Finance Act 2001 (c. 9)

(The document as of February, 2008)

-- Back --

Page 22

Pages: P.1 | P.2 | P.3 | P.4 | P.5 | P.6 | P.7 | P.8 | P.9 | P.10 | P.11 | P.12 | P.13 | P.14 | P.15 | P.16 | P.17 | P.18 | P.19 | P.20 | P.21 | P.22 | P.23 | P.24 | P.25 | P.26 | P.27 | P.28

4 After paragraph 6 insert--

" Meaning of "material interest"

6A (1) For the purposes of paragraph 6 above, a material interest in a company means possession of, or the ability to control (directly or through the medium of other companies or by any other indirect means),--

(a) more than 10% of the issued shares in the company of any particular class,

(b) more than 10% of the voting rights in the company,

(c) such rights as would, if the whole of the income of the company were distributed among the participators (without regard to any rights of any person as a loan creditor) give an entitlement to receive more than 10% of the amount distributed, or

(d) such rights as would, in the event of the winding up of the company or in any other circumstances, give an entitlement to receive more than 10% of the assets of the company which would then be available for distribution among the participators.

(2) For the purposes of sub-paragraph (1) above a right to acquire shares or rights (however arising) shall be treated as a right to control them.

(3) A person shall be treated for the purposes of this paragraph as having a right to acquire any shares or rights--

(a) which he is entitled to acquire at a future date, or

(b) which he will at a future date be entitled to acquire.

(4) Where--

(a) in the case of any shares or rights, an entitlement falling within sub-paragraph (3)(a) or (b) above is conferred on a person by a contract, but

(b) the contract is conditional,

the person shall be treated for the purposes of this paragraph as having a right to acquire the shares or rights as from the time at which the contract is made.

(5) In any case where--

(a) the shares of any particular class attributed to a person consist of or include shares which he or another person has a right to acquire, and

(b) the circumstances are such that if that right were to be exercised the shares acquired would be shares which were previously unissued and which the company is contractually bound to issue in the event of the exercise of the right,

then in determining at any time prior to the exercise of the right whether the number of shares of that class attributed to the person exceeds a particular percentage of the issued shares of that class, the number of issued shares of that class shall be taken to be increased by the number of unissued shares referred to in paragraph (b) above.

(6) The references in sub-paragraph (5) above to the shares of any particular class attributed to a person are to the shares which in accordance with sub-paragraph (1)(a) above fall to be brought into account in his case to determine whether their number exceeds a particular percentage of the issued shares of the company of that class.

(7) Sub-paragraphs (5) and (6) above shall apply, with the necessary modifications, in relation to--

(a) voting rights in the company (and attribution of such rights to a person in accordance with sub-paragraph (1)(b) above),

(b) rights which would, if the whole of the income of the company were distributed among the participators (without regard to any rights of any person as a loan creditor) give an entitlement to receive any of the amount distributed (and attribution of such rights to a person in accordance with sub-paragraph (1)(c) above), and

(c) rights which would, in the event of the winding up of the company or in any other circumstances, give an entitlement to receive any of the assets of the company which would then be available for distribution among the participators (and attribution of such rights to a person in accordance with sub-paragraph (1)(d) above),

as they apply in relation to shares of any particular class (and their attribution to a person in accordance with sub-paragraph (1)(a) above).

(8) For the purposes of this paragraph "participator" and "loan creditor" have the meaning given by section 417 of the Taxes Act. " .

Interpretation of Schedule A1

5 (1) Paragraph 22 is amended as follows.

(2) In sub-paragraph (1) (definitions) insert each of the following definitions at the appropriate place--

" "non-trading company" means a company which is not a trading company; " ;

" "non-trading group" means a group of companies which is not a trading group; " .

Qualifying shareholdings in joint venture companies

6 (1) Paragraph 23 is amended as follows.

(2) Sub-paragraph (8) (which concerns the meaning of "relevant connection" and is subsumed by the paragraph 24 inserted by this Schedule) shall cease to have effect.

Joint enterprise companies: relevant connection

7 After paragraph 23 (qualifying shareholdings in joint venture companies) add--

" Joint enterprise companies: relevant connection

24 (1) This Schedule has effect subject to sub-paragraph (5) below in any case where a company ("the investing company") has a qualifying shareholding in a joint enterprise company.

(2) For the purposes of this paragraph, a company is a "joint enterprise company" if, and only if, 75% or more of its ordinary share capital (in aggregate) is held by not more than five companies.

(3) For the purposes of sub-paragraph (2) above the shareholdings of members of a group of companies shall be treated as held by a single company.

(4) For the purposes of this paragraph a company has a "qualifying shareholding" in a joint enterprise company if--

(a) it holds more than 30% of the ordinary share capital of the joint enterprise company, or

(b) it is a member of a group of companies, it holds ordinary share capital of the joint enterprise company and the members of the group between them hold more than 30% of that share capital.

(5) The following shall be treated as having a relevant connection with each other--

(a) the investing company;

(b) the joint enterprise company;

(d) any company having a relevant connection with the joint enterprise company by virtue of being--

(i) a 51 per cent subsidiary of that company, or

(ii) a member of the same commercial association of companies.

(6) For the purposes of this paragraph "ordinary share capital" has the meaning given by section 832(1) of the Taxes Act. " .

Section 81.

SCHEDULE 27 Double taxation relief

Computation of income subject to foreign tax

1 (1) Section 795 of the Taxes Act 1988 is amended as follows.

(2) In subsection (2)(b) (dividend to be treated as increased by any underlying tax taken into account in determining credit to be allowed in respect of the dividend) after "increased by" insert "--(i)" and after "in respect of the dividend" add-- " , and

(ii) any underlying tax which, by virtue of section 799(1)(b) or section 799(1B)(b), does not fall to be so taken into account " .

(3) After subsection (3) insert--

" (3A) The amount of any income or gain shall not be increased under subsection (2)(b)(i) above by so much of any underlying tax--

(a) as represents an increase under section 801(4B); or

(b) as represents relievable underlying tax (within the meaning of sections 806A to 806J) arising in respect of another dividend and treated as underlying tax under those sections. " .

(4) This paragraph has effect in relation to dividends paid on or after 31st March 2001 by a company resident outside the United Kingdom to a company resident in the United Kingdom (whenever any such dividend as is mentioned in section 801(2) or (3) of the Taxes Act 1988 was paid).

Restriction of relief for underlying tax

2 (1) Section 799 of the Taxes Act 1988 (computation of underlying tax) is amended as follows.

(2) For subsection (1A) (the formula for restricting the amount of underlying tax in respect of which credit relief may be given) substitute--

" (1A) The formula is--

---

where--

D is the amount of the dividend;
U is the amount of underlying tax that would fall to be taken into account as mentioned in subsection (1) above, apart from paragraph (b) of that subsection; and
M% is the maximum relievable rate;

and for the purposes of this subsection the maximum relievable rate is the rate of corporation tax in force when the dividend was paid. " .

(3) After subsection (1A) insert--

" (1B) Where, under any arrangements, a company makes a claim for an allowance by way of credit in accordance with this Chapter--

(a) the claim may be so framed as to exclude such amounts of underlying tax as may be specified for the purpose in the claim; and

(b) any amounts of underlying tax so excluded shall be left out of account for the purposes of this section. " .

(4) This paragraph has effect in relation to any claim for an allowance by way of credit made on or after 31st March 2001 in respect of a dividend paid by a company resident outside the United Kingdom to a company resident in the United Kingdom, unless the dividend was paid before that date.

(5) In determining, for the purpose of any such claim made on or after that date, the underlying tax of any such third, fourth or successive company as is mentioned in section 801(2) or (3) of the Taxes Act 1988, this paragraph shall be taken to have had effect at the time the dividend paid by that company was paid.

Credit for underlying tax: UK company related through overseas company

3 (1) Section 801 of the Taxes Act 1988 (dividends paid between related companies: relief for UK and third country taxes) is amended as follows.

(2) In subsection (2) (underlying tax in relation to dividend received by overseas company from third company etc) for "subject to subsection (4)" substitute "subject to subsections (4) to (4D)".

(3) After subsection (4) (limitations to which subsections (2) and (3) are subject) insert--

" (4A) If, in the application of section 799(1)(b) by subsection (2) or (3) above in relation to a dividend paid by a company resident in the United Kingdom--

(a) the amount given by the formula in section 799(1A), exceeds

(b) the value of U in that formula,

subsection (4B) below shall apply.

(4B) Where this subsection applies, in the application (otherwise than by subsection (2) or (3) above) of subsection (1) of section 799 in relation to the dividend mentioned in that subsection ("the Case V dividend"), the amount of foreign tax which by virtue of the provision made by the arrangements mentioned in that subsection would fall to be taken into account under this Part in respect of the Case V dividend--

(a) apart from this subsection, and

(b) after applying paragraphs (a) and (b) of that subsection,

shall be increased by an amount of underlying tax equal to the appropriate portion of the amount of the excess described in subsection (4A) above in relation to the dividend paid by the company resident in the United Kingdom.

(4C) Subsection (6) of section 806B (meaning of "appropriate portion"), as read with subsections (7) and (10) of that section, shall have effect for the purposes of subsection (4B) above as it has effect for the purposes of subsection (5) of that section (but taking the references in subsection (10) of that section to the Case V dividend as references to the Case V dividend within the meaning of subsection (4B) above).

(4D) Subsections (4A) to (4C) above shall be ignored in determining for the purposes of subsection (2) or (3) above the extent to which any underlying tax paid by a company would be taken into account under this Part if the dividend in question had been paid by a company resident outside the United Kingdom to a company resident in the United Kingdom. " .

Dividends that give rise to eligible unrelieved foreign tax

4 (1) Section 806A of the Taxes Act 1988 (eligible unrelieved foreign tax) is amended as follows.

(2) At the end of subsection (5) (cases where an amount of eligible unrelieved foreign tax arises: Case B: restriction by the mixer cap) add--

" But if that is so in any case by reason only of the mixer cap restricting the amount of underlying tax that is treated as mentioned in subsection (2) or (3) of section 801 in the case of a dividend paid by a company resident in the United Kingdom, the case does not fall within Case B. " .

(3) The amendment made by this paragraph has effect in relation to--

(a) dividends arising on or after 31st March 2001 to companies resident in the United Kingdom from companies resident outside the United Kingdom, and

(b) foreign tax in respect of such dividends,

(whenever the dividend mentioned in the amendment was paid).

The amounts that are eligible unrelieved foreign tax

5 (1) Section 806B (determination of the amounts that are eligible unrelieved foreign tax) is amended as follows.

(2) For subsections (3) to (6) (amounts of eligible unrelieved foreign tax in Case B) substitute--

" (3) In Case B, the amount (if any) by which--

(a) the aggregate of the upper rate amounts falling to be brought into account for the purposes of this paragraph by virtue of subsection (4) or (5) below, exceeds

(b) the amount of tax to be taken into account as mentioned in section 799(1) in the case of the Case V dividend, before any increase under section 801(4B),

shall be an amount of eligible unrelieved foreign tax.

(4) In the case of the Case V dividend (but not any lower level dividend), the upper rate amount to be brought into account for the purposes of subsection (3)(a) above--

(a) in a case where the mixer cap does not restrict the amount of tax to be taken into account as mentioned in section 799(1) (before any increase under section 801(4B)) in the case of that dividend, is that amount of tax; or

(b) in a case where the mixer cap restricts the amount of tax to be so taken into account in the case of that dividend, is the greater amount that would have been so taken into account if, in the application of the formula in section 799(1A) in the case of that dividend (but not any lower level dividend) M% had, in relation to--

(i) so much of D as does not represent any lower level dividend, and

(ii) so much of U as is not underlying tax attributable to any lower level dividend,

been the upper percentage.

(5) In the case of any dividend (the "relevant dividend") received as mentioned in subsection (2) or (3) of section 801 which is a lower level dividend in relation to the Case V dividend, the upper rate amount to be brought into account for the purposes of subsection (3)(a) above--

(a) in a case where the mixer cap does not restrict the amount of underlying tax that is treated as mentioned in subsection (2) or (3), as the case may be, of section 801 in the case of the relevant dividend, is the appropriate portion of that amount of underlying tax;

(b) in a case where--

(i) the relevant dividend was paid by a company resident in the United Kingdom, and

(ii) the mixer cap restricts the amount of underlying tax that is treated as mentioned in subsection (2) or (3), as the case may be, of section 801 in the case of that dividend,

is the appropriate portion of that restricted amount of underlying tax; or

(i) the relevant dividend was paid by a company resident outside the United Kingdom, and

(ii) the mixer cap restricts the amount of underlying tax that is treated as mentioned in subsection (2) or (3), as the case may be, of section 801 in the case of that dividend,

is the appropriate portion of the greater amount of tax that would have been so treated if, in the application of the formula in section 799(1A) in the case of that dividend (but not any other dividend) M% had, in relation to so much of D as does not represent any lower level dividend, and so much of U as is not underlying tax attributable to any lower level dividend, been the upper percentage.

(6) For the purposes of subsection (5) above, the "appropriate portion" of any amount there mentioned in the case of a dividend is found by multiplying that amount by the product of the reducing fractions for each of the higher level dividends. " .

(3) In subsection (9) (disregard of sections 806C and 806D for purpose of determining certain amounts in subsections (2)(b), (3)(b) or (5)(b)) for "(3)(b) or (5)(b)" substitute "(4)(b) or (5)(c)".

(4) The amendments made by this paragraph have effect in relation to--

(a) dividends arising on or after 31st March 2001 to companies resident in the United Kingdom from companies resident outside the United Kingdom, and

(b) foreign tax in respect of such dividends,

(whenever any such dividend as is mentioned in section 801(2) or (3) of the Taxes Act 1988 was paid).

Underlying tax excluded from claim not to be allowed under section 811

6 (1) Section 811 of the Taxes Act 1988 (deduction for foreign tax where no credit allowable) is amended as follows.

(2) In subsection (2) (miscellaneous provisions relating to the application of subsection (1))--

(a) omit "and" immediately preceding paragraph (b);

(b) insert "and" at the end of that paragraph; and

" (d) shall not require any income to be treated as reduced by an amount of underlying tax which, by virtue of section 799(1B)(b), falls to be left out of account for the purposes of section 799; " .

(3) This paragraph has effect in relation to income arising on or after 31st March 2001.

Relief for non-resident persons with branches or agencies in the UK

7 (1) The amendments made by paragraph 4 of Schedule 30 to the Finance Act 2000 (c. 17) shall have effect, and be taken always to have had effect, in accordance with the following provisions of this paragraph.

(2) In sub-paragraph (14) of that paragraph (which provides for the amendments to have effect in relation to accounting periods ending on or after 21st March 2000) for "accounting periods" substitute "chargeable periods".

(3) That paragraph shall be taken to have been originally enacted as so amended.

Section 83.

SCHEDULE 28 Life policies, life annuities and capital redemption policies

Part 1 Assignment or surrender of part of the rights

Introductory

1 Chapter 2 of Part 13 of the Taxes Act 1988 is amended in accordance with the following provisions of this Part of this Schedule.

Interpretation

2 In section 539 (introductory) after subsection (3) insert--

" (3A) References in this Chapter to assignment of the whole of, or assignment of part of or a share in, the rights conferred by a policy or contract shall, in any case where section 546A applies, be construed in accordance with that section. " .

Life policies: chargeable events

3 (1) Section 540 is amended as follows.

(2) In subsection (1)(a) (chargeable events where policy is not a qualifying policy) at the beginning of sub-paragraph (v) (occurrence of excess under section 546 at end of year) insert "subject to section 546B(3)(a),".

(3) In subsection (1)(b) (chargeable events where policy is a qualifying policy) in sub-paragraph (ii) (which refers to a surrender or assignment or such an excess) after "assignment or" insert "(subject to section 546B(3)(a))".

Life policies: computation of gain

4 (1) Section 541 is amended as follows.

(2) In subsection (1), in each of paragraphs (a)(ii), (b)(ii) and (c)(ii) (which refer to the total amount treated as gain by virtue of paragraph (d) on the previous happening of chargeable events) after "paragraph (d) below" insert "or section 546C(7)(b)".

(3) In paragraph (d) of that subsection (if chargeable event is occurrence of excess mentioned in section 540(1)(a)(v), the gain is the amount of the excess) at the end insert "(subject to section 546B(3)(a))".

(4) Subsection (4) (which makes provision about in-year assignments for no consideration and is superseded by the sections 546B to 546D inserted by this Schedule) shall cease to have effect.

Life annuity contracts: chargeable events

5 (1) Section 542 is amended as follows.

(2) In subsection (1) (which specifies the chargeable events in relation to life annuity contracts) at the beginning of paragraph (c) (occurrence of excess under section 546 at end of year) insert "subject to section 546B(3)(a),".

(3) In subsection (3) (which provides that, subject to section 544, an event referred to in subsection (1) is not a chargeable event in relation to certain contracts made before 26th June 1982) after "subsection (1) above" insert "or section 546C(7)(a)".

Life annuity contracts: computation of gain

6 (1) Section 543(1) is amended as follows.

(2) In each of paragraphs (a)(ii) and (b)(ii) (which refer to the total amount treated as gain by virtue of paragraph (c) on the previous happening of chargeable events) after "paragraph (c) below" insert "or section 546C(7)(b)".

(3) In paragraph (c) (if chargeable event is occurrence of excess mentioned in section 542(1), the gain is the amount of the excess) at the end insert "(subject to section 546B(3)(a))".

Capital redemption policies: chargeable events

7 In section 545(1) (which specifies the chargeable events in relation to capital redemption policies) at the beginning of paragraph (d) (occurrence of excess under section 546 at end of year) insert "subject to section 546B(3)(a),".

The value of a part or share assigned

8 (1) Section 546 (calculation of certain amounts for the purposes of sections 540, 542 and 545) is amended as follows.

(2) In subsection (1), in paragraph (a) (calculation of value of parts or shares assigned or surrendered)--

(a) after "which" insert "--(i)";

(b) for "assigned or surrendered" substitute "assigned for money or money's worth, or surrendered,"; and

(ii) has been assigned otherwise than for money or money's worth during that period but in a year beginning on or before 5th April 2001; " .

(3) At the end of the section insert--

" (6) Where any part of or share in the rights conferred by a policy or contract is assigned, the value of the part or share, as at the time of the assignment, shall be taken for the purposes of this section to be its surrender value at that time. " .

Assignments etc involving co-ownership

9 After section 546 (calculation of certain amounts for purposes of sections 540, 542 and 545) insert--

" 546A Treatment of certain assignments etc involving co-ownership

(1) This section applies in any case where--

(a) as a result of any transaction (the "material transaction") the whole or part of or a share in the rights conferred by a policy or contract ("the material interest") becomes beneficially owned by one person or by two or more persons jointly or in common ("the new ownership");

(b) immediately before the material transaction, the material interest was in the beneficial ownership of one person or of two or more persons jointly ("the old ownership"); and

(2) In any such case, the material transaction shall, in accordance with the following provisions of this section, be taken for the purposes of this Chapter (other than this section) to be one or more assignments, of part only of the rights conferred by the policy or contract.

(3) For the purposes of this Chapter (other than this section), the members of the old ownership shall be treated--

(a) where the old ownership consists of two or more persons beneficially entitled jointly, as if the material interest had been in their beneficial ownership in equal shares instead of jointly;

(b) where the new ownership consists of two or more persons beneficially entitled jointly, as if the result of the material transaction had been that the material interest was in the beneficial ownership of those persons in equal shares instead of jointly; and

(c) as if the material transaction had been the assignment by each member of the old ownership of so much (if any) of his old share as exceeds his new share (or, if he does not have a new share, the whole of his old share).

(4) In this section--

"new share", in relation to the material interest and a person who is a member of the new ownership, means--
(a)
if there is only one member of the new ownership, the material interest;
(b)
if there are two or more members of the new ownership beneficially entitled to the material interest in common, the member's share in the material interest; or
(c)
if there are two or more members of the new ownership beneficially entitled to the material interest jointly, the share attributed to the member by subsection (3)(b) above;
"old share", in relation to the material interest and a person who is a member of the old ownership, means--
(a)
if there is only one member of the old ownership, the material interest; or
(b)
if there are two or more members of the old ownership, the share attributed to the member by subsection (3)(a) above. " .

Charging tax in respect of certain section 546 excesses

10 After section 546A insert--

" 546B Special provision in respect of certain section 546 excesses

(1) This section applies in relation to a policy or contract in any case where--

(a) a section 546 excess occurs at the end of any year (including the final year, whether or not ending with a terminal chargeable event); and

(b) the condition in subsection (2) below is satisfied in relation to that year.

(2) The condition is that--

(a) during the year there has been an assignment for money or money's worth of part of or a share in the rights conferred by the policy or contract; or

(b) during the year there has been both--

(i) an assignment, otherwise than for money or money's worth, of the whole or part of or a share in the rights conferred by the policy or contract; and

(ii) an earlier surrender of part of or a share in the rights conferred by the policy or contract.

(3) Where this section applies--

(a) the occurrence of the section 546 excess shall be treated for the purposes of this Chapter as not being a chargeable event; but

(b) the amount of the section 546 excess shall be charged to tax in accordance with the provisions of section 546C.

(4) In this section--

"final year" has the meaning given by section 546(4);
"section 546 excess", in relation to any year, means an excess, occurring at the end of the year, of--
(a)
the reckonable aggregate value mentioned in subsection (2) of section 546, over
(b)
the allowable aggregate amount mentoned in subsection (3) of that section;
"terminal chargeable event" means any chargeable event other than--
(a)
an assignment for money or money's worth of the whole of the rights conferred by the policy or contract;
(b)
the occurrence of a section 546 excess; or
(c)
a chargeable event by virtue of section 546C(7)(a);
"year" has the meaning given by section 546(4).

546C Charging the section 546 excess to tax where section 546B applies

(1) This section applies where, in relation to any policy or contract, the amount of a section 546 excess occurring at the end of any year falls to be charged to tax in accordance with this section by virtue of section 546B(3)(b).

(2) The following amounts shall be calculated as at the end of that year--

(a) the aggregate of the values calculated under section 546(1)(a) in respect of any part of or share in the rights conferred by the policy or contract which has been assigned for money or money's worth, or surrendered, during the year;

(b) the amount by which--

(i) the reckonable aggregate value mentioned in section 546(2), as at the end of the year, exceeds

(ii) the aggregate calculated under paragraph (a) above;

and

(i) the allowable aggregate amount mentioned in section 546(3), as at the end of the year, exceeds

(ii) the amount calculated under paragraph (b) above.

(3) In this section--

(a) "relevant transaction" means any assignment for money or money's worth, or any surrender, of a part of or share in the rights conferred by the policy or contract which has happened during the year;

(b) "transaction value", in relation to any relevant transaction, means the value calculated in accordance with section 546(1)(a) in the case of that transaction;

(i) in relation to the earliest relevant transaction, the amount calculated under subsection (2)(c) above (that amount being taken to be nil if there is no such excess as is there mentioned); and

(ii) in relation to each successive relevant transaction, that amount as successively reduced under subsections (5) to (7) below.

(4) Subsection (5) below shall apply successively to each of the relevant transactions that happened in the year, in the order in which they happened.

If the year is the final year and ends with a terminal chargeable event, this subsection is subject to section 546D.

(5) Where this subsection applies in relation to a relevant transaction--

(a) the transaction value shall be compared to the amount of available premium; and

Pages: P.1 | P.2 | P.3 | P.4 | P.5 | P.6 | P.7 | P.8 | P.9 | P.10 | P.11 | P.12 | P.13 | P.14 | P.15 | P.16 | P.17 | P.18 | P.19 | P.20 | P.21 | P.22 | P.23 | P.24 | P.25 | P.26 | P.27 | P.28

-- Back --

Stat