Finance Act 2006 (c. 25)

(The document as of February, 2008)

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"arrangements" includes any agreement or understanding (whether or not legally enforceable);
"benefit" includes value in any form.

(6) In determining for the purposes of subsection (1)(a) the return to company C from the relationship, any benefit which company C derives directly or indirectly from the benefit derived by company P as mentioned in subsection (1)(b) is to be disregarded. " .

(2) The amendment made by this paragraph has effect in relation to loan relationships to which a company is a party on or after 22nd March 2006.

(3) But amounts are to be brought into account for the purposes of Chapter 2 of Part 4 of FA 1996 as a result of that amendment only if the amounts relate to any time on or after that date.

Loan relationships: money debts etc not arising from the lending of money

17 (1) Section 100 of FA 1996 (money debts etc not arising from the lending of money) is amended as follows.

(2) In subsection (1A) (conditions mentioned in subsection (1)(c)(iv)) for paragraph (e) (property not an asset representing a loan relationship or derivative contract) substitute--

" (e) if the money debt is some or all of the consideration payable for a disposal of property, the property in question is not an asset representing a loan relationship or a derivative contract the disposal of which is a relevant disposal. " .

(3) After that subsection insert--

" (1B) For the purposes of subsection (1A)(e) above "relevant disposal" means--

(a) a disposal to which paragraph 12 of Schedule 9 applies or would apply but for sub-paragraph (2A) of that paragraph,

(b) a disposal to which paragraph 28 of Schedule 26 to the Finance Act 2002 applies or would apply but for paragraph 30 of that Schedule,

(c) a disposal not falling within paragraph (a) or (b) above as respects which the whole of the consideration is brought into account for the purposes of this Chapter or Schedule 26 to the Finance Act 2002. " .

(4) The amendments made by this paragraph have effect in relation to disposals made on or after 22nd March 2006.

Loan relationships: meaning of "fair value" in Chapter 2 of Part 4 of FA 1996

18 (1) Section 103 of FA 1996 (interpretation of Chapter 2 of Part 4 of FA 1996) is amended as follows.

(2) In subsection (1), in the definition of "fair value", in paragraphs (a) and (b), omit "in respect of amounts which at that time are not yet due and payable".

(3) The amendment made by this paragraph has effect in relation to periods of account ending on or after 22nd March 2006.

(4) But, in relation to a period of account beginning before 22nd March 2006, the amendment made by this paragraph has effect only in relation to--

(a) disposals or acquisitions (in whole or in part) of rights or liabilities under a loan relationship, or

(b) anything treated for the purposes of Chapter 2 of Part 4 of FA 1996 as such a disposal or acquisition,

which were made (or treated as made) on or after that date.

Loan relationships: continuity of treatment of groups etc

19 (1) In Schedule 9 to FA 1996 (loan relationships: special computational provisions) paragraph 12 (continuity of treatment: groups etc) is amended as follows.

(2) In sub-paragraph (2A) (paragraph 12 not to apply where transferor uses fair value accounting)--

(a) in the opening words, for "uses" substitute "is regarded for the purposes of this sub-paragraph as using", and

(b) for paragraph (aa) (treatment of transferee in respect of the transaction) substitute--

" (aa) for any accounting period in which it is a party to the relationship, the transferee company shall be treated for the purpose of determining the credits and debits to be brought into account for the purposes of this Chapter in respect of the relationship as if it had acquired the asset or liability representing the relationship for a consideration equal to the amount mentioned in paragraph (a) above (but on the assumption that sub-paragraph (2C)(b) below is omitted). " .

(3) After that sub-paragraph insert--

" (2B) The transferor company shall be regarded for the purposes of sub-paragraph (2A) above as using fair value accounting as respects the loan relationship only if--

(a) it uses fair value accounting as respects the relationship and the debits and credits to be brought into account for the purposes of this Chapter as respects the relationship are also determined on that basis, or

(b) it does not use fair value accounting as respects the relationship but the debits and credits to be brought into account for the purposes of this Chapter as respects the relationship are determined on that basis. " .

(4) After sub-paragraph (2B) (as inserted by sub-paragraph (3) above) insert--

" (2C) In any case where a discount (within the meaning given by section 100(3A)) arises in respect of the transaction, the series of transactions or the transfer--

(a) the consideration for the purposes of sub-paragraph (2)(a) above is to be increased by the amount of the discount;

(b) the amount to be brought into account by virtue of sub-paragraph (2A)(a)(i) above is to be increased by the amount of the discount. " .

(5) The amendments made by this paragraph have effect in any case where the relevant transaction is on or after 22nd March 2006.

(6) For this purpose "the relevant transaction" means--

(a) the related transaction mentioned in paragraph 12(1)(a) of Schedule 9 to FA 1996,

(b) the first of the series of transactions mentioned in paragraph 12(1)(b) of that Schedule, or

as a result of which paragraph 12 of that Schedule applies or, but for sub-paragraph (2A) of that paragraph, would apply.

Loan relationships: repo and stock-lending arrangements

20 (1) In Schedule 9 to FA 1996 (loan relationships: special computational provisions), paragraph 15 (disposal or acquisition made in pursuance of repo and stock-lending arrangements not to be related transaction) is amended as follows.

(2) In sub-paragraph (2)(b) (transfer to original transferor ("A") giving effect to entitlement or requirement to rights on re-transfer etc.), after "to A" insert "by B".

(3) The amendment made by this paragraph has effect in relation to any transfer to A (within the meaning of paragraph (a) of sub-paragraph (3) of paragraph 15) under arrangements--

(a) consisting in or involving an agreement made on or after 27th June 2006 for the transfer of rights by A to B (within the meaning of that paragraph), or

(b) involving an agreement made on or after that date providing for a transfer giving effect to the entitlement or requirement described in paragraph (b) of that sub-paragraph otherwise than by B.

Derivative contracts: computation in accordance with generally accepted accounting practice

21 (1) Paragraph 17A of Schedule 26 to FA 2002 (computation in accordance with generally accepted accounting practice) is amended as follows.

(2) In sub-paragraph (1) (amounts to be brought into account are those recognised in determining company's profit or loss) after "Subject to the provisions of this Schedule" insert "(including, in particular, paragraph 15(1))".

Derivative contracts: transactions within groups

22 (1) In Schedule 26 to FA 2002 (derivative contracts), paragraph 28 (transactions within groups) is amended as follows.

(2) After sub-paragraph (3) (rule for determining the credits and debits to be brought into account) insert--

" (3ZA) In any case where a discount (within the meaning given by section 100(3A) of the Finance Act 1996) arises in respect of the transaction or the series of transactions, the consideration for the purposes of sub-paragraph (3)(a) is to be increased by the amount of the discount. " .

(3) The amendment made by this paragraph has effect in any case where the relevant transaction is on or after 22nd March 2006.

(4) For this purpose "the relevant transaction" means--

(a) the related transaction mentioned in paragraph 28(2)(a) of Schedule 26 to FA 2002,

(b) the first of the series of transactions mentioned in paragraph 28(2)(b) of that Schedule, or

as a result of which paragraph 28 of that Schedule applies or, but for paragraph 30 of that Schedule, would apply.

Derivative contracts: transactions within groups (fair value accounting)

23 (1) In Schedule 26 to FA 2002 (derivative contracts), paragraph 30 (transactions within groups: fair value accounting) is amended as follows.

(2) In sub-paragraph (1) (paragraph 28 not to apply where transferor uses fair value accounting) for paragraph (b) (treatment of transferee in respect of the transaction) substitute--

" (b) for any accounting period in which it is a party to the contract, the transferee company shall be treated for the purpose of determining the credits and debits to be brought into account for the purposes of this Schedule in respect of the contract as if it had acquired the contract for a consideration equal to the amount mentioned in paragraph (a) (but on the assumption that sub-paragraph (1A) is omitted). " .

(3) After that sub-paragraph insert--

" (1A) In any case where a discount (within the meaning given by section 100(3A) of the Finance Act 1996) arises in respect of the transaction or the series of transactions, the amount to be brought into account by virtue of sub-paragraph (1)(a) is to be increased by the amount of the discount. " .

(4) The amendments made by this paragraph have effect in any case where the relevant transaction is on or after 22nd March 2006.

(5) For this purpose "the relevant transaction" has the meaning given by paragraph 22.

Derivative contracts: meaning of "fair value" in Schedule 26 to FA 2002

24 (1) Paragraph 54 of Schedule 26 to FA 2002 (interpretation of Schedule) is amended as follows.

(2) In sub-paragraph (1), in the definition of "fair value", in paragraphs (a) and (b), omit "in respect of amounts which at that time are not yet due and payable".

(3) The amendment made by this paragraph has effect in relation to periods of account ending on or after 22nd March 2006.

(4) But, in relation to a period of account beginning before 22nd March 2006, the amendment made by this paragraph has effect only in relation to--

(a) disposals or acquisitions (in whole or in part) of rights or liabilities under a derivative contract, or

(b) anything treated for the purposes of Schedule 26 to FA 2002 as such a disposal or acquisition,

which were made (or treated as made) on or after that date.

Section 79

SCHEDULE 7 Transfer of assets abroad

Income and Corporation Taxes Act 1988

Amendments of ICTA: introductory

1 ICTA is amended as follows.

Section 741: application subject to sections 741B and 741C

2 (1) Section 741 (exemption from sections 739 and 740) is amended as follows.

(2) At the beginning of the section insert "(1)".

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

" (2) This section is subject to sections 741B and 741C (application of this section and section 741A etc). " .

(4) In consequence of amendments made by this Schedule, the heading of the section becomes "Exemption from sections 739 and 740 (transactions before 5th December 2005)".

(5) The amendments made by this paragraph shall be taken to have come into force on 5th December 2005.

Exemption from sections 739 and 740: new provision

3 (1) After section 741 insert--

" 741A Exemption from sections 739 and 740 (transactions on or after 5th December 2005)

(1) The individual is not liable to income tax by virtue of section 739 or 740 for the year of assessment by reference to the relevant transactions if he satisfies an officer of the Board--

(a) that Condition A is met, or

(b) in a case where Condition A is not met, that Condition B is met.

(2) Condition A is that it would not be reasonable to draw the conclusion, from all the circumstances of the case, that the purpose of avoiding liability to taxation was the purpose, or one of the purposes, for which the relevant transactions or any of them were effected.

(3) Condition B is that--

(a) all the relevant transactions were genuine commercial transactions, and

(b) it would not be reasonable to draw the conclusion, from all the circumstances of the case, that any one or more of those transactions was more than incidentally designed for the purpose of avoiding liability to taxation.

(4) The intentions and purposes of any person who, whether or not for consideration,--

(a) designs or effects the relevant transactions or any of them, or

(b) provides advice in relation to the relevant transactions or any of them,

are to be taken into account in determining the purposes for which those transactions or any of them were effected.

(5) A relevant transaction is a commercial transaction only if it is effected--

(a) in the course of a trade or business, or

(b) with a view to setting up and commencing a trade or business,

and, in either case, for the purposes of that trade or business.

(6) For that purpose, the making and managing of investments, or the making or managing of investments, is not a trade or business except to the extent that--

(a) the person by whom it is done, and

(b) the person for whom it is done,

are independent persons dealing at arm's length.

(7) In this section--

"commercial transaction" does not include--
(a)
a transaction on terms other than those that would have been made between independent persons dealing at arm's length, or
(b)
a transaction that would not have been entered into between independent persons dealing at arm's length;
"independent persons" means persons who are not connected with each other (within the meaning given by section 839);
"relevant transactions" means--
(a)
the transfer, and
(b)
any associated operations;
"revenue" includes taxes, duties and national insurance contributions;
"taxation" includes any revenue for whose collection and management the Commissioners for Her Majesty's Revenue and Customs are responsible.

(8) Any associated operation that would not (apart from this subsection) fall to be taken into account for the purposes of this section must be taken into account for those purposes if, were it to be so taken into account, the conditions in subsection (1) above would be failed by reference to--

(a) that associated operation, or

(b) that associated operation taken together with the transfer or any one or more other associated operations.

(9) The jurisdiction of the Special Commissioners on any appeal includes jurisdiction to review any decision taken by an officer of the Board in exercise of the officer's functions under this section.

(10) This section is subject to sections 741B and 741C (application of section 741 and this section etc). " .

(2) The amendment made by this paragraph shall be taken to have come into force on 5th December 2005.

Application of sections 741 and 741A

4 (1) After section 741A insert--

" 741B Application of sections 741 and 741A

(1) This section makes provision with respect to the application for the year of assessment of--

(a) section 741,

(b) section 741A, or

in the case of the individual and the relevant transactions.

(2) In this section--

"new transaction" means a relevant transaction effected on or after the relevant date;
"old transaction" means a relevant transaction effected before the relevant date;
"the relevant date" means 5th December 2005;
"relevant transactions" means--
(a)
the transfer, and
(b)
any associated operations.

(3) If all the relevant transactions are old transactions, section 741 is the provision to be applied.

(4) If all the relevant transactions are new transactions, section 741A is the provision to be applied.

(5) If--

(a) any one or more of the relevant transactions are old transactions, and

(b) any one or more of the relevant transactions are new transactions,

section 741C is the provision to be applied.

741C Cases where there are both old transactions and new transactions

(1) This section applies by virtue of section 741B if the case falls within subsection (5) of that section.

(2) Sections 739 and 740 do not apply, unless subsection (3) below applies.

(3) This subsection applies if--

(a) the conditions in section 741(1) are failed by reference to the old transactions or any of them, or

(b) the conditions in section 741A(1) are failed by reference to the new transactions or any of them.

(4) Where subsection (3) above applies, the general rule is that sections 739 and 740 apply as they would have applied apart from any exemption by virtue of sections 741 to 741C.

(5) In any case where subsection (3) above applies by virtue only of paragraph (b) of that subsection, the general rule has effect subject to, and in accordance with, the Rules in subsections (6) to (8) below.

(6) Rule 1 is that, for the purposes of section 739(2) or (3), any income arising before the relevant date must not be brought into account as income of the person resident or domiciled outside the United Kingdom.

(7) Rule 2 is that for the purposes of section 740, where--

(a) a benefit is received by the individual in a year of assessment ending after the relevant date, and

(b) relevant income of years of assessment up to and including that year falls to be determined,

the general rule requires years ending before the relevant date to be brought into account as well as years ending after that date.

(8) Rule 3 is that, for the purposes of section 740, a benefit received by the individual in the year 2005-06 is to be left out of account to the extent that, on a time apportionment basis, it fell to be enjoyed in any part of the year that falls before the relevant date.

(9) This section is to be read as one with section 741B. " .

(2) The amendment made by this paragraph shall be taken to have come into force on 5th December 2005.

Just and reasonable apportionment in certain cases

5 (1) After section 741C insert--

" 741D Section 739: just and reasonable apportionment in certain cases

(1) This section applies where--

(a) an individual is liable to tax by virtue of section 739 for a year of assessment (the "taxable year"), but

(b) the conditions in subsections (2) to (4) below are met.

(2) Condition 1 is that since the making of the transfer there have been one or more years of assessment when the circumstances were such that, so far as relating to such of the relevant transactions as were effected before the end of the year, the individual--

(a) was not liable to tax by virtue of section 739, or

(b) would not have been liable to tax by virtue of section 739 if there had been any deemed income of his under that section,

because an appropriate exemption applied or, in a case falling within paragraph (b) above, would have applied.

(3) Condition 2 is that the individual is liable to tax under section 739 in the taxable year in consequence of Condition B in section 741A(3) not being met.

(4) Condition 3 is that the income by reference to which the individual is liable to tax for the taxable year is attributable--

(a) partly to relevant transactions by reference to which the appropriate exemption applied for the last exempt year of assessment, and

(b) partly to associated operations not falling within paragraph (a) above ("chargeable operations").

(5) For the purposes of this section, a year of assessment is "exempt" if it is one of the years of assessment mentioned in subsection (2) and there is no earlier year of assessment for which--

(a) the individual was liable to tax by virtue of section 739, or

(b) the individual would have been liable to tax by virtue of section 739, if there had been any deemed income of his under that section.

(6) Where this section applies, the liability of the individual is to be reduced as if it fell to be determined by reference to only so much of the income as appears to an officer of the Board to be justly and reasonably attributable to chargeable operations in all the circumstances of the case.

(7) The facts and matters that may be taken into account in determining for the purposes of subsection (6) above whether income may be regarded as justly and reasonably attributable to chargeable operations include whether, and to what extent, the chargeable operations or any of them directly or indirectly affect any of the following--

(a) the character, description or amount of any income of any person,

(b) any person's power to enjoy any income,

(8) The jurisdiction of the Special Commissioners on any appeal includes jurisdiction to review any decision taken by an officer of the Board in exercise of the officer's functions under this section.

(9) In this section--

"appropriate exemption" means exemption by virtue of--
(a)
paragraph (b) of section 741(1), or
(b)
Condition B in section 741A(3);
"relevant transactions" means--
(a)
the transfer, and
(b)
any associated operations. " .

(2) The amendment made by this paragraph shall be taken to have come into force on 5th December 2005.

Section 742: interpretation of the Chapter

6 (1) Section 742 (interpretation of sections 739 to 741) is amended as follows.

(2) In subsection (1) (meaning of "associated operations") for "sections 739 to 741" substitute "this Chapter".

(3) At the end of subsection (1), insert--

" It is immaterial whether the operation is effected before, after, or at the same time as the transfer. " .

(4) After subsection (1) insert--

" (1A) The income that becomes payable to, or has become income of, a person resident or domiciled outside the United Kingdom that is referred to in section 739(1) or (3) or section 740(1) includes any income which becomes payable to, or has become income of, the person by virtue or in consequence of--

(a) the transfer,

(b) one or more associated operations, or

(1B) The income which an individual has power to enjoy, as mentioned in section 739(2), includes any income which he has power to enjoy by virtue or in consequence of--

(a) the transfer,

(b) one or more associated operations, or

(5) The heading to the section accordingly becomes "Interpretation of this Chapter".

(6) The amendments made by this paragraph shall be taken to have come into force on 5th December 2005.

ITTOIA 2005

Gains from contracts for life insurance etc

7 (1) In ITTOIA 2005, section 468 (gains from contracts of life insurance etc: non-UK resident trustees and foreign institutions) is amended as follows.

(2) In subsection (2) (section 740 of ICTA to apply with the modifications in subsection (3) or (4))--

(a) for "Section 740" substitute "Sections 739 and 740",

(b) for "prevents" substitute "prevent",

(3) In subsection (3) (cases within subsection (1)(a)) for "section 740 applies" substitute "sections 739 and 740 apply".

(4) In subsection (4) (cases within subsection (1)(b)) for "section 740 applies" substitute "sections 739 and 740 apply".

(5) The amendments made by this paragraph apply in relation to gains treated as arising on or after 5th December 2005.

Section 81

SCHEDULE 8 Long funding leases of plant or machinery

Part 1 Capital allowances

Introductory

1 CAA 2001 is amended as follows.

Use for other qualifying activity of plant or machinery previously used for long funding leasing

2 After section 13 (use for qualifying activity of plant or machinery provided for other purposes) insert--

" 13A Use for other purposes of plant or machinery previously used for long funding leasing

(1) This section applies if a person who has been using plant or machinery for the purpose of leasing it under a long funding lease (see Chapter 6A)--

(a) ceases to use the plant or machinery for that purpose without ceasing to use it for the purposes of a qualifying activity carried on by him, and

(b) on the date of the cessation, owns the plant or machinery as a result of having incurred capital expenditure on its provision for the purposes of the qualifying activity.

(2) The person is to be treated--

(a) as having incurred capital expenditure ("notional expenditure") on the provision of the plant or machinery for the purposes of the qualifying activity on the day after the cessation,

(b) as owning the plant or machinery as a result of having incurred that expenditure, and

(c) as if the plant or machinery on and after that day were different plant or machinery from the plant or machinery before that day.

(3) The amount of the notional expenditure is an amount equal to the termination amount, determined in accordance with section 70YG, in the case of the long funding lease under which the plant or machinery was last leased before the cessation. " .

Expenditure on plant or machinery for long funding leasing not to be qualifying expenditure

3 After section 34 insert--

" 34A Expenditure on plant or machinery for long funding leasing not qualifying expenditure

Expenditure is not qualifying expenditure if it is incurred on the provision of plant or machinery for leasing under a long funding lease (see Chapter 6A). " .

General exclusions applying to certain sections

4 (1) Section 46 is amended as follows.

(2) In subsection (2) (the general exclusions) in general exclusion 8--

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