Finance Act 2006 (c. 25)

(The document as of February, 2008)

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(a) it is a member of the consortium at the start of the day, and

(b) the qualifying change of ownership occurs on that day in a case where the member of the consortium is regarded as "company E" for the purposes of paragraph 12 (consortium relationships).

(6) This paragraph applies for the purposes of this Part of this Schedule.

Meaning of "qualifying change" in company's interest in a business

27 (1) For the purposes of this Schedule there is a qualifying change in a company's interest in a business on any day if its relevant percentage share at the end of the day is less than its relevant percentage share at the start of the day.

(2) In this paragraph "relevant percentage share", in relation to a company's interest in a business, means its percentage share in the profits or loss of the business (determined in accordance with paragraph 28).

(3) For the purposes of this paragraph any reference to a company's share in the profits or loss of the business includes a nil share (whether as a result of the dissolution of the partnership or otherwise).

Determining the percentage share in the profits or loss of business

28 (1) For the purposes of this Part of this Schedule a company's percentage share in the profits or loss of a business at any time is determined on a just and reasonable basis.

(2) In making that determination, regard must be had, in particular, to--

(a) any matter that would be taken into account in determining under section 114(2) of ICTA the company's share at that time in the profits or loss of the business, and

(b) any matter that would be taken into account in determining under that provision the company's share at that time in any capital allowances and charges under CAA 2001.

The amount of the income: the basic amount

29 (1) This paragraph determines the amount of the income under paragraph 23 when a qualifying change in the interest of a company ("the partner company") in a business of leasing plant or machinery occurs on any day ("the relevant day").

(2) The amount of the income is found by--

(a) applying the following formula to give the basic amount, and

(b) making the adjustment in accordance with paragraph 30 or 31 to the basic amount.

(3) The formula is--

PM - TWDV

(4) In this paragraph "PM" has the meaning given by paragraph 17, but --

(a) reading any reference in that paragraph to the relevant company as a reference to the partnership, and

(b) reading any reference in that paragraph to an associated company of the relevant company on the relevant day as a reference to a qualifying company (see sub-paragraph (7)).

(5) In this paragraph "TWDV" means the amount found by adding together--

(a) the total amount of unrelieved qualifying expenditure in single asset pools for the new chargeable period that would be carried forward in the pools from the old chargeable period under section 59 of CAA 2001,

(b) the total amount of unrelieved qualifying expenditure in class pools for the new chargeable period that would be carried forward in the pools from the old chargeable period under that section, and

(c) the amount of unrelieved qualifying expenditure in the main pool for the new chargeable period that would be carried forward in the pool from the old chargeable period under that section.

(6) For the purposes of "TWDV"--

(a) it is to be assumed that the chargeable period (within the meaning of CAA 2001) of the partnership ends on the relevant day ("the old chargeable period") and a new one begins on the following day ("the new chargeable period"), and

(b) expenditure incurred by the partnership in acquiring plant or machinery on the relevant day is to be left out of account unless it is acquired from a qualifying company.

(7) In this paragraph "qualifying company" means each of the following--

(a) the partner company,

(b) any company which is an associated company of the partner company on the relevant day,

(c) any other partner company in relation to whose interest in the business there is a qualifying change on the relevant day,

(d) any other partner company in relation to which there is a qualifying change of ownership on the relevant day, and

(e) any company which is an associated company of any other partner company mentioned in paragraph (c) or (d) on the relevant day.

(8) For this purpose "any other partner company" means a company--

(a) which carries on the business at the start of the relevant day, and

(b) which is within the charge to corporation tax in respect of the business.

Amount to be nil if basic amount negative

30 If the basic amount given by the formula is a negative amount, the amount is taken instead to be nil.

Adjustment of basic amount

31 (1) The amount of the company's income under paragraph 23 is limited to the appropriate percentage of the basic amount.

(2) The appropriate percentage is found by subtracting the company's relevant percentage share at the end of the day from its relevant percentage share at the start of the day.

(3) In this paragraph "relevant percentage share" has the same meaning as it has for the purposes of paragraph 27.

Amount of expense

32 (1) This paragraph applies if, as a result of a qualifying change in a company's interest in a business on any day,--

(a) the company ("the partner company") is treated as receiving an amount of income under paragraph 23 on that day,

(b) any other company is treated as incurring an expense under that paragraph on that day,

(d) the increase at that time (or any part of the increase at that time) is wholly attributable to the change in the partner company's interest in the business.

(2) The amount of the expense of the other company is limited to the appropriate percentage of the amount of the income.

(3) The appropriate percentage is the percentage of the other company's percentage share in the profits or loss of the business immediately after the change that is wholly attributable to the change.

(4) For the purposes of this paragraph any reference to an increase in the other company's percentage share in any profits or loss of the business includes an increase from a nil share (whether as a result of its becoming a partner or otherwise).

Income and matching expense in different accounting periods

33 (1) This paragraph applies for corporation tax purposes if--

(a) on any day ("the relevant day") a company carries on a business of leasing plant or machinery in partnership with other persons,

(b) the company is within the charge to corporation tax in respect of the business, and

(2) On the relevant day--

(a) the company is treated as receiving an amount of income, and

(b) the accounting period of the company ends.

(3) The income--

(a) is treated as a receipt of the company's notional business, and

(b) is brought into account in calculating for corporation tax purposes the profits of that business for that accounting period.

(4) On the day following the relevant day--

(a) the company is treated as incurring an expense, and

(b) a new accounting period of the company begins.

(5) The expense--

(a) is treated as an expense of the company's notional business, and

(b) is allowed as a deduction in calculating for corporation tax purposes the profits of that business for that new accounting period.

(6) This paragraph is supplemented by paragraphs 34 and 35.

Amount of income and expense

34 (1) The amount of the income is calculated in accordance with paragraph 36.

(2) The amount of the expense is the same as the amount of the income.

No carry back of the expense

35 (1) This paragraph applies if the notional business carried on by the company is a trade the profits of which are chargeable to corporation tax under Case I of Schedule D.

(2) No relief is to be given by virtue of section 393A(1)(b) of ICTA (set off of trading losses against profits of earlier accounting periods) in respect of so much of any loss as derives from the expense.

(3) For the purpose of determining how much of a loss derives from the expense, the loss is to be calculated on the basis that the expense is the final amount to be deducted.

Amount of the income

36 (1) This paragraph determines the amount of the income under paragraph 33 when a qualifying change of ownership in relation to a company carrying on a business of leasing plant or machinery occurs on any day ("the relevant day").

(2) The amount of the income is found by first--

(a) applying the formula in paragraph 29 to give the basic amount (as if the company were "the partner company" mentioned in that paragraph), and

(b) making any adjustment in accordance with any of paragraphs 19 to 21 to the basic amount.

(3) The amount is then limited to the appropriate percentage of the amount given as a result of sub-paragraph (2).

(4) If there is no qualifying change in the company's interest in the business on the relevant day, the appropriate percentage is the percentage share of the company in the profits or loss of the business on the relevant day.

(5) If there is a qualifying change in the company's interest in the business on the relevant day, the appropriate percentage is the percentage share of the company in the profits or loss of the business at the end of the relevant day.

Meaning of "profits" etc

37 In this Part of this Schedule "profits" does not include chargeable gains, and references to "loss" are to be read accordingly.

Part 4 Miscellaneous

Anti-avoidance

38 (1) This paragraph applies if--

(a) a company is treated as incurring an expense under any provision of this Schedule,

(b) the expense arises directly or indirectly in consequence of, or otherwise in connection with, any arrangements, and

(c) the main purpose, or one of the main purposes, of the arrangements is to secure that the company is treated as incurring the expense.

(2) The following restrictions apply in respect of so much of any loss incurred by the company as derives from the expense ("the restricted part of the loss").

(3) Apart from by way of set off against any relevant leasing income, relief is not to be given to the company under any relevant loss relief provision in respect of the restricted part of the loss.

(4) If the business carried on by the company is a trade, relief is not to be given to the company under section 393A(1) of ICTA in respect of the restricted part of the loss.

(5) The restricted part of the loss is not available for set off by way of group relief in accordance with section 403 of ICTA.

(6) For the purpose of determining how much of a loss derives from the expense, the loss is to be calculated on the basis that the expense is the final amount to be deducted.

(7) In this paragraph "arrangements" includes any agreement, understanding, scheme, transaction or series of transactions--

(a) whether or not legally enforceable, and

(b) whether or not the company is a party to the arrangements.

(8) In this paragraph "relevant leasing income" means any income deriving from any plant or machinery lease--

(a) which is not an excluded lease of background plant or machinery for a building, and

(b) which is entered into before the day on which the company is treated as incurring the expense.

(9) In this paragraph "relevant loss relief provision" means any of the following provisions of ICTA--

(a) section 392A (Schedule A losses),

(b) section 392B (losses from overseas property businesses),

(d) section 396 (Case VI losses).

Relief for expense under paragraph 3 or 33 otherwise giving rise to carried forward loss

39 (1) This paragraph applies if--

(a) there is a qualifying change of ownership in relation to a company on any day ("the relevant day"),

(b) on the following day the company is, accordingly, treated under paragraph 3 or 33 as incurring an expense of a business and an accounting period of the company begins,

(d) some or all of that loss would otherwise be carried forward to the next accounting period of the company ("the subsequent accounting period"), and

(e) the subsequent accounting period starts within the period of 12 months beginning with the relevant day and does not start as a result of paragraph 3 or 33.

(2) So much of the loss (or part of the loss) that would otherwise be so carried forward as derives from the expense under paragraph 3 or 33 is instead to be treated for corporation tax purposes as an expense.

(3) The expense under this paragraph is allowed as a deduction in calculating for corporation tax purposes the profits of the business for the subsequent accounting period.

(4) For the purpose of determining how much of a loss derives from an expense under paragraph 3 or 33, the loss is to be calculated on the basis that the expense under that paragraph is the final amount to be deducted.

Relationship of Schedule with section 228K of CAA 2001

40 (1) This paragraph applies if--

(a) on any day ("the relevant day") a company carries on a business of leasing plant or machinery (whether alone or in partnership),

(b) on the relevant day there is a qualifying change of ownership in relation to the company or a qualifying change in its interest in the business,

(c) on the relevant day the company, or the partnership of which the company is a member, disposes of any relevant plant or machinery subject to a lease, and

(d) section 228K of CAA 2001 (disposal of plant or machinery subject to lease where income retained) applies in relation to the disposal.

(2) No person is to be treated as receiving an amount of income, or as incurring an expense, as a result of any provision of this Schedule in so far as the income or expense arises by reference to the relevant plant or machinery subject to a lease which is disposed of.

(3) If, as a result of sub-paragraph (2), no income is treated as received by a company, no accounting period of the company ends or begins as a result of any provision of this Schedule.

(4) In relation to any disposal made before 2nd June 2006--

(a) sub-paragraph (2) applies as if the words from "in so far as" to the end were omitted, and

(b) sub-paragraph (3) applies as if the words from "If" to "a company," and the words "of the company" were omitted.

(5) In this paragraph--

"business of leasing plant or machinery" has the meaning given by Part 2 or (as the case may be) Part 3,
"relevant plant or machinery subject to a lease" has the same meaning as it has for the purposes of section 228K of CAA 2001 (see section 228M).

Definitions for purposes of Schedule

41 (1) This paragraph applies for the purposes of this Schedule.

(2) "Company" means a body corporate.

(3) "Excluded lease of background plant or machinery for a building" has the meaning given in Chapter 6A of Part 2 of CAA 2001.

(4) "Finance lease", in the case of any person, means a lease which, under generally accepted accounting practice, falls or (would fall) to be treated as a finance lease or loan in the accounts of that person.

(5) "Fixture"--

(a) means any plant or machinery that is so installed or otherwise fixed in or to a building or other description of land as to become, in law, part of that building or other land, and

(b) includes any boiler or water-filled radiator installed in a building as part of a space or water heating system.

(6) "Plant or machinery" has the same meaning as in Part 2 of CAA 2001.

(7) "Plant or machinery lease" has the meaning given in Chapter 6A of that Part.

(8) The market value of any plant or machinery at any time is to be determined on the assumption of a disposal by an absolute owner free from--

(a) all leases (including any agreement or arrangement which is or includes a plant or machinery lease), and

(b) other encumbrances.

(9) Section 839 of ICTA (connected persons) applies.

Index of definitions

42 The following table lists the places where expressions used in this Schedule are defined or otherwise explained in this Schedule for the purposes of this Schedule or a Part of this Schedule--

Expression	Provision
associated company (in Part 2)	paragraph 9
associated company (in Part 3)	paragraph 26
business of leasing plant or machinery (in Part 2)	paragraphs 6 to 8
business of leasing plant or machinery (in Part 3)	paragraphs 6 to 8 and 25
company	paragraph 41
company's percentage share in any profits or loss of a business (in Part 3)	paragraph 28
connected persons	paragraph 41
consortium and related expressions	paragraph 14
excluded lease of background plant or machinery for a building	paragraph 41
profits or assets available for distribution to equity holders (in Part 2)	paragraph 15
finance lease	paragraph 41
fixture	paragraph 41
loss (in Part 3)	paragraph 37
market value (in relation to plant or machinery)	paragraph 41
notional business (in Part 3)	paragraph 23
plant or machinery	paragraph 41
plant or machinery lease	paragraph 41
profits (in Part 3)	paragraph 37
qualifying change in a company's interest in a business (in Part 3)	paragraphs 27 and 28
qualifying change of ownership in relation to a company	paragraphs 10 to 13
qualifying leased plant or machinery (in Part 2)	paragraph 6
qualifying 75% subsidiary	paragraph 15
qualifying 90% subsidiary	paragraph 15
relevant change in the relationship between companies	paragraph 10

Consequential amendments

43 (1) ICTA is amended as follows.

(2) In section 12 (basis of, and periods for, assessment), at the end insert--

" (9) This section is subject to Schedule 10 to the Finance Act 2006. " .

(3) In section 403 (amounts which may be surrendered by way of group relief), in subsection (4) (section 403 subject to certain exceptions), at the end insert " and

paragraph 38 of Schedule 10 to the Finance Act 2006 (sale etc of lessor companies etc: anti-avoidance) " .

Section 86

SCHEDULE 11 Insurance companies

Continuing the effect of orders under section 431A(3) of ICTA

1 (1) The amendments made by orders under section 431A(3) of ICTA (power to amend provisions in relation to periods of account ending before 1st October 2006) are to continue to have effect in relation to periods of account ending on or after 1st October 2006 as if those amendments were made by this Act.

(2) Accordingly--

(a) in section 431A of ICTA omit subsection (5) (power to extend orders under subsection (3) in relation to periods of account ending before 1st October 2007), and

(b) in section 432B of ICTA (apportionment of receipts brought into account), as it has effect in relation to periods of account ending on or after 1st October 2006 as a result of sub-paragraph (1), in subsection (4)(b) (application confined to period of accounts ending before 1st October 2006), omit "and ending before 1st October 2006".

Section 432B apportionment: participating funds

2 (1) Section 432E of ICTA is amended as follows.

(2) In subsection (2A) (increase in amount determined under subsection (2) where amount is taken into account under subsection (2) of section 83 of FA 1989 by virtue of subsection (2B) of that section etc) in the opening words, after "section 444ACA(2)" insert ", 444AF(2) or 444AK(2)".

(3) In that subsection, in the definition of "RP", after paragraph (b) insert--

" (c) subsection (2) of section 444AF of this Act (and see subsections (5) and (6) of that section);

(d) subsection (2) of section 444AK of this Act (but only for the purposes mentioned in subsection (3) of that section). " .

(4) The amendments made by this paragraph have effect in relation to periods of account ending on or after 29th September 2005.

Transfers of business: excess of assets or liabilities

3 (1) Section 444AC is amended as follows.

(2) In subsection (2B) (excess of liabilities transferred over transferee's line 31 figure)--

(a) in paragraph (a) (excess to be taken into account as receipt of the transferee's life assurance business) for "the excess" substitute "the life assurance part of the excess", and

(b) in the words after paragraph (b) after "for this purpose," insert ""the life assurance part of the excess" means the proportion of the excess that the liabilities of the transferee's life assurance business that are transferred bear to the total liabilities transferred and".

(3) In subsection (2C) (case in which subsection (2B) does not require excess to be taken into account as a receipt of the transferee) for "the excess", in both places, substitute "the life assurance part of the excess".

(4) In subsection (5) (reduction of amount of relevant debts), in paragraph (a) (fair value of assets becoming assets of transferee's long-term insurance fund) at the beginning insert "the aggregate amount of any relevant reinsurance amounts and of".

(5) After that subsection insert--

" (5A) In subsection (5)(a) above "relevant reinsurance amounts" means--

(a) amounts which are comprised in line 16 of Form 14 in the periodical return of the transferor covering the period ending immediately before the transfer (or would be so comprised if the transferor drew up a periodical return covering that period), or

(b) other amounts which arise under contracts of reinsurance in relation to which the reinsurer is the transferee and which, as at the date of the transfer, have fallen due to the transferor,

and which (in either case) do not become assets of the transferee's long-term insurance fund as a result of the transfer because (and only because) they arise under contracts of reinsurance in relation to which the reinsurer is the transferee. " .

(6) The amendments made by sub-paragraphs (2) and (3) have effect in relation to transfers taking place on or after 22nd March 2006.

(7) The amendments made by sub-paragraphs (4) and (5) have effect (and are deemed always to have had effect) in relation to transfers taking place on or after 2nd December 2004.

Transfers of business: modification of s. 83(2B) of FA 1989

4 (1) Section 444AD is amended as follows.

(2) At the end insert--

" (6) For the purposes of this section "insurance business transfer scheme" includes a scheme which would be such a scheme but for section 105(1)(b) of the Financial Services and Markets Act 2000 (which requires the business transferred to be carried on in an EEA State). " .

(3) The amendment made by this paragraph has effect in relation to schemes taking place on or after 22nd March 2006.

Surpluses of mutual and former mutual businesses

5 (1) After section 444AE of ICTA insert--

" Surpluses of mutual and former mutual businesses

444AF Demutualisation surplus: life assurance business

(1) This section applies in relation to a period of account of an insurance company ("the relevant period") if--

(a) at any time in the relevant period the company carries on life assurance business that is not mutual business,

(b) the company has an amount of undistributed demutualisation surplus for the relevant period (see subsection (7)), and

(c) there is a reduction in the amount of the company's unappropriated surplus over the relevant period (see section 444AI).

(2) Where this section applies in relation to the relevant period, there shall be deemed for the purposes of section 83(2) of the Finance Act 1989 to be brought into account for the relevant period as an increase in the value of the assets of the company's long-term insurance fund whichever of the following amounts is the smallest--

(a) the amount of the reduction mentioned in subsection (1)(c) above;

(b) the amount of the company's undistributed demutualisation surplus for the relevant period;

(3) If the company prepares for the relevant period one or more such separate revenue accounts as are mentioned in section 83A(2)(b) of the Finance Act 1989--

(a) subsection (2) above shall apply separately in relation to each separate revenue account which is recognised for the purposes of section 83 of that Act; and

(b) for that purpose, any amount that falls to be determined in order to determine--

(i) whether that subsection applies in relation to any such separate revenue account, and

(ii) if so, the amount to be brought into account under that subsection in relation to that account,

shall be determined using only amounts or items which relate to the separate revenue account concerned.

(4) In applying subsection (2) above in relation to a revenue account or separate revenue account which--

(a) is recognised for the purposes of section 83 of that Act, and

(b) is one in relation to which sections 432C and 432D apply,

that subsection shall have effect as if for "smallest" there were substituted "smaller" and as if paragraph (c) were omitted.

(5) This section shall have effect--

(a) for the purposes of computing in accordance with the provisions of this Act applicable to Case I of Schedule D the profits of the company's life assurance business, and

(b) for the purposes of so computing the profits of any category of the company's life assurance business chargeable to tax under Case VI of Schedule D.

(6) But for the purposes mentioned in subsection (5)(b) above, this section and section 444AG have effect subject to the modification in section 444AH; and the Corporation Tax Acts have effect accordingly (so that there may, in particular, be a difference between--

(a) the amount deemed to be brought into account by virtue of subsection (2) above for a period of account for those purposes, and

(b) the amount so deemed to be brought into account for that period of account for the purposes mentioned in subsection (5)(a) above).

(7) For the purposes of this section, the undistributed demutualisation surplus of an insurance company for the relevant period is--

(a) an amount equal to (UDSP − AD + DTSI − DTSO); or

(b) if that amount is a negative amount, nil.

For this purpose--

UDSP is the undistributed demutualisation surplus of the company for the period of account immediately preceding the relevant period,
AD is any amount deemed under this section to be brought into account for the period of account immediately preceding the relevant period as an increase in the value of the assets of the company's long-term insurance fund,
DTSI is the total amount of any demutualisation transfer surpluses accruing to the company during the relevant period (see section 444AG),
DTSO is the total amount of any demutualisation transfer surpluses accruing to any other company (or companies) during the relevant period on a transfer (or transfers) of life assurance business by the company to that other company (or companies).

444AG Section 444AF: "demutualisation transfer surplus"

(1) For the purposes of section 444AF and this section, a demutualisation transfer surplus accrues to an insurance company where--

(a) life assurance business is transferred to the company by a person ("the transferor"),

(b) after the transfer, the company carries on the transferred business otherwise than as mutual business, and

(2) The condition is that--

(a) immediately before the transfer, the transferor carried on the transferred business as mutual business, or

(b) where paragraph (a) above does not apply, some or all of the transferred business was carried on by an insurance company as mutual business at a time on or after 1st January 1990 and before the transfer ("former mutual business").

(3) The demutualisation transfer surplus accrues to the company on the date of the transfer.

(4) The amount of the demutualisation transfer surplus is given by subsection (5) or (6) below.

(5) Where subsection (2)(a) above applies, the amount of the demutualisation transfer surplus is--

(a) where the whole of the transferor's life assurance business was transferred to the company under the transfer, the aggregate of--

(i) the unappropriated surplus of the transferor at the end of the period of account of the transferor ending immediately before the transfer, and

(ii) the amount of any added surplus accruing to the company in connection with the transfer (see subsection (10));

(b) otherwise, a just and reasonable portion of that aggregate amount, having regard to how much of the transferor's life assurance business was transferred to the company under the transfer.

(6) Where subsection (2)(b) above applies, the amount of the demutualisation transfer surplus is--

(a) where the whole of the transferor's life assurance business was transferred to the company under the transfer and all of the transferred business is former mutual business, the former mutual surplus of the transferor on the transfer date (see subsection (7));

(b) otherwise, so much of that former mutual surplus as it is just and reasonable to attribute to the company, having regard in particular to--

(i) how much of the transferor's life assurance business was transferred to the company under the transfer, and

(ii) how much of the transferred business is former mutual business.

(7) For the purposes of subsection (6) above, the former mutual surplus of the transferor on the transfer date is--

(a) the amount given by subsection (8) below, or

(b) if less, the amount given by subsection (9) below.

(8) The amount given by this subsection is the total amount of any demutualisation transfer surpluses accruing to the transferor--

(a) on or after 1st January 1990, and

(b) on or before the date of the transfer.

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