,

profits of an accounting period ending after the change of ownership;

(b) in the case of an investment company where section 768C applies, from so much of those profits as represents the relevant gain within the meaning of that section.

(7) Subsections (8) and (9) of section 768 (time limits for assessment; information powers) apply for the purposes of this section as they apply for the purposes of that section.

(8) In this section--

(a) any reference to a case where paragraph (a) or (b) of section 768(1) applies includes the case where that paragraph would apply if the reference there to a trade carried on by the company were to a Schedule A business carried on by it;

(b) "investment company" has the same meaning as in Part IV.

(9) The provisions of this section apply in relation to an overseas property business as they apply in relation to a Schedule A business. " .

32 In section 769 of the Taxes Act 1988 (rules for ascertaining change of ownership)--

(a) in subsections (1), (2)(d) and (5) for "and 768C" substitute ", 768C and 768D";

(b) in subsection (3) for "or 768A" substitute ", 768A or 768D"; and

Part III Minor and consequential amendments

Taxes Management Act 1970 (c. 9)

33 In section 41A of the [1970 c. 9.] Taxes Management Act 1970 (determination procedure), for subsection (9)(b) substitute--

" (b) any amount within section 403(1) of the Taxes Act 1988 (amounts which may be surrendered by way of group relief) other than trading losses. " .

Income and Corporation Taxes Act 1988 (c. 1)

34 In section 87(1) of the Taxes Act 1988 (treatment of taxable premiums in case of land used in connection with trade, profession or vocation), for paragraphs (a) and (b) substitute--

" (a) any amount falls to be treated as a receipt of a Schedule A business by virtue of section 34 or 35, or

(b) any amount would fall to be so treated but for the operation of section 37(2) or (3); " .

35 In section 118 of the Taxes Act 1988 (limited partnerships: restriction on relief)--

(a) in the opening words of subsection (1), and

(b) in subsection (2), in the definition of "the aggregate amount",

for "403(1) to (3) and (7)" substitute "403".

36 In section 400 of the Taxes Act 1988 (loss relief: effect of write-off of government investment), in subsection (2) after paragraph (b) insert--

" (bb) any losses which--

(i) under section 392A(2) or 392B are carried forward to the next accounting period, or

(ii) under section 392A(3) are treated as management expenses disbursed in the next accounting period; " .

37 (1) Section 404 of the Taxes Act 1988 (limitation of group relief in relation to dual resident investment companies) is amended as follows.

(2) In subsection (2), for paragraph (a) substitute--

" (a) in which the trading loss or Schedule A loss is incurred; or

(aa) in which the non-trading deficit on the company's loan relationships arises; or " .

(3) In subsection (6), omit paragraph (c).

38 In section 413(6) of the Taxes Act 1988 (interpretation: meaning of company being owned by consortium), for "403(10)" substitute "403ZA(3)".

39 In Chapter I of Part XII of the Taxes Act 1988 (insurance companies), after section 432A insert--

" 432AA Schedule A business or overseas property business.

(1) An insurance company is treated as carrying on separate Schedule A businesses, or overseas property businesses, in accordance with the following rules.

(2) The exploitation of land held as an asset of the company's long term business fund is treated as a separate business from the exploitation of land not so held.

(3) The exploitation of land held as an asset of the company's overseas life assurance fund is treated as a separate business from the exploitation of other land held as an asset of its long term business fund.

(4) The exploitation of land held as an asset linked to any of the following categories of business is regarded as a separate business--

(a) pension business;

(b) life reinsurance business;

(d) long term business other than life assurance business.

(5) Accordingly, the exploitation of land held as an asset of the company's long term business fund otherwise than as mentioned in subsection (3) or (4) is treated as a separate business from any other.

(6) In this section "land" means any estate, interest or rights in or over land.

432AB Losses from Schedule A business or overseas property business.

(1) This section applies to any loss arising in a Schedule A business or overseas property business.

(2) A loss arising from any category of business mentioned in section 432A(2) shall be apportioned under that section in the same way as income.

(3) So far as a loss is referable to basic life assurance and general annuity business, it shall be treated as if it were an amount of expenses of management under section 76 disbursed for the accounting period in which the loss arose.

(4) Where a company is treated under section 432AA as carrying on--

(a) more than one Schedule A business, or

(b) more than one overseas property business,

then, in relation to either kind of business, the reference in subsection (3) above to a loss referable to basic life assurance and general annuity business shall be construed as a reference to any aggregate net loss after setting the losses from those businesses which are so referable against any profits from those businesses that are so referable.

(5) The provisions of section 392A or 392B (loss relief) do not apply to a loss referable to life assurance business or any category of life assurance business.

(6) Where a company is treated under section 432AA as carrying on--

(a) more than one Schedule A business, or

(b) more than one overseas property business,

and, in relation to either kind of business, there are losses and profits referable to business which is not life assurance business, those losses shall be set against those profits before being used under section 392A or 392B. " .

40 (1) Section 434E of the Taxes Act 1988 (capital allowances: investment assets held for purposes of life assurance business) is amended as follows.

(2) For subsection (1) substitute--

" (1) In this section "investment asset" means an asset which--

(a) is held by a company for the purposes of its life assurance business otherwise than for the management of that business, and

(b) is not let in the course of a Schedule A business or overseas property business. " .

(3) Omit subsection (3).

(4) In subsection (6) for "section 145(3) shall not apply" substitute "neither section 145(3) nor section 403(1) shall apply".

41 In section 441B of the Taxes Act 1988 (treatment of UK land linked to a company's overseas life assurance business), after subsection (2) insert--

" (2A) For the purposes of subsection (2) above a Schedule A business for the exploitation of any land to which this section applies shall be treated as a separate business from any other such business. " .

42 For section 503 of the Taxes Act 1988 (letting of furnished holiday accommodation treated as a trade) substitute--

" 503 Letting of furnished holiday accommodation treated as a trade for certain purposes.

(1) For the purposes specified in subsection (2)--

(a) a Schedule A business which consists in, or so far as it consists in, the commercial letting of furnished holiday accommodation in the United Kingdom shall be treated as if it were a trade the profits of which are chargeable to tax under Case I of Schedule D, and

(b) all such lettings made by a particular person or partnership or body of persons shall be treated as one trade.

The "commercial letting of furnished holiday accommodation" is defined below in section 504.

(2) Subsection (1) above applies for the purposes of--

(a) Chapters I and II of Part X (loss relief for income tax and corporation tax), and

(b) sections 623(2)(c), 644(2)(c) and 833(4)(c) (income regarded as relevant earnings for pension purposes or as earned income).

(3) Chapter I of Part X (loss relief for income tax) as applied by this section has effect with the following adaptations--

(a) no relief shall be given to an individual under section 381 (relief for losses in early years of trade) in respect of a year of assessment if any of the accommodation in respect of which the trade is carried on in that year was first let by that person as furnished accommodation more than three years before the beginning of that year of assessment;

(b) section 384 (restrictions on right of set-off) has effect with the omission of subsections (6) to (8) and the words after paragraph (b) in subsection (10) (which relate to certain losses attributable to capital allowances);

(c) section 390 (treatment of interest as loss) has effect as if the reference to a trade the profits of which are chargeable to tax under Case I of Schedule D were a reference to the Schedule A business so far as it is treated as a trade.

(4) Where there is a letting of accommodation only part of which is holiday accommodation, such apportionments shall be made for the purposes of this section as are just and reasonable.

(5) Relief shall not be given for the same loss, or the same portion of a loss, both under a provision of Part X as applied by this section and under any other provision of the Tax Acts. " .

43 In section 579 of the Taxes Act 1988, omit subsection (4) and in subsection (5) (twice) for "subsections (2), (3) and (4)" substitute "subsections (2) and (3)".

44 In section 787(3) of the Taxes Act 1988 (restriction of relief for payments of interest) for "section 403(7)" substitute "section 83(2)(b) of the Finance Act 1996 (claim to treat non-trading deficit as eligible for group relief)".

45 In section 832(1) of the Taxes Act 1988 (interpretation), at the appropriate place insert--

" "overseas property business" has the meaning given by section 65A(4) or 70A(4); " .

46 In Schedule 26 to the Taxes Act 1988 (allowance of reliefs against amounts apportioned in respect of profits of controlled foreign companies), in paragraph 1(3)(a) for "section 393A(1)" substitute "section 392A(1) or 393A(1)".

Capital Allowances Act 1990 (c. 1)

47 For section 9 of the Capital Allowances Act 1990 (manner of making allowances and charges under Part I: industrial buildings) substitute--

" 9 Manner of making allowances and charges.

(1) An allowance or charge to which a person is entitled or is liable under this Part is made in taxing that person's trade.

What is meant by that is explained--

for income tax, in section 140(2), and
for corporation tax, in section 144(2).

(2) If the interest of that person in the building or structure is subject to a lease at the relevant time, subsection (1) and the provisions referred to in it have effect--

(a) as if any Schedule A business carried on by that person at any time in the chargeable period for which the allowance or charge is made were the trade in the taxing of which the allowance or charge is to be made;

(b) where that person is not carrying on such a business at any time in that period, as if he were carrying on such a business and the business were the trade in the taxing of which the allowance or charge is to be made.

(3) The "relevant time" for the purposes of subsection (2) is--

(a) in relation to an initial allowance, the time when the expenditure is incurred or any subsequent time before the building or structure is used for any purpose;

(b) in relation to a writing-down allowance, the end of the chargeable period for which the allowance is made;

(c) in relation to a balancing allowance or charge, the time immediately before the event giving rise to the allowance or charge.

(4) This section applies where the building or structure in question is used by a licensee of the person entitled to the relevant interest as if that interest were subject to a lease. " .

48 In section 15 of the Capital Allowances Act 1990 (temporary disuse of industrial buildings or structures), omit subsections (2), (2A) and (3).

49 After that section insert--

" 15ZA Temporary disuse: manner of making allowances and charges in certain cases.

(1) This section applies in certain cases where an allowance or charge falls to be made to or on a person in a period during which the building or structure--

(a) is temporarily out of use, but

(b) is deemed under section 15(1) still to be an industrial building or structure.

(2) If on the last occasion upon which the building or structure was in use as an industrial building or structure--

(a) it was in use for the purposes of a trade which has since been permanently discontinued, or

(b) the relevant interest in the building or structure was subject to a lease which has since come to an end,

the allowance or charge shall be made under section 9 (manner of making allowances and charges) as if the relevant interest were subject to a lease at the relevant time.

(3) If in a case where this section applies--

(a) a balancing charge falls to be made on a person, and

(b) when the building or structure was last in use, it was in use as an industrial building or structure for the purposes of a trade which was carried on by that person but has been permanently discontinued,

the same deductions may be made from the amount of the balancing charge as may be made under section 105 of the principal Act (deductions allowed in case of post-cessation receipts) from an amount chargeable to tax under section 103 or 104(1) of that Act.

This does not affect the making of any deduction allowed under any other provision of the Tax Acts.

(4) References in this section to the permanent discontinuance of a trade do not include an event treated as a permanent discontinuance under section 113 or 337(1) of the principal Act (change in persons carrying on trade; circumstances in which company treated as beginning or ceasing to carry on trade).

(5) This section applies where the building or structure in question is used by a licensee of the person entitled to the relevant interest as if that interest were subject to a lease. " .

50 Section 15A of the Capital Allowances Act 1990 (balancing charge after cessation of trade) shall cease to have effect.

51 In section 29 of the Capital Allowances Act 1990 (commercial letting of furnished holiday accommodation to be treated as trade for the purposes of Part II)--

(a) in subsection (1) omit "Subject to subsection (1A) below,"; and

(b) omit subsection (1A).

52 In sections 30(4) and 31(10) of the Capital Allowances Act 1990 (postponed allowances not regarded as carried forward) for "403(3)" substitute "403ZB(2)".

53 In section 52 of the Capital Allowances Act 1990 (expenditure incurred by holder of interest in land), in subsection (1)(a) for the words from "either for the purposes" to "in the course of a trade" substitute "for the purposes of a trade carried on by him".

54 (1) Section 53 of the Capital Allowances Act 1990 (expenditure incurred by equipment lessor) is amended as follows.

(2) In subsection (1)(b) omit "or for leasing otherwise than in the course of a trade".

(3) For subsection (1)(bb) substitute--

" (bb) the equipment lessee is within the charge to tax in the United Kingdom on the profits of the trade for the purposes of which he has entered into that agreement, and " .

(4) In subsection (1B)(a) for ""course of a trade"" substitute ""by the equipment lessee"".

55 (1) Section 61 of the Capital Allowances Act 1990 (machinery and plant on lease) is amended as follows.

(2) Omit subsection (6).

(3) In subsection (7) for "403(3)" substitute "403".

56 In section 67 of the Capital Allowances Act 1990 (expenditure on thermal insulation), omit subsections (2), (3) and (3A).

57 In section 73 of the Capital Allowances Act 1990 (manner of making allowances and charges under Part II: machinery and plant)--

(a) in subsection (1), for "subsections (1A) and (2)" substitute "subsection (2)";

(b) omit subsection (1A); and

58 For section 92 of the Capital Allowances Act 1990 (manner of making allowances and charges under Part III: dwelling-houses let on assured tenancies), substitute--

" 92 Manner of making allowances and charges.

(1) An allowance or charge to which a person is entitled or is liable under this Part is made in taxing that person's trade.

What is meant by that is explained--

for income tax, in section 140(2), and
for corporation tax, in section 144(2).

(2) Subsection (1) (and the provisions referred to in it) apply--

(a) as if any Schedule A business carried on by that person were the trade in the taxing of which the allowance or charge is to be made; or

(b) where that person is not carrying on such a business, as if he were carrying on such a business and that business were the trade in the taxing of which the allowance or charge is to be made. " .

59 For section 132 of the Capital Allowances Act 1990 (manner of making allowances and charges under Part V: agricultural buildings, etc.), substitute--

" 132 Manner of making allowances and charges.

(1) An allowance or charge to which a person is entitled or is liable under this Part is made in taxing that person's trade.

What is meant by that is explained--

for income tax, in section 140(2), and
for corporation tax, in section 144(2).

(2) In the case of an allowance or charge which falls to be made to a person for a chargeable period in which he is not carrying on a trade, subsection (1) applies--

(a) as if any Schedule A business carried on by that person at that time were the trade in the taxing of which the allowance or charge is to be made; or

(b) where that person is not carrying on such a business at that time, as if he were carrying on such a business and the business were the trade in the taxing of which the allowance or charge is to be made. " .

60 In section 159(1A) of the Capital Allowances Act 1990 (capital expenditure and capital sums: references to trade to include Schedule A business), omit the words from "or to any such activities" to the end.

61 In section 161 of the Capital Allowances Act 1990 (provisions relating to interpretation and application of that Act), for subsection (2A) substitute--

" (2A) This Act applies in relation to an overseas property business as it applies to a Schedule A business. " .

Taxation of Chargeable Gains Act 1992 (c. 12)

62 In section 241(3) of the Taxation of Chargeable Gains Act 1992 (commercial letting of furnished holiday accommodation to be treated as trade for certain purposes), for paragraph (a) substitute--

" (a) any Schedule A business (within the meaning of the Taxes Act) which consists in the commercial letting of furnished holiday accommodation in the United Kingdom shall be treated as a trade, and " .

63 (1) Schedule 8 to the Taxation of Chargeable Gains Act 1992 (leases) is amended as follows.

(2) In paragraph 5 (exclusion of premiums taxed under Schedule A, etc.)--

(a) in sub-paragraphs (1) and (2), for "income tax has become chargeable under section 34 of the Taxes Act on any amount" substitute "any amount is brought into account by virtue of section 34 of the Taxes Act as a receipt of a Schedule A business (within the meaning of that Act)"; and

(b) in sub-paragraph (3), for "income tax has become chargeable under section 36 of the Taxes Act (sale of land with right of re-conveyance) on any amount" substitute "any amount is brought into account by virtue of section 36 of the Taxes Act (sale of land with right of re-conveyance) as a receipt of a Schedule A business (within the meaning of that Act)".

(3) In paragraph 6(2), for the words from "on which tax is paid" onwards substitute "brought into account by virtue of section 35 of the Taxes Act (charge on assignment of a lease granted at an undervalue) as a receipt of a Schedule A business (within the meaning of that Act)".

(4) In paragraph 7, for the words from "income tax" to "so chargeable" substitute "any amount is brought into account by virtue of section 34(2) and (3) of the Taxes Act as a receipt of a Schedule A business (within the meaning of that Act) which is or is treated as carried on by any person, that person".

(5) For paragraph 7A substitute--

" 7A References in paragraphs 5 to 7 above to an amount brought into account as a receipt of a Schedule A business include references to an amount brought into account as a receipt of an overseas property business. " .

Finance Act 1996 (c. 8)

64 (1) Schedule 8 to the Finance Act 1996 (loan relationships: claims relating to deficits) is amended as follows.

(2) In paragraph 1 (claim to set off deficit against other profits for the same period), in sub-paragraph (3)(b) for paragraph (i) substitute--

" (i) under section 392A(1) or 393A(1) of the Taxes Act 1988 (losses set against profits for the same or preceding accounting periods); or " .

(3) In paragraph 2 (claim to treat deficit as eligible for group relief) for sub-paragraph (2) substitute--

" (2) Section 403 of the Taxes Act 1988 (amounts which may be surrendered by way of group relief) applies in accordance with section 403ZC(2) of that Act. " .

Part IV Transitional provisions for corporation tax

Introduction

65 (1) This Part of this Schedule makes provision with respect to the application of the provisions of Parts I to III of this Schedule for corporation tax purposes.

(2) In this Part of this Schedule--

"before commencement" and "after commencement" mean, respectively, before 1st April 1998 and on or after that date; and
"the new rules" means the provisions of the Tax Acts relating to Schedule A taxation or, as the case may be, to the taxation under Case V of Schedule D of income from land outside the United Kingdom, as they have effect after commencement.

Receipts and expenses not to be counted twice

66 (1) To the extent that receipts or expenses have been taken into account before commencement, they shall not be taken into account again under the new rules after commencement.

(2) Nothing in section 43 of the [1989 c. 26.] Finance Act 1989 (computation of profits: effect of delayed payment of emoluments) shall be construed as affecting the rule in sub-paragraph (1) above.

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