Finance Act 1999 (c. 16)

(The document as of February, 2008)

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3 (1) In paragraph 19(1) (interpretation) omit the definition of "relevant shares".

(2) After paragraph 19(1) insert--

" (1A) For the purposes of this Schedule, "the relevant shares", in relation to a case to which this Schedule applies, means the shares which--

(a) are acquired by the investor in making the qualifying investment, and

(b) where the qualifying investment is made before the time at which the original gain accrues, are still held by the investor at that time.

This is subject to sub-paragraphs (1B) and (1D) below.

(1B) If any corresponding bonus shares in the same company are issued to the investor or any person who has acquired any of the relevant shares from the investor on a disposal within marriage, this Schedule shall apply as if references to the relevant shares were to all the shares comprising the relevant shares and the bonus shares so issued.

(1C) In sub-paragraph (1B) above "corresponding bonus shares" means bonus shares which--

(a) are issued in respect of the relevant shares; and

(b) are of the same class, and carry the same rights, as those shares.

(1D) If, in circumstances in which paragraph 8 above applies, new shares are issued in exchange for old shares, references in this Schedule to the relevant shares, so far as they relate to the old shares, shall be construed as references to the new shares and not to the old shares.

(1E) In sub-paragraph (1D) above "new shares" and "old shares" have the same meaning as in paragraph 8 above. "

Consequential amendments

4 In consequence of paragraph 3 above--

(a) in paragraph 2 (postponement of original gain), in sub-paragraphs (1) and (4), for "relevant shares" substitute "the relevant shares";

(b) in paragraph 2(2) and (3), for "any relevant shares" substitute "the relevant shares";

(d) in paragraph 3 (chargeable events), in sub-paragraph (1) and paragraphs (a) and (b) of sub-paragraph (5), for "any relevant shares" substitute "any of the relevant shares";

(e) in paragraph 4 (gain accruing on chargeable event), in sub-paragraphs (1) and (5), for "any relevant shares" substitute "any of the relevant shares";

(f) in paragraph 4(5)(b), for "the same relevant shares" substitute "the same shares";

(g) in paragraph 5(1) (person to whom gain accrues), for "any relevant shares" substitute "any of the relevant shares";

(h) in paragraph 6(1) (deferral claims), for "relevant shares" substitute "the relevant shares";

(i) in paragraph 16(1) and (2) (information about chargeable events), for "any relevant shares" substitute "any of the relevant shares"; and

(j) in paragraph 19(1) (interpretation), in the definition of "the five year period", for "any relevant shares" substitute "any of the relevant shares".

Section 74.

SCHEDULE 9 Chargeable gains: value shifting and tax-free benefits

1 The [1992 c. 12.] Taxation of Chargeable Gains Act 1992 shall be amended as follows.

2 The following section shall be inserted after section 31 (value shifting: tax-free benefits from distributions within groups)--

" 31A Asset-holding company leaving the group

(1) This section applies where profits of a company would be profits arising on a transaction caught by section 31 but for the fact that the condition in section 31(8) is not satisfied.

(2) The profits shall be treated as profits arising on a transaction caught by section 31 if--

(a) subsection (4) or (5) below is satisfied, and

(b) subsection (6) below is satisfied.

(3) In the following provisions of this section--

"the asset-holding company" means, in relation to any particular time, the company which holds the asset with enhanced value at that time,
"the disposal group" means the group of companies of which the company which made the section 30 disposal was a member at the time of the disposal (or a group which, by virtue of section 170(10), is treated as the same as that group), and
"the six-year period" means the period of six years starting with the date of the section 30 disposal.

(4) This subsection is satisfied if at any time during the six-year period an event occurs which consists in the asset-holding company ceasing to be a member of the disposal group otherwise than by reason of the fact that the principal company of that group becomes a member of another group.

(5) This subsection is satisfied if--

(a) at any time during the six-year period the asset-holding company ceases to be a member of the disposal group by reason only of the fact that the principal company of that group becomes a member of another group, and

(b) at any time during that period an event occurs as a result of which there is no member of the disposal group of which the asset-holding company is a 75 per cent. subsidiary or there is no member of that group of which the asset-holding company is an effective 51 per cent. subsidiary.

(6) This subsection is satisfied if no disposal of the asset with enhanced value is treated as having occurred by virtue of section 179 during the period--

(a) beginning with the time of the section 30 disposal, and

(b) ending immediately before the event referred to in subsection (4) or (5)(b) above.

(7) Where section 30 has effect by virtue of this section in relation to a disposal--

(a) a chargeable gain of the differential amount shall be treated as accruing to the chargeable company immediately before the event referred to in subsection (4) or (5)(b) above, and

(b) subsection (5) of section 30 shall not apply.

(8) The "differential amount" is A minus B where--

(a) A is the amount of the allowable loss or chargeable gain which would have accrued on the section 30 disposal if the consideration for the disposal had been increased in accordance with section 30(5),

(b) B is the amount of the allowable loss or chargeable gain which accrued on the section 30 disposal,

(d) a negative result is treated as a result of nil.

(9) The "chargeable company" is--

(a) the company which made the section 30 disposal, or

(b) if that company is no longer a member of the disposal group immediately before the event referred to in subsection (4) or (5)(b) above, the principal company of that group.

(10) A gain which is treated as accruing by virtue of subsection (7) above shall, for the purposes of section 18(3), be treated as a gain accruing on a disposal between the parties to the section 30 disposal made at a time when they are connected persons. "

3 (1) Section 33 (provisions supplementary to sections 30 to 32) shall be amended as follows.

(2) After subsection (1) there shall be substituted--

" (1A) For the purposes of section 31A, subsections (2) to (6) below apply for the purpose of determining any question in relation to the asset with enhanced value. "

(3) In subsection (2), for "and 31(7)" there shall be substituted ", 31(7) and 31A(6)".

(4) In subsection (3) there shall be inserted at the beginning "For the purposes of sections 30(2) and 31(7) to (9),"

(5) After subsection (3) there shall be inserted--

" (3A) Subsections (3B) and (3C) below apply (instead of subsection (3) above) for the purposes of section 31A where one or more assets are treated by virtue of subsection (5) or (6) below as the same as the asset with enhanced value.

(3B) If in the period beginning with the time of the transaction referred to in section 31(6) and ending immediately before the event referred to in section 31A(4) or (5)(b)--

(a) there is no disposal of the asset with enhanced value to any person other than a disposal falling with section 171(1), and

(b) no disposal of the asset with enhanced value is treated as having occurred by virtue of section 179,

then references to the asset with enhanced value are to the asset which is treated by virtue of subsection (5) or (6) below as the same as that asset or, as the case may be, all the assets so treated.

(3C) In any other case, references to the asset with enhanced value are to an asset or, as the case may be, all the assets representing that part of the value of the asset with enhanced value that remains after allowing for disposals of a kind mentioned in subsection (3B)(a) or (b). "

(6) In subsection (4)--

(a) for "Where by virtue of subsection (3) above those references are to 2 or more assets" there shall be substituted "Where by virtue of subsection (3), (3B) or (3C) above references to an asset are taken as references to two or more assets", and

(b) in paragraph (c), for "the reference in section 31(8)" there shall be substituted "a reference in section 31(8) or 31A(3)".

(7) After subsection (8) there shall be inserted--

" (8A) In a case where--

(a) profits are treated as profits arising on a transaction caught by section 31 by virtue of section 31A, and

(b) the condition in section 31(7) or a condition in section 31A is satisfied by reference to an asset, or assets treated as a single asset, treated by virtue of subsection (3C) above as the same as the asset with enhanced value,

the amount of the reduction in value of the principal asset shall be reduced to such amount as is just and reasonable. "

4 (1) Section 34 (transactions treated as a reorganisation of share capital) shall be amended as follows.

(2) After subsection (1) there shall be inserted--

" (1A) Subsection (1B) below applies where, but for sections 127 and 135(3), section 30 would have effect, by virtue of section 31A, as respects the disposal by a company ("the disposing company") of an asset consisting of shares in or debentures of another company ("the original holding") in exchange for shares in or debentures of a further company which, immediately after the disposal, is not a member of the same group as the disposing company.

(1B) Section 31A shall apply as if sections 127 and 135(3) did not apply.

(1C) In applying section 31A(7) and (8)--

(a) the reference in section 31A(8) to an allowable loss or chargeable gain which accrued on the section 30 disposal shall be taken as a reference to the allowable loss or chargeable gain which would have accrued had sections 127 and 135(3) not applied, and

(b) an allowable loss shall be treated as a chargeable gain of nil. "

(3) In subsection (2)--

(a) for "subsection (1) above" there shall be substituted "subsections (1) to (1C) above", and

(b) for "that subsection" there shall be substituted "those subsections".

5 This Schedule has effect in relation to any disposal of an asset which occurs on or after 9th March 1999.

Section 79.

SCHEDULE 10 Sharing of pensions etc. on divorce or annulment

Definition of "pension business"

1 (1) Section 431B of the Taxes Act 1988 (meaning of "pension business") shall be amended as follows.

(2) In subsection (2)--

(a) in paragraph (e) (contracts in substitution of contracts under paragraph (d)), after "(d) above" there shall be inserted "or this paragraph"; and

(b) after that paragraph there shall be inserted the following paragraph--

" (ea) any contract which is entered into, for purposes connected with giving effect to any pension sharing order or provision made in relation to a contract falling within paragraph (d) or (e) above or this paragraph and by means of which relevant benefits (see subsections (3) and (4) below), and no other benefits, are secured; " .

(3) After that subsection there shall be inserted the following subsection--

" (2A) For the purposes of subsection (2)(d) above the members of and contributors to a scheme or fund shall be deemed to include any person who by virtue of any pension sharing order or provision (within the meaning of Part XIV) has become entitled to any credit as against the persons having the management of the scheme or fund. "

(4) In subsection (3) (meaning of "relevant benefits")--

(a) for "subsection (2)(d) and (e)" there shall be substituted "subsection (2)(d) to (ea)"; and

(b) after the words "subsection (2)(e)", wherever they occur, there shall be inserted "or (ea)".

Approval of retirement benefit schemes

2 (1) In subsection (2) of section 590 of the Taxes Act 1988 (conditions for approval of scheme), for paragraph (a) there shall be substituted--

" (a) that the scheme is bona fide established for the sole purpose (subject to any enactment or Northern Ireland legislation requiring or allowing provision for the value of any rights to be transferred between schemes or between members of the same scheme) of providing relevant benefits in respect of service as an employee; " .

(2) After that paragraph there shall be inserted the following paragraph--

" (aa) that those benefits do not include any benefits payable to a person other than--

(i) the employee or a scheme member's ex-spouse,

(ii) a widow, widower, child, or dependant of the employee or of a scheme member's ex-spouse, or

(iii) the personal representatives of the employee or of a scheme member's ex-spouse; " .

(3) In subsection (3) of that section (conditions for automatic approval), for paragraph (c) there shall be substituted the following paragraphs--

" (ba) that any benefit for an ex-spouse, or for the widow or widower of an ex-spouse, is a benefit in relation to which the scheme satisfies the conditions set out in subsection (3A) below;

(bb) that the scheme does not allow any rights debited to a scheme member as a consequence of a pension sharing order or provision to be replaced with any rights which that scheme member would not have been able to acquire (in addition to the debited rights) had the order or provision not been made;

(4) In paragraph (d) of that subsection (restriction on surrender, commutation and assignment)--

(a) for "except" there shall be substituted " except--

(i) for the purpose of giving effect to a pension sharing order or provision, or

(ii) in so far as the commutation of a benefit for an ex-spouse is allowed by virtue of subsection (3A) below, or

(iii) " ;

and

(b) for "his pension" there shall be substituted "a pension provided for him".

(5) After that paragraph there shall be inserted the following paragraph--

" (da) that, in a case in which--

(i) a lump sum may be obtained by the commutation of a part of a pension provided for an employee, and

(ii) the amount of that pension is affected by the making of a pension sharing order or provision,

the lump sum does not exceed the sum produced by multiplying by 2.25 the amount which (after effect has been given to the pension sharing order or provision) is the amount of that pension for the first year in which it is payable; " .

(6) After subsection (3) of that section there shall be inserted the following subsection--

" (3A) The conditions mentioned in subsection (3)(ba) above are--

(a) that any benefit for an ex-spouse takes the form of a pension (with or without an entitlement to commute a part of that pension);

(b) that any benefit for an ex-spouse is a pension payable only on the attainment by the ex-spouse of a specified age of not less than 60 and not more than 75;

(d) that any benefit for the widow or widower of an ex-spouse is confined to a non-commutable pension payable on the death of the ex-spouse at a time when the ex-spouse is already entitled to receive a pension under the scheme;

(e) that any pension provided for the widow or widower of an ex-spouse is of an amount not exceeding two-thirds of the pension payable to the ex-spouse;

(f) that, in a case in which a lump sum may be obtained by the commutation of a part of a pension provided for an ex-spouse, the lump sum does not exceed the sum produced by multiplying the amount of the pension for the first year in which it is payable by 2.25. "

(7) In subsection (4) of that section (conditions that are referred to as "the prescribed conditions"), for "subsections (2) and (3)" there shall be substituted "subsections (2) to (3A)".

(8) After subsection (4A) of that section there shall be inserted the following subsections--

" (4B) For the purposes of this section a benefit provided under any scheme is provided for an ex-spouse or the widow or widower of an ex-spouse, and shall be treated as not provided for an employee or the widow or widower of an employee, to the extent (and to the extent only) that--

(a) it is provided for a person who is, or is the widow or widower of, either--

(i) an employee who is an ex-spouse; or

(ii) a scheme member's ex-spouse;

and

(b) it is as an ex-spouse, or as the widow or widower of an ex-spouse, that that person is the person for whom the benefit is provided.

(4C) For the purposes of this section a benefit provided for any person under any scheme is provided for that person as an ex-spouse, or as the widow or widower of an ex-spouse, to the extent (and to the extent only) that--

(a) the benefit is provided in respect of rights of an ex-spouse that are or represent rights conferred on the ex-spouse as a consequence of a pension sharing order or provision; and

(b) the scheme makes provision for the benefit to be treated as provided separately from any benefits which are provided under the scheme for the same person as an employee or as the widow or widower of an employee.

(4D) In this section "scheme member", in relation to a scheme, means--

(a) an employee; or

(b) a person entitled to any relevant benefits under the scheme as a consequence of a pension sharing order or provision.

(4E) The following rules shall apply in calculating for the purposes of subsection (3)(da) or (3A)(f) above the amount of a person's pension for the first year in which it is payable--

(a) if the pension payable for the year changes, the initial pension payable shall be taken;

(b) it shall be assumed that that person will survive for the year; and

(4F) A pension provided for an ex-spouse who is an employee, or for the widow or widower of such an ex-spouse, shall be disregarded in any determination of whether the conditions set out in subsection (3)(e) to (h) above are satisfied or continue to be satisfied in the case of that employee. "

Discretionary approval of retirement benefit schemes

3 In section 591(2) of the Taxes Act 1988--

(a) in paragraph (b) (discretion to approve schemes providing benefits for widows on the death in service of an employee), after "widows" there shall be inserted "and widowers"; and

(b) after that paragraph there shall be inserted the following paragraph--

" (ba) which provides pensions for the widows and widowers of ex-spouses dying before the age at which their pensions become payable and for the children or dependants of ex-spouses; or " .

Non-approved retirement benefit schemes

4 In subsection (5) of section 595 of the Taxes Act 1988 (charge to tax in respect of certain sums paid by employer etc.), after "wife" there shall be inserted "or husband," and after "widow" there shall be inserted "or widower or".

5 In section 596 of the Taxes Act 1988, after subsection (3) (relief where a taxed contribution does not result in the payment of benefits) there shall be inserted the following subsection--

" (4) Relief shall not be given under subsection (3) above in respect of tax on any sum if--

(a) the reason for there having been no payment in respect of, or in substitution for, the benefits, or part of the benefits, in question, or

(b) the event by reason of which there will be no such payment,

is a reduction or cancellation, as a consequence of any pension sharing order or provision, of the employee's rights in respect of the benefits. "

6 In section 596A(8)(c) (lump sums provided under non-approved schemes), after the word "employee,", in the first place where it occurs, there shall be inserted "an ex-spouse of the employee,".

Charge on pensions commuted in special circumstances

7 (1) In section 599 of the Taxes Act 1988 (charge to tax where pension commuted in special circumstances), the words "Subject to subsection (1A) below," shall be inserted at the beginning of subsection (1); and the following subsections shall be inserted after that subsection--

" (1A) Subsection (1) above shall have effect in relation to the commutation of the whole or any part of a pension the amount of which has been affected by the making of any pension sharing order or provision as if paragraph (a) and the words after paragraph (b) were omitted.

(1B) Where--

(a) a scheme to which this section applies contains a rule allowing, in special circumstances, a payment in commutation of the entire pension provided under the scheme for an ex-spouse, and

(b) any pension is commuted, whether wholly or not, under the rule,

tax shall be charged on the amount by which the sum receivable exceeds the largest sum which would have been receivable in commutation of any part of the pension under any rule of the scheme authorising the commutation of a part (but not the whole) of the pension.

(1C) A pension provided for an ex-spouse shall be disregarded when applying subsection (1) above in relation to the commutation of any pension provided for an employee.

(1D) A pension provided for an employee shall be disregarded when applying subsection (1B) above in relation to the commutation of any pension provided for an ex-spouse.

(1E) Subsections (4B) and (4C) of section 590 apply for the purposes of subsections (1C) and (1D) above as they apply for the purposes of that section. "

(2) In subsection (6) of that section, after "subsection (1) above" there shall be inserted ", or in applying subsection (1B) above".

Charge on unauthorised payments

8 (1) In subsection (1) of section 600 of the Taxes Act 1988 (charge on unauthorised payments to employees), after "an employee" there shall be inserted "or an ex-spouse".

(2) In subsection (2) of that section (person charged), for the words from "the employee" to "shall" there shall be substituted "the employee or, as the case may be, the ex-spouse shall (whether or not he is the recipient of the payment)".

Definition of "retirement benefits scheme"

9 (1) In subsections (3) and (4)(b) of section 611 of the Taxes Act 1988 (definition of "retirement benefits scheme"), for the words "employees" and "employee", wherever occurring, there shall be substituted, respectively, the words "scheme members" and "scheme member".

(2) After subsection (5) of that section there shall be inserted the following subsection--

" (6) In this section "scheme member", in relation to a scheme means--

(a) an employee; or

(b) a person whose rights under the scheme derive from a pension sharing order or provision. "

Interpretation of Chapter I

10 (1) In subsection (1) of section 612 of the Taxes Act 1988 (interpretation of Chapter I of Part XIV), in the definition of "relevant benefits", after the word "death", in the first place where it occurs, there shall be inserted ", or by virtue of a pension sharing order or provision".

(2) In subsection (2) of that section (references to the provision of relevant benefits to include the provision of benefits under contracts with third parties)--

(a) after "Chapter" there shall be inserted ", in relation to a scheme,";

(b) for "of an employer" there shall be substituted "or ex-spouses"; and

(3) After that subsection there shall be inserted the following subsection--

" (2A) In subsection (2) above the reference to the employer is a reference to the person who is the employer in relation to the scheme. "

Overseas pensions

11 In section 615(6)(b) of the Taxes Act 1988 (funds annuities from which are paid without deduction of tax to non-UK residents), after "purpose" there shall be inserted "(subject to any enactment or Northern Ireland legislation requiring or allowing provision for the value of any rights to be transferred between schemes or between members of the same scheme)".

Rules prohibiting surrender or assignment of annuities etc.

12 (1) In section 634(6) of the Taxes Act 1988 (restriction on assignment or surrender of annuities), for "except that" there shall be substituted " except that--

(a) an annuity may be assigned or surrendered for the purpose of giving effect to a pension sharing order or provision; and

(b) " .

(2) In section 634A(6) of that Act (restriction on assignment or surrender of right to income withdrawals), after "surrender" there shall be inserted ", except for the purpose of giving effect to a pension sharing order or provision".

(3) In section 635(5) of that Act (restriction on assignment or surrender of right to payment of lump sum), after "surrender" there shall be inserted ", except for the purpose of giving effect to a pension sharing order or provision".

Annuity payable on the death of a member

13 (1) In section 636 of the Taxes Act 1988 (annuity payable after death of member to spouse or dependants), after subsection (3) there shall be inserted the following subsection--

" (3A) The references in subsection (3) above--

(a) to the annual amount or highest annual amount of an annuity of which the member was in receipt before his death, and

(b) to the highest annual amount of an annuity that would have been payable if it had been purchased on the day before the member's death,

shall each be construed in a case where payments of that annuity were or would have been affected by the making of any pension sharing order or provision as if the only payments of that annuity to be taken into account were those that have been or would have been so affected. "

(2) In subsection (10) of that section (restriction on assignment or surrender of annuities payable after death of member), for "except that" there shall be substituted " except that--

(a) an annuity may be assigned or surrendered for the purpose of giving effect to a pension sharing order or provision; and

(b) " .

Rule in section 636A prohibiting assignment or surrender

14 In section 636A(7) of the Taxes Act 1988 (restriction on assignment or surrender of right to income withdrawals after death of member), after "surrender" there shall be inserted ", except for the purpose of giving effect to a pension sharing order or provision".

Meaning of "relevant earnings"

15 (1) In section 644 of the Taxes Act 1988 (which for the purposes of references to relevant earnings contains provisions in subsections (6A) to (6F) for excluding the income of controlling directors), after subsection (6E) there shall be inserted the following subsection--

" (6EA) Where--

(a) there is a time at which a person would be in receipt of any benefits under a scheme but for any debit to which any of his rights under that scheme became subject by virtue of any pension sharing order or provision, and

(b) the benefits he would be in receipt of are benefits payable in respect of past service with a company,

that person shall be deemed for the purposes of subsections (6A) to (6E) above to be in receipt at that time of benefits under that scheme and the benefits which he is deemed to be in receipt of shall be deemed to be benefits in respect of past service with that company. "

(2) In subsection (6F) of that section (construction of subsections (6A) to (6E))--

(a) in the words before paragraph (a), for "(6E)" there shall be substituted "(6EA)";

(b) in paragraph (c) (benefits in respect of past service), after "the company" there shall be inserted "but do not include references to benefits which (within the meaning of section 590) are provided for him as an ex-spouse"; and

(c) in paragraph (d) (transfer payment in respect of past service), at the end there shall be inserted "but do not include references to any transfer payment made for the purpose of giving effect to a pension sharing order or provision."

Purchased life annuities

16 In section 657(2) of the Taxes Act 1988 (annuities not treated as purchased life annuities within section 656), after paragraph (e) there shall be inserted " ; or

(f) to any annuity purchased, for purposes connected with giving effect to any pension sharing order or provision, for consideration which derives from--

(i) a retirement benefits scheme (within the meaning of Chapter I of this Part) of a description mentioned in section 596(1);

(ii) sums satisfying the conditions for relief under section 619;

(iii) any such scheme or arrangements as are mentioned in paragraph (d) or (e) above; or

(iv) the surrender, in whole or in part, of an annuity falling within paragraph (da) above or this paragraph, or of a contract for such an annuity. "

Interpretation of Part XIV

17 In Chapter VI of Part XIV of the Taxes Act 1988 (interpretation of Part XIV), the following section shall be inserted after section 659C--

" 659D Interpretation of provisions about pension sharing

(1) In this Part "ex-spouse" means a party to a marriage that has been dissolved or annulled and, in relation to any person, means the other party to a marriage with that person that has been dissolved or annulled.

(2) References in this Part to a pension sharing order or provision are references to any such order or provision as is mentioned in section 24(1) of the Welfare Reform and Pensions Act 1999 (rights under pension sharing arrangements). "

Commencement etc.

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