Finance Act 1989 (c. 26)

(The document as of February, 2008)

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Part I Amendments of Taxes Act

1 Chapter IV of Part XIV of the Taxes Act 1988 (personal pension schemes) shall be amended as mentioned in the following provisions of this Part of this Schedule.

2 (1) Section 635 (lump sum to member) shall be amended as follows.

(2) The following subsection shall be substituted for subsection (3) (lump sum not to exceed one quarter of value of benefits for member)--

" (3) The lump sum must not exceed one quarter of the difference between--

(a) the total value, at the time when the lump sum is paid, of the benefits provided for by the arrangements made by the member in accordance with the scheme, and

(b) the value, at that time, of such of the member's rights under the scheme as are protected rights for the purposes of the [1986 c. 50.] Social Security Act 1986 or the [S.I. 1986/1888 (N.I. 18).] Social Security (Northern Ireland) Order 1986. "

(3) Subsection (4) (lump sum not to exceed £150,000 or sum specified by Treasury by order) shall cease to have effect.

(4) This paragraph shall have effect in relation to the approval of a scheme on or after the day on which this Act is passed; but if the scheme came into existence before that day sub-paragraph (2) above shall not have effect as regards arrangements made by a member in accordance with the scheme before that day.

3 (1) In section 640 (maximum amount of deductions) the following table shall be substituted for the table in subsection (2) (maximum amount by reference to age)--

36 to 45	20 per cent.
46 to 50	25 per cent.
51 to 55	30 per cent.
56 to 60	35 per cent.
61 or more	40 per cent.

(2) This paragraph shall have effect for the year 1989-90 and subsequent years of assessment.

4 (1) The following section shall be inserted after section 640--

" 640A Earnings cap

(1) In arriving at an individual's net relevant earnings for a year of assessment for the purposes of section 640 above, any excess of what would be his net relevant earnings for the year (apart from this subsection) over the allowable maximum for the year shall be disregarded.

(2) In subsection (1) above "the allowable maximum" means, as regards a particular year of assessment, the figure found for that year by virtue of subsections (3) and (4) below.

(3) For the year of assessment 1989-90 the figure is £60,000.

(4) For the year of assessment 1990-91 and 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). "

(2) This paragraph shall have effect for the year 1989-90 and subsequent years of assessment.

5 (1) Section 644 (meaning of relevant earnings) shall be amended as follows.

(2) In subsection (2) for "(5)" there shall be substituted "(6F)".

(3) The following subsections shall be inserted after subsection (6)--

" (6A) Emoluments of an individual as an employee of a company are not income within subsection (2) above if--

(a) he is a controlling director of the company at any time in the year of assessment in question or has been a controlling director of the company at any time in the ten years immediately preceding that year of assessment, and

(b) any of subsections (6B) to (6E) below applies in his case.

(6B) This subsection applies in the case of the individual if--

(a) at any time in the year of assessment in question he is in receipt of benefits under a relevant superannuation scheme, and

(b) the benefits are payable in respect of past service with the company.

(6C) This subsection applies in the case of the individual if--

(a) at any time in the year of assessment in question he is in receipt of benefits under a personal pension scheme,

(b) the scheme has received a transfer payment relating to him from a relevant superannuation scheme, and

(6D) This subsection applies in the case of the individual if--

(a) at any time in the year of assessment in question he is in receipt of benefits under a relevant superannuation scheme,

(b) the benefits are payable in respect of past service with another company,

(c) the emoluments are for a period during which the company mentioned in subsection (6A) above has carried on a trade or business previously carried on by the other company, and

(d) the other company carried on the trade or business at any time during the period of service in respect of which the benefits are payable.

(6E) This subsection applies in the case of the individual if--

(a) at any time in the year of assessment in question he is in receipt of benefits under a personal pension scheme,

(b) the scheme has received a transfer payment relating to him from a relevant superannuation scheme,

(d) the emoluments are for a period during which the company mentioned in subsection (6A) above has carried on a trade or business previously carried on by the other company, and

(e) the other company carried on the trade or business at any time during the period of service in respect of which the transfer payment was made.

(6F) For the purposes of subsections (6A) to (6E) above--

(a) a person is a controlling director of a company if he is a director (as defined by section 612(1)), and he is within paragraph (b) of section 417(5), in relation to the company;

(b) "relevant superannuation scheme" has the same meaning as in section 645(1);

(c) references to benefits payable in respect of past service with a company include references to benefits payable partly in respect of past service with the company; and

(d) references to a transfer payment in respect of past service with a company include references to a transfer payment partly in respect of past service with the company. "

(4) This paragraph shall be deemed to have come into force on 6th April 1989.

6 (1) Section 645 (earnings from pensionable employment) shall be amended as follows.

(2) In subsection (1)(c) for the words "neither subsection (4) nor subsection (5) below applies" there shall be substituted the words "subsection (4) below does not apply".

(3) In subsection (3) the word "and" following paragraph (a) shall be omitted and after paragraph (b) there shall be inserted " and

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

" (4A) Where the emoluments from an office or employment held by an individual are foreign emoluments within the meaning of section 192, this section shall have effect with the substitution of the following for paragraph (c) of subsection (3) above--

" (c) which corresponds to a scheme of a description mentioned in section 596(1)(a), (b) or (c). " "

(5) Subsection (5) shall cease to have effect.

(6) This paragraph shall be deemed to have come into force on 6th April 1989.

7 (1) In section 646 ("net relevant earnings") in subsection (1) after the words "(7) below" there shall be inserted the words "and section 646A".

(2) This paragraph shall have effect for the year 1989-90 and subsequent years of assessment.

8 (1) The following section shall be inserted after section 646--

" 646A Earnings from associated employments

(1) This section applies where in the year of assessment in question--

(a) an individual holds two or more offices or employments which are associated in that year,

(b) one or more of them is an office or employment to which section 645 applies ("pensionable job"), and

(2) Where the emoluments for that year from the pensionable job (or jobs) are equal to or exceed the allowable maximum for that year, section 646(1) shall have effect in the case of the individual as if the references to relevant earnings were references to relevant earnings not attributable to the non-pensionable job (or jobs).

(3) Where the allowable maximum for that year exceeds the emoluments for that year from the pensionable job (or jobs), the individual's net relevant earnings, so far as attributable to the non-pensionable job (or jobs), shall not be greater than the amount of the excess.

(4) For the purposes of this section two or more offices or employments held by an individual in a year of assessment are associated in that year if the employers in question are associated at any time during it.

(5) For the purposes of subsection (4) above, employers are associated if (directly or indirectly) one is controlled by the other or if both are controlled by a third person.

(6) In subsection (5) 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.

(7) In this section "the allowable maximum" has the same meaning as in section 640A(1). "

(2) This paragraph shall have effect for the year 1989-90 and subsequent years of assessment.

9 In section 655(5) (provisional approval in the case of applications made before 1st February 1990) the words "in cases where the applications are made before 1st February 1990" shall be omitted.

Part II Schemes Approved Before Passing of This Act

Interpretation

10 In this Part of this Schedule--

(a) "personal pension scheme" has the same meaning as in Chapter IV of Part XIV of the Taxes Act 1988, and

(b) references to approval of such a scheme do not include references to provisional approval under regulations made under section 655(5) of that Act.

Lump sum to member

11 (1) This paragraph applies as regards arrangements made by a member of a personal pension scheme approved by the Board before the day on which this Act is passed, if the arrangements are made by the member in accordance with the scheme on or after that day.

(2) The rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if any limitation imposed on the maximum amount payable to the member by way of lump sum, and imposed by reference to a fraction of the total value of the benefits for him provided for by the arrangements, were imposed by reference to the same fraction of the difference between--

(a) the total value, at the time when the lump sum is paid, of the benefits provided for by the arrangements, and

(b) the value, at that time, of such of his rights under the scheme as are protected rights for the purposes of the [1986 c. 50.] Social Security Act 1986 or the [S.I. 1986/1888 (N.I. 18).] Social Security (Northern Ireland) Order 1986.

12 (1) This paragraph applies where on or after the day on which this Act is passed a lump sum becomes payable under a personal pension scheme approved by the Board before that day.

(2) The rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if any limitation imposed on the maximum amount payable to a member by way of lump sum, and imposed by reference to a figure, did not apply.

(3) The reference in sub-paragraph (2) above to a limitation imposed on the maximum amount payable to a member by way of lump sum does not include a reference to a limitation imposed on the maximum amount so payable out of a transfer payment.

Section 84.

SCHEDULE 8

Amendments of Chapter I of Part XII of Taxes Act 1988 (Insurance Companies)

1 In section 431 (interpretative provisions relating to insurance companies), at the end of subsection (2) there shall be added--

"policy holders' fraction" and "shareholders' fraction" shall be construed in accordance with section 89 of the Finance Act 1989.

2 Section 433 (profits reserved for policy holders or annuitants) shall cease to have effect.

3 (1) In section 434 (franked investment income etc.), for subsection (3) there shall be substituted the following subsections--

" (3) Subject to sections 437 and 438, the policy holders' fraction of the franked investment income from investments held in connection with a company's life assurance business shall not be used under Chapter V of Part VI to frank distributions made by the company and, accordingly, for the purposes of that Chapter (other than the application of franked investment income under section 241), in relation to any unrelieved income of a company falling within subsection (1) above, the surplus of franked investment income for any accounting period means the aggregate of--

(a) the policy holders' fraction of that franked investment income; and

(b) the amount determined under section 241(3) on the basis that the reference therein to franked investment income is a reference only to the shareholders' fraction of that income.

(3A) The policy holders' fraction of the franked investment income from investments held in connection with a company's life assurance business shall be left out of account in determining, under subsection (7) of section 13, the franked investment income forming part of the company's profits for the purposes of that section. "

(2) Subsections (4) and (5) of that section shall be omitted.

(3) In subsection (6) of that section for the words from "such fraction" onwards there shall be substituted "the policy holders' fraction thereof".

(4) In subsection (7) of that section for "(4)" there shall be substituted "(3)" and after the words "against which" there shall be inserted "disregarding relief under section 242".

4 After section 434 there shall be inserted the following section--

" 434A Limitations on loss relief and group relief

(1) In the case of a company carrying on life assurance business, no relief shall be allowable under Chapter II (loss relief) or Chapter IV (group relief) of Part X against the policy holders' fraction of the relevant profits for any accounting period.

(2) For the purposes of subsection (1) above, the relevant profits of a company for an accounting period are the total profits of its life assurance business, less any deduction due under section 76, but before allowing any relief under Chapter II or Chapter IV of Part X. "

5 Section 435 (taxation of gains reserved for policy holders and annuitants) shall cease to have effect.

6 In section 436 (annuity and pension business: separate charge on profits) in subsection (3)(a) for the words "section 433" there shall be substituted "sections 82 and 83 of the Finance Act 1989".

7 In section 441 (foreign life assurance funds) in subsection (5)(b) after "which" there shall be inserted "in respect of its general annuity business only".

Section 90.

SCHEDULE 9 Life Policies Etc. Held by Companies

1 Chapter II of Part XIII of the Taxes Act 1988 shall be amended as follows.

2 At the end of section 539 there shall be added--

" (9) A policy of life insurance issued in respect of an insurance made before 14th March 1989 shall be treated for the purposes of sections 540(5A), 547(8) and 548(3A) as issued in respect of one made on or after that date if it is varied on or after that date so as to increase the benefits secured or to extend the term of the insurance; and any exercise of rights conferred by the policy shall be regarded for this purpose as a variation. "

3 (1) Section 540 shall be amended as follows.

(2) In subsection (4), for the words "this section" there shall be substituted the words "subsections (1) and (3) above".

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

" (5A) Sub-paragraphs (i) and (ii) of subsection (1)(b) above shall not apply in relation to a policy issued in respect of an insurance made on or after 14th March 1989 if, immediately before the happening of the event, the rights conferred by the policy were in the beneficial ownership of a company, or were held on trusts created, or as security for a debt owed, by a company. "

4 (1) Section 541 shall be amended as follows.

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

" (4A) Where, immediately before the happening of the chargeable event, the rights conferred by a qualifying endowment policy are held as security for a debt owed by a company, then, if--

(a) the conditions in subsection (4B) below are satisfied,

(b) the amount of the debt exceeds the total amount previously paid under the policy by way of premiums, and

(c) the company makes a claim for the purpose within two years after the end of the accounting period in which the chargeable event happens,

this section shall have effect as if the references in subsection (1)(a) and (b) to that total amount were references to the amount of the debt.

(4B) The conditions referred to in subsection (4A) above are--

(a) that, throughout the period beginning with the making of the insurance and ending immediately before the happening of the chargeable event, the rights conferred by the policy have been held as security for a debt owed by the company;

(b) that the capital sum payable under the policy in the event of death during the term of the policy is not less than the amount of the debt when the insurance was made;

(c) that any sum payable under the policy by reason of the chargeable event is applied in repayment of the debt (except to the extent that its amount exceeds the amount of the debt);

(d) that the debt was incurred to defray money applied--

(i) in purchasing an estate or interest in land to be occupied by the company for the purposes of a trade carried on by it, or

(ii) for the purpose of the construction, extension or improvement (but not the repair or maintenance) of buildings which are or are to be so occupied.

(4C) If the amount of the debt is higher immediately before the happening of the chargeable event than it was at some earlier time during the period mentioned in subsection (4B)(a) above, the amount to be taken into account for the purposes of subsection (1) above shall be the lowest amount at which it stood during that period.

(4D) If during the period mentioned in subsection (4B)(a) above the company incurs a debt by borrowing in order to repay another debt, subsections (4B) and (4C) above shall have effect as if, where appropriate, references to either debt included references to the other. "

(3) In subsection (5), after paragraph (b) there shall be inserted " and

(c) "qualifying endowment policy" means a policy which is a qualifying policy by virtue of paragraph 2 of Schedule 15; " .

5 (1) Section 547 shall be amended as follows.

(2) In subsection (1), for paragraph (b) there shall be substituted--

" (b) if, immediately before the happening of that event, those rights were in the beneficial ownership of a company, or were held on trusts created, or as security for a debt owed, by a company, the amount of the gain shall be deemed to form part of the company's income (chargeable under Case VI of Schedule D) for the accounting period in which the event happened; " .

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

" (8) Subsection (1)(b) above shall not have effect as respects--

(a) a policy of life insurance issued in respect of an insurance made before 14th March 1989,

(b) a contract for a life annuity made before that date, or

(c) a capital redemption policy issued in respect of an insurance made before that date, or issued by a company resident in the United Kingdom in respect of an insurance made on or after that date. "

6 (1) Section 548 shall be amended as follows.

(2) In subsection (1)--

(a) in paragraph (a), after the words "an individual's total income" there shall be inserted the words "or the income of a company";

(b) in paragraph (c), after the words "that individual" there shall be inserted the words "or company";

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

" (3A) Subsections (1) and (2) do not apply where the rights conferred by the policy or contract are in the beneficial ownership of a company, or are held on trusts created, or as security for a debt owed, by a company, if the policy was issued in respect of an insurance made before 14th March 1989 or the contract was made before that date. "

7 In section 552, in subsection (2), after paragraph (b) there shall be inserted " or

8 Paragraph 5 above shall have effect in relation to chargeable events happening in any accounting period of the company concerned which begins after 31st March 1989; but subject to that this Schedule shall have effect as from 14th March 1989.

Section 93.

SCHEDULE 10 Deep Discount Securities: Amendments

1 Schedule 4 to the Taxes Act 1988 (deep discount securities) shall be amended as mentioned in the following provisions of this Schedule.

2 (1) Paragraph 1 shall be amended as follows.

(2) The following paragraph shall be inserted after sub-paragraph (1)(d)--

" (dd) "a deep discount security" also means any redeemable security which has been issued by a public body (at whatever time) at a deep discount, other than--

(i) a security such as is mentioned in paragraph (d)(ii) above;

(ii) a security falling within sub-paragraph (5), (6) or (7) below; " .

(3) In sub-paragraph (1)(g) after the words "the company" there shall be inserted the words "or the public body".

(4) The following shall be inserted at the end of sub-paragraph (2)--

" This sub-paragraph applies only in the case of securities issued by a company. "

(5) The following sub-paragraphs shall be inserted after sub-paragraph (3)--

" (4) For the purposes of this Schedule a public body is any of the following which is not a company--

(a) a government, whether of the United Kingdom or elsewhere;

(b) a public or local authority, whether in the United Kingdom or elsewhere.

(5) A security falls within this sub-paragraph if it is a gilt-edged security and--

(a) it was issued before 14th March 1989, or

(b) it was issued on or after that date but was issued under the same prospectus as any gilt-edged security issued before that date.

(6) A security falls within this sub-paragraph if it is a gilt-edged security and--

(a) it was issued under a prospectus under which no securities were issued before 14th March 1989,

(b) it was issued otherwise than on the occasion of the original issue under the prospectus, and

(c) all the securities issued on the occasion of the original issue under the prospectus are gilt-edged securities which are not deep discount securities.

(7) A security falls within this sub-paragraph if it is not a gilt-edged security and was issued (at whatever time) under the same prospectus as any other security which was issued before the security in question and which is not a deep discount security.

(8) For the purposes of this Schedule "gilt-edged security" has the same meaning as it has for the purposes of the 1979 Act. "

3 The following sub-paragraph shall be inserted after paragraph 4(7)--

" (8) In the case of a deep discount security issued by a public body, this paragraph applies where a disposal is made on or after 14th March 1989 (whatever the date of acquisition). "

4 In paragraph 11(1) after the words "deep discount security" there shall be inserted the words "issued by a company".

5 The following paragraph shall be inserted after paragraph 11--

" 11A. Where any deep discount security issued by a public body is redeemed before the redemption date by the body which issued it, paragraph 4 above shall have effect subject to paragraph 11(2) above (ignoring the words following paragraph (b)). "

6 The following sub-paragraph shall be inserted after paragraph 13(2)--

" (3) Every public body which issues deep discount securities on or after 1st August 1989 shall cause to be shown on the certificate of each such security the income element for each income period between the date of issue of the security and the redemption date. "

7 The following shall be inserted after paragraph 14--

" Retirement benefit schemes

15 (1) In a case where--

(a) paragraph 4 above would apply (apart from this paragraph) to a disposal of a security, and

(b) immediately before the disposal was made the security was held for the purposes of an exempt approved scheme (within the meaning of Chapter I of Part XIV),

that paragraph shall not apply to the disposal.

(2) Sub-paragraph (1) above shall not apply unless the disposal is made on or after 14th March 1989.

Stock lending

16 (1) In a case where--

(a) a security is the subject of a transfer which falls within section 129(3), and

(b) the transfer constitutes a disposal to which (apart from this paragraph) paragraph 4 above would apply,

that paragraph shall not apply to the disposal.

(2) Sub-paragraph (1) above shall not apply unless the disposal is made on or after 14th March 1989.

Trustees

17 (1) Where on the disposal by trustees of a deep discount security an amount is treated as income chargeable to tax by virtue of paragraph 4(1) above, the rate at which it is chargeable shall be a rate equal to the sum of the basic rate and the additional rate for the year of assessment in which the disposal is made.

(2) Where the trustees are trustees of a scheme to which section 469 applies, sub-paragraph (1) above shall not apply if or to the extent that the amount is treated as income in the accounts of the scheme.

(3) Sub-paragraph (1) above shall not apply unless the disposal is made on or after 14th March 1989.

Underwriters

18 (1) An underwriting member of Lloyd's shall be treated for the purposes of this Schedule as absolutely entitled as against the trustees to the securities forming part of his premiums trust fund, his special reserve fund (if any) and any other trust fund required or authorised by the rules of Lloyd's, or required by the underwriting agent through whom his business or any part of it is carried on, to be kept in connection with the business.

(2) Sub-paragraph (1) above applies where a disposal is made on or after 14th March 1989 (whatever the date of acquisition).

(3) Where a security forms part of a premiums trust fund at the end of 31st December of any relevant year, for the purposes of this Schedule the trustees of the fund shall be deemed to dispose of the security at that time; and for this purpose relevant years are 1989 and subsequent years.

(4) Where a security forms part of a premiums trust fund at the beginning of 1st January of any relevant year, for the purposes of this Schedule the trustees of the fund shall be deemed to acquire the security at that time; and for this purpose relevant years are 1990 and subsequent years.

(5) Sub-paragraph (6) below applies where the following state of affairs exists at the beginning of 1st January of any year or the end of 31st December of any year--

(a) securities have been transferred by the trustees of a premiums trust fund in pursuance of an arrangement mentioned in section 129(1) or (2),

(b) the transfer was made to enable another person to fulfil a contract or to make a transfer,

(d) section 129(3) applies to the transfer made by the trustees.

(6) The securities transferred by the trustees shall be treated for the purposes of sub-paragraphs (3) and (4) above as if they formed part of the premiums trust fund at the beginning of 1st January concerned or the end of 31st December concerned (as the case may be).

(7) Paragraph 7 above shall have effect subject to sub-paragraph (3) above.

(8) Paragraph 7(2) above shall not apply where--

(a) the deceased was an underwriting member of Lloyd's who died on or after 14th March 1989, and

(b) immediately before his death the security concerned formed part of a premiums trust fund, a special reserve fund or any other trust fund required or authorised by the rules of Lloyd's, or required by the underwriting agent through whom the deceased's business or any part of it was carried on, to be kept in connection with the business.

(9) In a case where an amount treated as income chargeable to tax by virtue of paragraph 4(1) above constitutes profits or gains mentioned in section 450(1)--

(a) section 450(1)(b) shall apply; and

(b) paragraph 4(1)(b) above shall not apply.

(10) For the purpose of computing income tax for the year 1987–88 sub-paragraph (9) above shall have effect as if--

(a) the reference to section 450(1) were to paragraph 2 of Schedule 16 to the [1973 c. 51.] Finance Act 1973, and

(b) the reference to section 450(1)(b) were to paragraph 2(b) of that Schedule.

(11) In this paragraph "business" and "premiums trust fund" have the meanings given by section 457.

Gilts: special rules

19 (1) In a case where--

(a) securities have been issued by a public body under a prospectus under which no securities were issued before 14th March 1989,

(b) some of the securities issued under the prospectus are gilt-edged securities which are would-be deep discount securities,

(c) some of the securities issued under the prospectus are gilt-edged securities which are not would-be deep discount securities, and

(d) there is a time when the aggregate nominal value of the securities falling within paragraph (b) above (at that time) exceeds the aggregate nominal value of the securities falling within paragraph (c) above (at that time),

sub-paragraph (2) below shall apply in relation to any gilt-edged security which has been or is issued under the prospectus at any time (whether before, at or after the time mentioned in paragraph (d) above).

(2) As regards any event occurring in relation to the security after the time mentioned in sub-paragraph (1)(d) above, paragraphs 4, 7, 8, 11A, 12 and 14 to 18 above shall have effect as if--

(a) the security were a deep discount security,

(b) it had been issued as such (whatever the time it was issued), and

(3) For the purposes of sub-paragraph (1) above a would-be deep discount security is a security which would be a deep discount security apart from paragraph 1(6) above.

(4) For the purposes of sub-paragraph (2) above events, in relation to a security, include anything constituting a disposal for the purposes of the 1979 Act, the death of a person competent to dispose of the security, a disposal mentioned in paragraph 18(3) above, and an acquisition mentioned in paragraph 18(4) above.

Non-gilts: special rules

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