Finance Act 1989 (c. 26)

(The document as of February, 2008)

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21 (1) This paragraph shall apply to a scheme if the employment unit is a part of an undertaking, and the scheme states that the profits or losses of the unit are for the purposes of the scheme to be taken to be equivalent to those of the whole undertaking (which must be identified by the scheme).

(2) Where this paragraph applies to a scheme, this Schedule shall have effect as if any reference to the profits or losses of the employment unit were a reference to the profits or losses of the undertaking of which it forms part.

22 (1) Where paragraph 21 above applies to a scheme, the scheme must contain provisions ensuring that no payments are made under it by reference to a profit period unless, at the beginning of that profit period,--

(a) there is at least one other registered scheme which relates to employees employed in the same undertaking as that of which the employment unit forms part, and

(b) the number of the employees to whom the scheme relates does not exceed 33 per cent. of the number of the employees to whom that other scheme relates (or if there is more than one other scheme, the aggregate number of the employees to whom they relate).

(2) Another registered scheme shall be disregarded for the purposes of sub-paragraph (1) above--

(a) if paragraph 21 above applies to it, or

(b) if, by virtue of provisions of the kind described in paragraph 6 above, no payments could be made under it by reference to the profit period concerned.

(3) Where paragraph 21 above applies to two or more schemes relating to employment units which are parts of the same undertaking, an employee to whom another scheme relates shall not be counted for the purposes of sub-paragraph (1)(b) above in connection with more than one of those schemes. "

Section 74.

SCHEDULE 5 Employee Share Ownership Trusts

Qualifying trusts

1 A trust is a qualifying employee share ownership trust at the time it is established if the conditions set out in paragraphs 2 to 11 below are satisfied in relation to the trust at that time.

General

2 (1) The trust must be established under a deed (the trust deed).

(2) The trust must be established by a company (the founding company) which, at the time the trust is established, is resident in the United Kingdom and not controlled by another company.

Trustees

3 (1) The trust deed must provide for the establishment of a body of trustees.

(2) The trust deed must--

(a) appoint the initial trustees;

(b) contain rules for the retirement and removal of trustees;

(3) The trust deed must provide that at any time while the trust subsists (the relevant time)--

(a) the number of trustees must not be less than three;

(b) all the trustees must be resident in the United Kingdom;

(c) the trustees must include one person who is a trust corporation, a solicitor, or a member of such other professional body as the Board may from time to time allow for the purposes of this paragraph;

(d) most of the trustees must be persons who are not and have never been directors of any company which falls within the founding company's group at the relevant time;

(e) most of the trustees must be persons who are employees of companies which fall within the founding company's group at the relevant time, and who do not have and have never had a material interest in any such company;

(f) the trustees falling within paragraph (e) above must, before being appointed as trustees, have been selected by a majority of the employees of the companies falling within the founding company's group at the time of the selection or by persons elected to represent those employees.

(4) For the purposes of sub-paragraph (3) above a company falls within the founding company's group at a particular time if--

(a) it is the founding company, or

(b) it is at that time resident in the United Kingdom and controlled by the founding company.

Beneficiaries

4 (1) The trust deed must contain provision as to the beneficiaries under the trust, in accordance with the following rules.

(2) The trust deed must provide that a person is a beneficiary at a particular time (the relevant time) if--

(a) he is at the relevant time an employee or director of a company which at that time falls within the founding company's group,

(b) at each given time in a qualifying period he was an employee or director of a company falling within the founding company's group at that given time, and

(c) at that given time he worked as an employee or director of the company concerned at the rate of at least 20 hours a week (ignoring such matters as holidays and sickness).

(3) The trust deed may provide that a person is a beneficiary at a particular time (the relevant time) if--

(a) he has at each given time in a qualifying period been an employee or director of a company falling within the founding company's group at that given time,

(b) he has ceased to be an employee or director of the company or the company has ceased to fall within that group, and

(c) at the relevant time a period of not more than eighteen months has elapsed since he so ceased or the company so ceased (as the case may be).

(4) The trust deed may provide for a person to be a beneficiary if the person is a charity and the circumstances are such that--

(a) there is no person who is a beneficiary within any rule which is included in the deed and conforms with sub-paragraph (2) or (3) above, and

(b) the trust is in consequence being wound up.

(5) For the purposes of sub-paragraph (2) above a qualifying period is a period--

(a) whose length is not less than one year and not more than five years,

(b) whose length is specified in the trust deed, and

(6) For the purposes of sub-paragraph (3) above a qualifying period is a period--

(a) whose length is equal to that of the period specified in the trust deed for the purposes of a rule which conforms with sub-paragraph (2) above, and

(b) which ends when the person or company (as the case may be) ceased as mentioned in sub-paragraph (3)(b) above.

(7) The trust deed must not provide for a person to be a beneficiary unless he falls within any rule which is included in the deed and conforms with sub-paragraph (2), (3) or (4) above.

(8) The trust deed must provide that, notwithstanding any other rule which is included in it, a person cannot be a beneficiary at a particular time (the relevant time) if--

(a) at that time he has a material interest in the founding company, or

(b) at any time in the period of one year preceding the relevant time he has had a material interest in that company.

(9) For the purposes of this paragraph a company falls within the founding company's group at a particular time if--

(a) it is at that time resident in the United Kingdom, and

(b) it is the founding company or it is at that time controlled by the founding company.

(10) For the purposes of this paragraph a charity is a body of persons established for charitable purposes only.

Trustees' functions

5 (1) The trust deed must contain provision as to the functions of the trustees.

(2) The functions of the trustees must be so expressed that it is apparent that their general functions are--

(a) to receive sums from the founding company and other sums (by way of loan or otherwise);

(b) to acquire securities;

(d) to transfer securities to the trustees of profit sharing schemes approved under Schedule 9 to the Taxes Act 1988, for a price not less than the price the securities might reasonably be expected to fetch on a sale in the open market;

(e) pending transfer, to retain the securities and to manage them (whether by exercising voting rights or otherwise).

Sums

6 (1) The trust deed must require that any sum received by the trustees--

(a) must be expended within the relevant period,

(b) may be expended only for one or more of the qualifying purposes, and

(2) For the purposes of sub-paragraph (1) above the relevant period is the period of nine months beginning with the day found as follows--

(a) in a case where the sum is received from the founding company, or a company which is controlled by that company at the time the sum is received, the day following the end of the period of account in which the sum is charged as an expense of the company from which it is received;

(b) in any other case, the day the sum is received.

(3) For the purposes of sub-paragraph (1) above each of the following is a qualifying purpose--

(a) the acquisition of shares in the founding company;

(b) the repayment of sums borrowed;

(d) the payment of any sum to a person who is a beneficiary under the terms of the trust deed;

(e) the meeting of expenses.

(4) The trust deed must provide that, in ascertaining for the purposes of a relevant rule whether a particular sum has been expended, sums received earlier by the trustees shall be treated as expended before sums received by them later; and a relevant rule is one which is included in the trust deed and conforms with sub-paragraph (1) above.

(5) The trust deed must provide that, where the trustees pay sums to different beneficiaries at the same time, all the sums must be paid on similar terms.

(6) For the purposes of sub-paragraph (5) above, the fact that terms vary according to the levels of remuneration of beneficiaries, the length of their service, or similar factors, shall not be regarded as meaning that the terms are not similar.

Securities

7 (1) Subject to paragraph 8 below, the trust deed must provide that securities acquired by the trustees must be shares in the founding company which--

(a) form part of the ordinary share capital of the company,

(b) are fully paid up,

(d) are not subject to any restrictions other than restrictions which attach to all shares of the same class or a restriction authorised by sub-paragraph (2) below.

(2) Subject to sub-paragraph (3) below, a restriction is authorised by this sub-paragraph if--

(a) it is imposed by the founding company's articles of association,

(b) it requires all shares held by directors or employees of the founding company, or of any other company which it controls for the time being, to be disposed of on ceasing to be so held, and

(c) it requires all shares acquired, in pursuance of rights or interests obtained by such directors or employees, by persons who are not (or have ceased to be) such directors or employees to be disposed of when they are acquired.

(3) A restriction is not authorised by sub-paragraph (2) above unless--

(a) any disposal required by the restriction will be by way of sale for a consideration in money on terms specified in the articles of association, and

(b) the articles also contain general provisions by virtue of which any person disposing of shares of the same class (whether or not held or acquired as mentioned in sub-paragraph (2) above) may be required to sell them on terms which are the same as those mentioned in paragraph (a) above.

(4) The trust deed must provide that shares in the founding company may not be acquired by the trustees at a price exceeding the price they might reasonably be expected to fetch on a sale in the open market.

(5) The trust deed must provide that shares in the founding company may not be acquired by the trustees at a time when that company is controlled by another company.

8 The trust deed may provide that the trustees may acquire securities other than shares in the founding company--

(a) if they are securities issued to the trustees in exchange in circumstances mentioned in section 85(1) of the [1979 c. 14.] Capital Gains Tax Act 1979, or

(b) if they are securities acquired by the trustees as a result of a reorganisation, and the original shares the securities represent are shares in the founding company (construing "reorganisation" and "original shares" in accordance with section 77 of that Act).

9 (1) The trust deed must provide that--

(a) where the trustees transfer securities to a beneficiary, they must do so on qualifying terms;

(b) the trustees must transfer securities before the expiry of the period of seven years beginning with the date on which they acquired them.

(2) For the purposes of sub-paragraph (1) above a transfer of securities is made on qualifying terms if--

(a) all the securities transferred at the same time are transferred on similar terms,

(b) securities have been offered to all the persons who are beneficiaries under the terms of the trust deed when the transfer is made, and

(3) For the purposes of sub-paragraph (2) above, the fact that terms vary according to the levels of remuneration of beneficiaries, the length of their service, or similar factors, shall not be regarded as meaning that the terms are not similar.

(4) The trust deed must provide that, in ascertaining for the purposes of a relevant rule whether particular securities are transferred, securities acquired earlier by the trustees shall be treated as transferred by them before securities acquired by them later; and a relevant rule is one which is included in the trust deed and conforms with sub-paragraph (1) above.

Other features

10 The trust deed must not contain features which are not essential or reasonably incidental to the purpose of acquiring sums and securities, transferring sums and securities to employees and directors, and transferring securities to the trustees of profit sharing schemes approved under Schedule 9 to the Taxes Act 1988.

Rules about acquisition etc.

11 (1) The trust deed must provide that, for the purposes of the deed, the trustees--

(a) acquire securities when they become entitled to them;

(b) transfer securities to another person when that other becomes entitled to them;

(2) But if the deed provides as mentioned in paragraph 8 above, it must provide for the following exceptions to any rule which is included in it and conforms with sub-paragraph (1)(a) above, namely, that--

(a) if securities are issued to the trustees in exchange in circumstances mentioned in section 85(1) of the [1979 c. 14.] Capital Gains Tax Act 1979, they shall be treated as having acquired them when they became entitled to the securities for which they are exchanged;

(b) if the trustees become entitled to securities as a result of a reorganisation, they shall be treated as having acquired them when they became entitled to the original shares which those securities represent (construing "reorganisation" and "original shares" in accordance with section 77 of that Act).

(3) The trust deed must provide that--

(a) if the trustees agree to take a transfer of securities, for the purposes of the deed they become entitled to them when the agreement is made and not on a later transfer made pursuant to the agreement;

(b) if the trustees agree to transfer securities to another person, for the purposes of the deed the other person becomes entitled to them when the agreement is made and not on a later transfer made pursuant to the agreement.

Position after trust's establishment

12 A trust which was at the time it was established a qualifying employee share ownership trust shall continue to be one, except that it shall not be such a trust at any time when the requirements mentioned in paragraph 3(3)(a) to (f) above are not satisfied.

13 A trust is an employee share ownership trust at a particular time (the relevant time) if it was a qualifying employee share ownership trust at the time it was established; and it is immaterial whether or not it is a qualifying employee share ownership trust at the relevant time.

Interpretation

14 For the purposes of this Schedule the following are securities--

(a) shares;

(b) debentures.

15 For the purposes of this Schedule, the question whether one company is controlled by another shall be construed in accordance with section 840 of the Taxes Act 1988.

16 (1) For the purposes of this Schedule a person shall be treated as having a material interest in a company if he, either on his own or with one or more of his associates, or if any associate of his with or without other such associates,--

(a) is the beneficial owner of, or able (directly or through the medium of other companies or by any other indirect means) to control, more than 5 per cent. of the ordinary share capital of the company, or

(b) possesses, or is entitled to acquire, 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 5 per cent. of the assets which would then be available for distribution among the participators.

(2) In this paragraph--

(a) "associate" has the same meaning as in section 417(3) and (4) of the Taxes Act 1988, but subject to sub-paragraph (3) below,

(b) "control" has the meaning given by section 840 of that Act, and

(3) Where a person has an interest in shares or obligations of the company as a beneficiary of an employee benefit trust, the trustees shall not be regarded as associates of his by reason only of that interest unless sub-paragraph (5) below applies in relation to him.

(4) In sub-paragraph (3) above "employee benefit trust" has the same meaning as in paragraph 7 of Schedule 8 to the Taxes Act 1988, except that in its application for this purpose paragraph 7(5)(b) of that Schedule shall have effect as if it referred to the day on which this Act was passed instead of to 14th March 1989.

(5) This sub-paragraph applies in relation to a person if at any time on or after the day on which this Act was passed--

(a) he, either on his own or with any one or more of his associates, or

(b) any associate of his, with or without other such associates,

has been the beneficial owner of, or able (directly or through the medium of other companies or by any other indirect means) to control, more than 5 per cent. of the ordinary share capital of the company.

(6) Sub-paragraphs (9) to (12) of paragraph 7 of Schedule 8 to the Taxes Act 1988 shall apply for the purposes of sub-paragraph (5) above as they apply for the purposes of that paragraph.

Section 75.

SCHEDULE 6 Retirement Benefits Schemes

Part I Amendments of Taxes Act

Preliminary

1 The Taxes Act 1988 shall be amended as mentioned in the following provisions of this Part of this Schedule.

Amendments

2 In section 431(4) (pension business of insurance companies) for paragraph (d)(ii) there shall be substituted--

" (ii) a scheme which is a relevant statutory scheme for the purposes of Chapter I of Part XIV; " .

3 (1) Section 590 (conditions for approval of schemes) shall be amended as follows.

(2) In subsection (3)(d) (condition to be satisfied as to lump sum) the words "(disregarding any excess of that remuneration over the permitted maximum)" shall be omitted.

(3) In subsection (3) for the words from "In paragraph (d) above" to the end there shall be substituted--

" (e) that, in the case of any employee who is a member of the scheme by virtue of two or more relevant associated employments, the amount payable by way of pension in respect of service in any one of them may not, when aggregated with any amount payable by way of pension in respect of service in the other or others, exceed the relevant amount;

(f) that, in the case of any employee who is a member of the scheme by virtue of two or more relevant associated employments, the amount payable by way of commuted pension in respect of service in any one of them may not, when aggregated with any amount payable by way of commuted pension in respect of service in the other or others, exceed the relevant amount;

(g) that, in the case of any employee in relation to whom the scheme is connected with another scheme which is (or other schemes each of which is) an approved scheme, the amount payable by way of pension under the scheme may not, when aggregated with any amount payable by way of pension under the other scheme or schemes, exceed the relevant amount;

(h) that, in the case of any employee in relation to whom the scheme is connected with another scheme which is (or other schemes each of which is) an approved scheme, the amount payable by way of commuted pension may not, when aggregated with any amount payable by way of commuted pension under the other scheme or schemes, exceed the relevant amount. "

(4) For subsection (7) there shall be substituted--

" (7) Subsections (8) to (10) below apply where the Board are considering whether a retirement benefits scheme satisfies or continues to satisfy the prescribed conditions.

(8) For the purpose of determining whether the scheme, so far as it relates to a particular class or description of employees, satisfies or continues to satisfy the prescribed conditions, that scheme shall be considered in conjunction with--

(a) any other retirement benefits scheme (or schemes) which relates (or relate) to employees of that class or description and which is (or are) approved for the purposes of this Chapter,

(b) any other retirement benefits scheme (or schemes) which relates (or relate) to employees of that class or description and which is (or are) at the same time before the Board in order for them to decide whether to give approval for the purposes of this Chapter,

(d) any relevant statutory scheme or schemes relating to employees of that class or description.

(9) If those conditions are satisfied in the case of both or all of those schemes taken together, they shall be taken to be satisfied in the case of the scheme mentioned in subsection (7) above (as well as the other or others).

(10) If those conditions are not satisfied in the case of both or all of those schemes taken together, they shall not be taken to be satisfied in the case of the scheme mentioned in subsection (7) above.

(11) The reference in subsection (8)(c) above to a section 608 scheme is a reference to a fund to which section 608 applies. "

4 The following sections shall be inserted after section 590--

" 590A Section 590: supplementary provisions

(1) For the purposes of section 590(3)(e) and (f) two or more employments are relevant associated employments if they are employments in the case of which--

(a) there is a period during which the employee has held both or all of them,

(b) the period counts under the scheme in the case of both or all of them as a period in respect of which benefits are payable, and

(2) For the purposes of section 590(3)(g) and (h) the scheme is connected with another scheme in relation to an employee if--

(a) there is a period during which he has been the employee of two persons who are associated employers,

(b) the period counts under both schemes as a period in respect of which benefits are payable, and

(c) the period counts under one scheme by virtue of service with one employer and under the other scheme by virtue of service with the other employer.

(3) For the purposes of subsections (1) and (2) above, employers are associated if (directly or indirectly) one is controlled by the other or if both are controlled by a third person.

(4) In subsection (3) above the reference to control, in relation to a body corporate, shall be construed--

(a) where the body corporate is a close company, in accordance with section 416, and

(b) where it is not, in accordance with section 840.

590B Section 590: further supplementary provisions

(1) For the purposes of section 590(3)(e) the relevant amount, in relation to an employee, shall be found by applying the following formula--

---

(2) For the purposes of section 590(3)(f) the relevant amount, in relation to an employee, shall be found by applying the following formula--

---

(3) For the purposes of section 590(3)(g) the relevant amount, in relation to an employee, shall be found by applying the following formula--

---

(4) For the purposes of section 590(3)(h) the relevant amount, in relation to an employee, shall be found by applying the following formula--

---

(5) For the purposes of this section A is the aggregate number of years service (expressing parts of a year as a fraction), subject to a maximum of 40, which, in the case of the employee, count for the purposes of the scheme at the time the benefits in respect of service in the employment become payable.

(6) But where the same year (or part of a year) counts for the purposes of the scheme by virtue of more than one of the relevant associated employments it shall be counted only once in calculating the aggregate number of years service for the purposes of subsection (5) above.

(7) For the purposes of this section B is the aggregate number of years service (expressing parts of a year as a fraction), subject to a maximum of 40, which, in the case of the employee, count for the purposes of any of the following--

(a) the scheme, and

(b) the other scheme or schemes with which the scheme is connected in relation to him,

at the time the benefits become payable.

(8) But where the same year (or part of a year) counts for the purposes of more than one scheme it shall be counted only once in calculating the aggregate number of years service for the purpose of subsection (7) above.

(9) For the purposes of this section C is the permitted maximum in relation to the year of assessment in which the benefits in question become payable, that is, the figure found for that year by virtue of subsections (10) and (11) below.

(10) For the years 1988-89 and 1989-90 the figure is £60,000.

(11) For any subsequent year of assessment the figure is the figure found for that year, for the purposes of section 590C, by virtue of section 590C(4) and (5).

590C Earnings cap

(1) In arriving at an employee's final remuneration for the purposes of section 590(3)(a) or (d), any excess of what would be his final remuneration (apart from this section) over the permitted maximum for the year of assessment in which his participation in the scheme ceases shall be disregarded.

(2) In subsection (1) above "the permitted maximum", in relation to a year of assessment, means the figure found for that year by virtue of subsections (3) and (4) below.

(3) For the years 1988-89 and 1989-90 the figure is £60,000.

(4) For any subsequent year of assessment the figure is also £60,000, subject to subsection (5) below.

(5) If the retail prices index for the month of December preceding a year of assessment falling within subsection (4) above is higher than it was for the previous December, the figure for that year shall be an amount arrived at by--

(a) increasing the figure for the previous year of assessment by the same percentage as the percentage increase in the retail prices index, and

(b) if the result is not a multiple of £600, rounding it up to the nearest amount which is such a multiple.

(6) The Treasury shall in the year of assessment 1989-90, and in each subsequent year of assessment, make an order specifying the figure which is by virtue of this section the figure for the following year of assessment. "

5 (1) Section 592 (exempt approved schemes) shall be amended as follows.

(2) In subsection (8) there shall be inserted at the beginning the words "Subject to subsection (8A) below,".

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

" (8A) Where an employee's remuneration for a year of assessment includes remuneration in respect of more than one employment, the amount allowed to be deducted by virtue of subsection (7) above in respect of contributions paid by the employee in that year by virtue of any employment (whether under a single scheme or under two or more schemes) shall not exceed 15 per cent, or such higher percentage as the Board may in a particular case prescribe, of his remuneration for the year in respect of that employment. "

(4) After subsection (8A) there shall be inserted--

" (8B) In arriving at an employee's remuneration for a year of assessment for the purposes of subsection (8) or (8A) above, any excess of what would be his remuneration (apart from this subsection) over the permitted maximum for that year shall be disregarded.

(8C) In subsection (8B) above "permitted maximum", in relation to a year of assessment, means the figure found for that year by virtue of subsections (8D) and (8E) below.

(8D) For the year 1989-90 the figure is £60,000.

(8E) For any subsequent year of assessment the figure is the figure found for that year, for the purposes of section 590C, by virtue of section 590C(4) and (5). "

6 (1) Section 594 (exempt statutory schemes) shall be amended as follows.

(2) In subsection (1) the word "relevant" shall be inserted before the words "statutory scheme".

(3) In subsection (2) there shall be inserted at the beginning the words "Subject to subsection (3) below,".

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

" (3) Where a person's remuneration for a year of assessment includes remuneration in respect of more than one office or employment, the amount allowed to be deducted by virtue of subsection (1) above in respect of contributions paid by the person in that year by virtue of any office or employment (whether under a single scheme or under two or more schemes) shall not exceed 15 per cent, or such higher percentage as the Board may in a particular case prescribe, of his remuneration for the year in respect of that office or employment. "

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

" (4) In arriving at a person's remuneration for a year of assessment for the purposes of subsection (2) or (3) above, any excess of what would be his remuneration (apart from this subsection) over the permitted maximum for that year shall be disregarded.

(5) In subsection (4) above "permitted maximum", in relation to a year of assessment, means the figure found for that year by virtue of subsections (6) and (7) below.

(6) For the year 1989-90 the figure is £60,000.

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