Finance (No. 2) Act 2005 (c. 22)

(The document as of February, 2008)

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" (6) In this section "with-profits fund" and "non-profit fund" have the same meaning as in the Integrated Prudential Sourcebook. " .

(6) The amendments made by this paragraph have effect in relation to periods of account beginning on or after 1st January 2005.

Changes in recognised accounts: attribution of amounts carried forward under s.432F of ICTA

14 (1) After section 83A of FA 1989 insert--

" 83B Changes in recognised accounts: attribution of amounts carried forward under s.432F of Taxes Act 1988

(1) This section applies to a company where any revenue account that is recognised for a period of account (the "new period of account") relates to funds or business which is different from the funds or business to which a revenue account that was recognised for the preceding period of account relates.

(2) Any subsection (2) excess (within the meaning of section 432F(2) of the Taxes Act 1988) which would have been available under section 432F(3) or (4) of that Act to reduce a subsection (3) figure (within the meaning of section 432F(1) of that Act) of the company in the new period of account shall be attributed between the revenue accounts that are recognised for that period of account in such manner as is appropriate.

(3) In this section "recognised" means recognised, by virtue of section 83A, for the purposes of sections 82A to 83AB. " .

(2) The amendment made by this paragraph has effect in relation to new periods of account (within the meaning given by section 83B(1) of FA 1989) beginning on or after 1st January 2005.

Charge of certain receipts of basic life assurance business

15 (1) Section 85 of FA 1989 is amended as follows.

(2) In subsection (2) (receipts excluded from charge under Case VI of Schedule D in respect of receipts referable to company's basic life assurance and general annuity business) after paragraph (e) insert " ; or

(f) any payment received under the Financial Services Compensation Scheme to enable the company to meet its obligations to policy holders. " .

(3) In subsection (2C) (rules as to whether receipt is referable to company's basic life assurance and general annuity business for the purposes of subsection (1)) after paragraph (a) insert--

" (aa) in the case of a repayment or refund of expenses other than acquisition expenses, the expenses--

(i) were attributable to basic life assurance and general annuity business for the purposes of Step 1 in subsection (7) of the new section 76 (see subsection (8) of that section), or

(ii) fell to be deducted by virtue of subsection (1) of the old section 76;

and for this purpose, "the new section 76" and "the old section 76" have the same meaning as in section 44 of the Finance Act 2004 (see subsection (8) of that section), " .

(4) The amendments made by this paragraph have effect in relation to accounting periods ending on or after 16th March 2005.

Corporation tax: policy holders' fraction of profits

16 (1) Section 88 of FA 1989 is amended as follows.

(2) In subsection (3A) (meaning of "income and gains of the company's life assurance business" in subsection (3)) after paragraph (a) insert--

" (aa) receipts of the company chargeable under Case VI of Schedule D by virtue of section 85(1) above,

(ab) income of the company treated as referable to basic life assurance and general annuity business by section 441B(2) of the Taxes Act 1988 (treatment of UK land),

(ac) amounts treated as accruing to the company and charged to tax under Case VI of Schedule D by virtue of section 442A of that Act (taxation of investment return where risk reinsured), and " .

(3) The amendment made by this paragraph has effect in relation to periods of account beginning on or after 1st January 2005.

Overseas life insurance companies

17 (1) Section 156 of FA 2003 is amended as follows.

(2) For subsection (4) (regulations amending certain provisions relating to overseas life insurance companies may be made with effect from 1st January 2003) substitute--

" (4) Regulations under this section may be made so as to have effect in relation to accounting periods or periods of account (whenever beginning) which end on or after the day on which the regulations come into force. " .

Meaning of "pension business"

18 (1) Schedule 35 to FA 2004 is amended as follows.

(2) Paragraph 20 (life assurance: meaning of "pension business") is amended as follows.

(3) In the section 431B of ICTA substituted by that paragraph, in subsection (2)--

(a) after "registered pension scheme" (where first occurring) insert "by virtue of the withdrawal of registration of the pension scheme under section 157 of the Finance Act 2004";

(b) after "in which the pension scheme" insert "so".

(4) In that section, insert at the end--

" (3) Where--

(a) immediately before 6th April 2006 an annuity contract falls within any of the descriptions of contracts specified in subsection (2) of this section as it had effect immediately before that date, but

(b) on or after that date the contract does not fall to be regarded for the purposes of this section as having been entered into for the purposes of a registered pension scheme,

the contract is to be treated for the purposes of this section as having been entered into for such purposes. " .

(5) Paragraph 22 (friendly societies: meaning of "pension business") is amended as follows.

(6) In sub-paragraph (3), in the subsection (2B) of section 466 of ICTA inserted by that sub-paragraph--

(a) after "registered pension scheme" (where first occurring) insert "by virtue of the withdrawal of registration of the pension scheme under section 157 of the Finance Act 2004";

(b) after "in which the pension scheme" insert "so".

(7) The preceding provisions of this paragraph come into force on 6th April 2006.

Miscellaneous references to "class" of business

19 (1) In section 432B of ICTA (apportionment of receipts brought into account) in subsection (1), for "class" substitute "category".

(2) In section 444A of ICTA (transfers of business) in subsection (3), for "class" substitute "category".

(3) In Schedule 12 to FA 1997 (leasing arrangements: finance leases and loans) in paragraph 19 (companies carrying on life assurance business) in sub-paragraph (2), for "class" substitute "category".

(4) In Schedule 29 to FA 2002 (gains and losses of a company from intangible fixed assets) in paragraph 138 (interpretation provisions relating to insurance companies) in sub-paragraph (3), for "class" substitute "category".

(5) The amendments made by this paragraph have effect in relation to periods of account beginning on or after 1st January 2005.

Transfers of business: references to accounting period ending with day of transfer

20 (1) Section 12 of ICTA (corporation tax: basis of, and periods for, assessment) is amended as follows.

(2) In subsection (7A), after "(7ZA) above" insert "and subject to subsection (7C) below".

(3) After subsection (7B) insert--

" (7C) Where subsection (1) of section 444AA applies in the case of an insurance business transfer scheme--

(a) an accounting period of the transferor shall end for purposes of corporation tax--

(i) with the end of the period covered by the periodical return deemed by virtue of subsection (2) of that section, or

(ii) where the last period covered by an actual periodical return of the transferor ends immediately before the transfer, with the end of that period,

(so that an accounting period will end immediately before the transfer), and

(b) an accounting period of the transferor shall end for purposes of corporation tax with the end of the period covered by the periodical return deemed by virtue of subsection (3) of that section (so that the time of the transfer shall be an accounting period of the transferor);

and for this purpose, expressions used in this subsection and in that section have the same meaning in this subsection as in that section. " .

(4) In section 444AB of ICTA (transfers of business: charge on transferor retaining assets) in subsection (3), for "ending with the day of the transfer" substitute "ending immediately before the transfer".

(5) In section 444ABA of ICTA (subsequent charge in certain cases within section 444AB of ICTA) in subsection (3), for "ending with the day of the transfer" substitute "ending immediately before the transfer".

(6) In section 213 of TCGA 1992 (spreading of gains and losses under section 212 of TCGA 1992) at the end insert--

" (10) If the transfer is one to which section 444AA(1) of the Taxes Act applies, the references in this section to the accounting period of the transferor ending with the day of the transfer are references to the accounting period ending immediately before the transfer. " .

(7) The amendments made by sub-paragraphs (2) to (5) have effect in relation to insurance business transfer schemes taking place on or after 16th March 2005.

(8) The amendment made by sub-paragraph (6) has effect where the accounting period for which the net amount represents an excess of losses over gains is an accounting period beginning on or after 1st January 2003.

Section 49

SCHEDULE 10 Stamp duty land tax: miscellaneous amendments

Part 1 Amendments coming into force in accordance with paragraph 16

Introduction

1 Part 4 of FA 2003 (stamp duty land tax) is amended in accordance with this Part of this Schedule.

Transfer of rights: exclusion of transaction to which alternative finance provisions apply

2 In section 45 (contract and conveyance: effect of transfer of rights) at the end of subsection (3) insert "except in a case where the secondary contract gives rise to a transaction that is exempt from charge by virtue of subsection (3) of section 73 (alternative property finance: land sold to financial institution and re-sold to individual)".

Group relief

3 In paragraph 1 of Schedule 7 (group relief), in sub-paragraph (7) for "paragraph 3" substitute "paragraphs 3 and 4A".

4 In paragraph 3 of Schedule 7 (withdrawal of group relief)--

(a) for sub-paragraph (2) substitute--

" (2) The amount chargeable is the tax that would have been chargeable in respect of the relevant transaction but for group relief if the chargeable consideration for that transaction had been an amount equal to--

(a) the market value of the subject-matter of the transaction, and

(b) if the acquisition was the grant of a lease at a rent, that rent,

or, as the case may be, an appropriate proportion of the tax that would have been so chargeable. " , and

(b) at the end of sub-paragraph (5) insert "and paragraph 4A (withdrawal of group relief in certain cases involving successive transactions)".

5 In paragraph 4 of Schedule 7 (cases in which group relief is not withdrawn)--

(a) in sub-paragraph (3), for paragraph (b) substitute--

" (b) another company that--

(i) is above the vendor in the group structure, and

(ii) as a result of the transaction ceases to be a member of the same group as the purchaser. " , and

(b) in sub-paragraph (5), for "this purpose" substitute "the purposes of sub-paragraphs (3) and (4)".

6 After paragraph 4 of Schedule 7 insert--

" Withdrawal of group relief in certain cases involving successive transactions

4A (1) Where, in the case of a transaction ("the relevant transaction") that is exempt from charge by virtue of paragraph 1 (group relief)--

(a) there is a change in the control of the purchaser,

(b) that change occurs--

(i) before the end of the period of three years beginning with the effective date of the relevant transaction, or

(ii) in pursuance of, or in connection with, arrangements made before the end of that period,

(c) apart from this paragraph, group relief in relation to the relevant transaction would not be withdrawn under paragraph 3, and

(d) any previous transaction falls within sub-paragraph (2),

paragraphs 3 and 4 have effect in relation to the relevant transaction as if the vendor in relation to the earliest previous transaction falling within sub-paragraph (2) were the vendor in relation to the relevant transaction.

(2) A previous transaction falls within this sub-paragraph if--

(a) the previous transaction is exempt from charge by virtue of paragraph 1, 7 or 8,

(b) the effective date of the previous transaction is less than three years before the date of the event falling within sub-paragraph (1)(a),

(c) the chargeable interest acquired under the relevant transaction by the purchaser in relation to that transaction is the same as, comprises, forms part of, or is derived from, the chargeable interest acquired under the previous transaction by the purchaser in relation to the previous transaction, and

(d) since the previous transaction, the chargeable interest acquired under that transaction has not been acquired by any person under a transaction that is not exempt from charge by virtue of paragraph 1, 7 or 8.

(3) For the purposes of sub-paragraph (1)(a) there is a change in the control of a company if--

(a) any person who controls the company (alone or with others) ceases to do so,

(b) a person obtains control of the company (alone or with others), or

References to "control" in this sub-paragraph shall be construed in accordance with section 416 of the Taxes Act 1988.

(4) If two or more transactions effected at the same time are the earliest previous transactions falling within sub-paragraph (2), the reference in sub-paragraph (1) to the vendor in relation to the earliest previous transaction is a reference to the persons who are the vendors in relation to the earliest previous transactions.

(5) In this paragraph "arrangements" includes any scheme, agreement or understanding, whether or not legally enforceable. "

7 In Schedule 17A (further provisions relating to leases) in paragraph 11(5)(a) for the words from "the purchaser" to the end substitute "the event falling within paragraph 3(1)(a) of Schedule 7 (purchaser ceasing to be a member of the same group as the vendor), as read with paragraph 4A of that Schedule".

Reconstruction and acquisition reliefs

8 In paragraph 8 of Schedule 7 (acquisition relief)--

(a) in sub-paragraph (1)(b) for "the first and second conditions" substitute "all the conditions", and

(b) after sub-paragraph (5) insert--

" (5A) The third condition is that the undertaking or part acquired by the acquiring company has as its main activity the carrying on of a trade that does not consist wholly or mainly of dealing in chargeable interests.

In this sub-paragraph "trade" has the same meaning as in the Taxes Act 1988. "

9 In paragraph 9 of Schedule 7 (withdrawal of reconstruction or acquisition relief) for sub-paragraph (2) substitute--

" (2) The amount chargeable is the tax that would have been chargeable in respect of the relevant transaction but for reconstruction or acquisition relief if the chargeable consideration for that transaction had been an amount equal to--

(a) the market value of the subject-matter of the transaction, and

(b) if the acquisition was the grant of a lease at a rent, that rent,

or, as the case may be, an appropriate proportion of the tax that would have been so chargeable. "

Withdrawal of money etc from partnership after transfer of chargeable interest

10 In Schedule 15 (partnerships) after paragraph 17 insert--

" Withdrawal of money etc from partnership after transfer of chargeable interest

17A (1) This paragraph applies where--

(a) there is a transfer of a chargeable interest to a partnership ("the land transfer");

(b) the land transfer falls within paragraph (a), (b) or (c) of paragraph 10(1);

(2) A qualifying event is--

(a) a withdrawal from the partnership of money or money's worth which does not represent income profit by the relevant person--

(i) withdrawing capital from his capital account,

(ii) reducing his interest, or

(iii) ceasing to be a partner, or

(b) in a case where the relevant person has made a loan to the partnership--

(i) the repayment (to any extent) by the partnership of the loan, or

(ii) a withdrawal by the relevant person from the partnership of money or money's worth which does not represent income profit.

(3) For this purpose the relevant person is--

(a) where the land transfer falls within paragraph 10(1)(a) or (b), the person who makes the land transfer, and

(b) where the land transfer falls within paragraph 10(1)(c), the partner concerned or a person connected with him.

(4) The qualifying event--

(a) shall be taken to be a land transaction, and

(b) is a chargeable transaction.

(5) The partners shall be taken to be the purchasers under the transaction.

(6) Paragraphs 6 to 8 (responsibility of partners) have effect in relation to the transaction.

(7) The chargeable consideration for the transaction shall be taken to be--

(a) in a case falling within sub-paragraph (2)(a), equal to the value of the money or money's worth withdrawn from the partnership,

(b) in a case falling within sub-paragraph (2)(b)(i), equal to the amount repaid, and

(c) in a case falling within sub-paragraph (2)(b)(ii), equal to so much of the value of the money or money's worth withdrawn from the partnership as does not exceed the amount of the loan,

but (in any case) shall not exceed the market value, as at the effective date of the land transfer, of the chargeable interest transferred by the land transfer, reduced by any amount previously chargeable to tax. "

Grant of lease to bare trustee

11 For paragraph 3 of Schedule 16 substitute--

" Bare trustee

3 (1) Subject to sub-paragraph (2), where a person acquires a chargeable interest as bare trustee, this Part applies as if the interest were vested in, and the acts of the trustee in relation to it were the acts of, the person or persons for whom he is trustee.

(2) Sub-paragraph (1) does not apply in relation to the grant of a lease.

(3) Where a lease is granted to a person as bare trustee, he is treated for the purposes of this Part, as it applies in relation to the grant of the lease, as purchaser of the whole of the interest acquired.

(4) Where a lease is granted by a person as bare trustee, he is to be treated for the purposes of this Part, as it applies in relation to the grant of the lease, as vendor of the whole of the interest disposed of. "

12 In paragraph 11 of Schedule 17A (cases where assignment of lease treated as grant of lease), for sub-paragraph (1) substitute--

" (1) This paragraph applies where the grant of a lease is exempt from charge by virtue of any of the provisions specified in sub-paragraph (3). "

Variation of lease

13 In paragraph 15A of Schedule 17A (leases: reduction of rent or term)--

(a) after sub-paragraph (1) insert--

" (1A) Where any consideration in money or money's worth (other than an increase in rent) is given by the lessee for any variation of a lease, other than a variation of the amount of the rent or of the term of the lease, the variation is treated for the purposes of this Part as an acquisition of a chargeable interest by the lessee. " , and

(b) for the heading preceding that paragraph substitute "Reduction of rent or term or other variation of lease".

Loan or deposit in connection with grant or assignment of lease

14 After paragraph 18 of Schedule 17A insert--

" Loan or deposit in connection with grant or assignment of lease

18A (1) Where, under arrangements made in connection with the grant of a lease--

(a) the lessee, or any person connected with him or acting on his behalf, pays a deposit, or makes a loan, to any person, and

(b) the repayment of all or part of the deposit or loan is contingent on anything done or omitted to be done by the lessee or on the death of the lessee,

the amount of the deposit or loan (disregarding any repayment) is to be taken for the purposes of this Part to be consideration other than rent given for the grant of the lease.

(2) Where, under arrangements made in connection with the assignment of a lease--

(a) the assignee, or any person connected with him or acting on his behalf, pays a deposit, or makes a loan, to any person, and

(b) the repayment of all or part of the deposit or loan is contingent on anything done or omitted to be done by the assignee or on the death of the assignee,

the amount of the deposit or loan (disregarding any repayment) is to be taken for the purposes of this Part to be consideration other than rent given for the assignment of the lease.

(3) Sub-paragraph (1) or (2) does not apply in relation to a deposit if the amount that would otherwise fall within the sub-paragraph in question in relation to the grant or (as the case requires) assignment of the lease is not more than twice the relevant maximum rent.

(4) The relevant maximum rent is--

(a) in relation to the grant of a lease, the highest amount of rent payable in respect of any consecutive twelve month period in the first five years of the term;

(b) in relation to the assignment of a lease, the highest amount of rent payable in respect of any consecutive twelve month period in the first five years of the term remaining outstanding as at the date of the assignment,

the highest amount of rent being determined (in either case) in the same way as the highest amount of rent mentioned in paragraph 7(3).

(5) Tax is not chargeable by virtue of this paragraph--

(a) merely because of paragraph 9(2) of Schedule 5 (which excludes the 0% band in the Tables in section 55(2) in cases where the relevant rental figure exceeds £600 a year), or

(b) merely because of paragraph 5(4)(b), 6(6)(b), 9(4)(b) or 10(6)(b) of Schedule 6 (which make similar provision in relation to land which is wholly or partly residential property and is wholly or partly situated in a disadvantaged area).

(6) Section 839 of the Taxes Act 1988 (connected persons) has effect for the purposes of this paragraph. "

15 In section 80 (adjustment where contingency ceases or consideration is ascertained) after subsection (4) insert--

" (4A) Where the transaction ("the relevant transaction") is the grant or assignment of a lease, no claim may be made under subsection (4)--

(a) in respect of the repayment (in whole or part) of any loan or deposit that is treated by paragraph 18A of Schedule 17A as being consideration given for the relevant transaction, or

(b) in respect of the refund of any of the consideration given for the relevant transaction, in a case where the refund--

(i) is made under arrangements that were made in connection with the relevant transaction, and

(ii) is contingent on the determination or assignment of the lease or on the grant of a chargeable interest out of the lease. "

Commencement

16 (1) Subject to sub-paragraph (7), paragraphs 3 to 7 have effect where the effective date of the relevant transaction (within the meaning of paragraph 3 or 4A of Schedule 7 to FA 2003) is after 19th May 2005.

(2) Subject to sub-paragraph (7), paragraph 9 has effect where the effective date of the relevant transaction (within the meaning of paragraph 9 of Schedule 7 to FA 2003) is after 19th May 2005.

(3) Subject to sub-paragraph (7), paragraph 10 has effect where the effective date of the transaction transferring the chargeable interest to the partnership is after 19th May 2005.

(4) Subject to sub-paragraph (7), paragraphs 11 and 12 have effect where the effective date of the land transaction consisting of the grant of the lease is after 19th May 2005.

(5) Subject to sub-paragraph (7), the amendments made by the other provisions of this Part of this Schedule have effect in relation to any transaction of which the effective date is after 19th May 2005.

(6) In sub-paragraphs (7) and (8) "the specified date" means--

(a) in relation to the amendments made by paragraphs 4(a) and 9, 19th May 2005, and

(b) in relation to the amendments made by the other provisions of this Part of this Schedule, 16th March 2005.

(7) The amendments made by this Part of this Schedule do not have effect--

(a) in relation to any transaction which is effected in pursuance of a contract entered into and substantially performed on or before the specified date, or

(b) subject to sub-paragraph (8), in relation to any other transaction which is effected in pursuance of a contract entered into on or before the specified date.

(8) The exclusion by sub-paragraph (7)(b) of transactions effected in pursuance of contracts entered into on or before the specified date does not apply--

(a) if there is any variation of the contract or assignment of rights under the contract after that date,

(b) if the transaction is effected in consequence of the exercise after that date of any option, right of pre-emption or similar right, or

(c) if after that date there is an assignment, subsale or other transaction (relating to the whole or part of the subject-matter of the contract) as a result of which a person other than the purchaser under the contract becomes entitled to call for a conveyance to him.

(9) In this paragraph "assignment", "effective date" and "substantially performed" have the same meaning as in Part 4 of FA 2003.

Part 2 Amendments coming into force in accordance with paragraph 22

Introduction

17 Part 4 of FA 2003 (stamp duty land tax) is amended in accordance with this Part of this Schedule.

Transfers involving public bodies

18 In section 66 of FA 2003 (transfers involving public bodies) after subsection (5) insert--

" (6) In this section "company" means a company as defined by section 735(1) of the Companies Act 1985 or Article 3(1) of the Companies (Northern Ireland) Order 1986. "

Group relief: avoidance arrangements

19 In paragraph 2 of Schedule 7 (restrictions on availability of group relief) after sub-paragraph (4) insert--

" (4A) Group relief is not available if the transaction--

(a) is not effected for bona fide commercial reasons, or

(b) forms part of arrangements of which the main purpose, or one of the main purposes, is the avoidance of liability to tax.

"Tax" here means stamp duty, income tax, corporation tax, capital gains tax or tax under this Part. "

Acquisition relief: avoidance arrangements

20 In paragraph 8 of Schedule 7 (acquisition relief)--

(a) for sub-paragraph (5) substitute--

" (5) For this purpose companies are associated if one has control of the other or both are controlled by the same person or persons.

The reference to control shall be construed in accordance with section 416 of the Taxes Act 1988. " , and

(b) after sub-paragraph (5A) (inserted by paragraph 8 of this Schedule) insert--

" (5B) The fourth condition is that the acquisition is effected for bona fide commercial reasons and does not form part of arrangements of which the main purpose, or one of the main purposes, is the avoidance of liability to tax.

"Tax" here means stamp duty, income tax, corporation tax, capital gains tax or tax under this Part.

(5C) In this paragraph "arrangements" include any scheme, agreement or understanding, whether or not legally enforceable. "

Stamp duty on transfers of partnership interests

21 (1) In Schedule 15 (stamp duty land tax: partnerships), paragraph 33 (which relates to stamp duty on transfers of partnership interests) is amended as follows.

(2) For sub-paragraphs (1) and (2) substitute--

" (1) This paragraph applies where stamp duty under Part 1 of Schedule 13 to the Finance Act 1999 (transfer on sale) is, apart from this paragraph, chargeable on an instrument effecting a transfer of an interest in a partnership.

(1A) If the relevant partnership property does not include any stock or marketable securities, no stamp duty shall (subject to sub-paragraph (8)) be chargeable on the instrument. "

(3) In sub-paragraph (3)--

(a) at the beginning insert "If the relevant partnership property includes stock or marketable securities,",

(b) in paragraph (a), for the words from "the stock" to "property" substitute "that stock and those securities", and

" (b) the consideration for the transfer were equal to the appropriate proportion of the net market value of that stock and those securities immediately after the transfer. "

(4) After sub-paragraph (3) insert--

" (3A) The "relevant partnership property", in relation to a transfer of an interest in a partnership, is the partnership property immediately after the transfer, other than any partnership property that was transferred to the partnership in connection with the transfer. "

(5) Omit sub-paragraph (4).

(6) In sub-paragraph (5), for "That" substitute "The appropriate".

Commencement

22 (1) Subject to sub-paragraph (2), paragraphs 18 to 20 have effect in relation to any transaction of which the effective date is on or after the day on which this Act is passed.

(2) Paragraphs 19 and 20 do not have effect--

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