Finance Act 2006 (c. 25)

(The document as of February, 2008)

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(2) This section applies if in a year of assessment--

(a) the trustees make a payment to a vulnerable person,

(b) the payment is made out of qualifying trusts income,

(c) the vulnerable person is a relevant child (within the meaning given by section 629 of ITTOIA 2005) of a settlor in relation to the settlement, and

(d) the trustees have made a successful claim for special income tax treatment under section 25. "

(2) This paragraph shall have effect in relation to payments made on or after 6th April 2004.

37 (1) For the purposes of regulations (whenever made) made under a provision of the Tax Acts --

(a) references to settled property, a settlor or trustees shall be read in accordance with sections 685A to 685G of ICTA (inserted by paragraph 1 of this Schedule), and

(b) references to the trustees of a trust shall be treated as references to the trustees of a settlement.

(2) This paragraph shall come into force on 6th April 2006.

Section 91

SCHEDULE 14 Investment reliefs: venture capital schemes

Part 1 Limits on gross assets of issuers of shares or securities

Enterprise investment scheme

1 (1) In section 293(6A) of ICTA (enterprise investment scheme: limits on value of gross assets of share-issuing company or its group)--

(a) in paragraph (a) (value must not exceed £15 million immediately before issue of eligible shares), for "£15 million" substitute "£7 million", and

(b) in paragraph (b) (value must not exceed £16 million immediately after issue of eligible shares), for "£16 million" substitute "£8 million".

(2) Sub-paragraph (1) has effect in relation to shares issued on or after 6th April 2006, subject to sub-paragraphs (3) and (4).

(3) Sub-paragraph (1) does not have effect in relation to shares issued on or after 6th April 2006 to a person who subscribed for them before 22nd March 2006.

(4) Sub-paragraph (1) does not have effect in relation to shares issued on or after 6th April 2006 to the managers of an investment fund approved for the purposes of section 311 of ICTA by the Commissioners for Her Majesty's Revenue and Customs if--

(a) the fund was approved before 22nd March 2006,

(b) investments in the fund have been accepted before 6th April 2006, and

(c) the shares are issued to the managers as nominee for an individual who has (whether or not before 6th April 2006) invested in the fund.

Venture capital trusts

2 (1) In paragraph 8(1) of Schedule 28B to ICTA (venture capital trusts: limits on value of gross assets of company issuing relevant holding or its group)--

(a) in paragraph (a) (value must not exceed £15 million immediately before issue of relevant holding), for "£15 million" substitute "£7 million", and

(b) in paragraph (b) (value must not exceed £16 million immediately after issue of relevant holding), for "£16 million" substitute "£8 million".

(2) Sub-paragraph (1) has effect in relation to relevant holdings issued on or after 6th April 2006, subject to sub-paragraph (3).

(3) Sub-paragraph (1) does not have effect for the purpose of determining whether any shares or securities acquired by a company ("the trust company") by means of the investment of protected money are, for the purposes of section 842AA of ICTA, to be regarded as comprised in qualifying holdings of the company at any time.

(4) In sub-paragraph (3) "protected money" means--

(a) money raised by the issue before 6th April 2006 of shares in or securities of the trust company, or

(b) money derived from the investment by the trust company of any such money.

Corporate venturing scheme

3 (1) In paragraph 22(1) and (2) of Schedule 15 to FA 2000 (corporate venturing scheme: limits on value of gross assets of share-issuing company or its group)--

(a) in paragraph (a) (value must not exceed £15 million immediately before issue of relevant shares), for "£15 million" substitute "£7 million", and

(b) in paragraph (b) (value must not exceed £16 million immediately after issue of relevant shares), for "£16 million" substitute "£8 million".

(2) Sub-paragraph (1) has effect in relation to shares issued on or after 6th April 2006, subject to sub-paragraph (3).

(3) Sub-paragraph (1) does not have effect in relation to shares issued on or after 6th April 2006 to a person who subscribed for them before 22nd March 2006.

Part 2 Rate of relief for investments in venture capital trusts

4 (1) In paragraph 1(5)(a) of Schedule 15B to ICTA (where relief available on shares issued by venture capital trust on or after 6th April 2006, income tax liability reduced by amount not exceeding the sum subscribed multiplied by the lower rate of 20%), for "tax at the lower rate for that year on" substitute "30 per cent of".

(2) In paragraph 3(4) of that Schedule (where shares in venture capital trust disposed of by bargain at arm's length within 3 years of their issue, relief given is reduced by reference to consideration for disposal if less than amount subscribed), for "tax at the lower rate for the year of assessment for which the relief was given on" substitute "30 per cent of".

(3) Sub-paragraphs (1) and (2) have effect in relation to shares issued on or after 6th April 2006.

Part 3 Enterprise investment scheme: maximum subscriptions and carry-back of relief

5 (1) In section 289A(4) of ICTA (which limits the amount eligible to be relieved in the previous year), for "£25,000" substitute "£50,000".

(2) Sub-paragraph (1) has effect in relation to shares issued on or after 6th April 2006.

6 (1) In section 290(2) of ICTA (maximum amount eligible for relief in any year), for "£200,000" substitute "£400,000".

(2) Sub-paragraph (1) has effect for the year 2006-07 and for subsequent years of assessment.

Part 4 Lengthening of periods applicable to venture capital trusts

7 (1) Schedule 15B to ICTA (venture capital trusts: relief from income tax) is amended as follows.

(2) In paragraph 2(3) (no relief for investments linked to loans made within period ending immediately before third anniversary of date on which shares issued), in the definition of "the relevant period", for "third" substitute "fifth".

(3) In paragraph 3(1)(b) (loss of investment relief for disposal of shares within three years of issue), for "three" substitute "five".

(4) In paragraph 6(1) (meaning of "eligible shares"), for "three" substitute "five".

(5) Sub-paragraphs (1) to (4) have effect in relation to shares issued on or after 6th April 2006.

Part 5 Venture capital trusts: meaning of "investments"

8 (1) In section 842AA of ICTA (venture capital trusts: conditions for approval), after subsection (11) insert--

" (11A) A reference in this section, or in section 842(2)(b) as applied by subsection (11)(a) above, to a company's investments shall be taken to include, so far as it would not otherwise do so,--

(a) money in the company's possession, and

(b) any sum owed to the company by another person if the company has account-holder's rights over that sum.

(11B) For the purposes of subsection (11A)(b) above, a company has "account-holder's rights" over a sum owed to the company if--

(a) the company has a right (whether or not the exercise of the right is subject to conditions) to require the other person to pay out the sum, or amounts out of the sum, to the company or at the company's direction, and

(b) the sum is owed to the company--

(i) as a result of amounts having been paid to the other person by or for the company, or

(ii) as a result of the other person having identified a sum in respect of which the company may exercise such a right.

(11C) Subsection (11A) above does not have effect to cause a company's investments to be taken to include anything to which the company is not beneficially entitled, but for this purpose a company shall be taken to be beneficially entitled to--

(a) sums subscribed for shares issued by it, and

(b) anything to which it is entitled that (directly or indirectly) represents any such sums. "

(2) Sub-paragraph (1) has effect for the purposes of determining whether, at a time on or after 6th April 2007, the conditions specified in section 842AA(2) of ICTA are, will be or were fulfilled with respect to a company.

Section 102

SCHEDULE 15 Accountancy change: spreading of adjustment

Part 1 Income tax

Application of this Part of this Schedule

1 (1) This Part of this Schedule applies where--

(a) there is a change of accounting approach from one period of account to the next in calculating the profits of a business for income tax purposes,

(b) the later period of account ends on or after 22nd June 2005 and the basis on which the profits for that period are calculated is in accordance with UK GAAP (including SSAP 9 and Application Note G as interpreted by UITF 40), and

(c) the earlier period of account ended before that date and the basis on which profits for that period were calculated was in accordance with UK GAAP (including SSAP 9 and Application Note G, but not as interpreted by UITF 40),

and has effect in relation to any adjustment income under Chapter 17 of Part 2 of ITTIOIA 2005 attributable to the change of basis from that mentioned in paragraph (c) to that mentioned in paragraph (b).

(2) In relation to a period for which accounts are drawn up in accordance with international accounting standards, the references in sub-paragraph (1) to requirements of UK GAAP shall be read as references to the corresponding requirements of international accounting standards.

(3) In sub-paragraph (1)--

"SSAP 9" means Statement of Standard Accounting Practice No.9 on Long-term contracts, issued by the Accounting Standards Board;
"Application Note G" means Application Note G to Financial Reporting Standard 5 issued by the Accounting Standards Board in November 2003;
"UITF 40" means Abstract No.40 on Revenue recognition and service contracts, issued by the Urgent Issues Task Force of the Accounting Standards Board on 10th March 2005.

(4) Any reference in this Part of this Schedule to the date on which the change of accounting approach was adopted is to the first day of the first period of account for which it was adopted.

(5) To determine the amount of adjustment income attributable to the change of basis mentioned in the closing words of sub-paragraph (1), assume that there was no other change of accounting approach.

Spreading of adjustment income

2 (1) The adjustment income shall be spread in accordance with the following rules.

(2) In each of the first three tax years beginning with that in which the whole amount of the adjustment income would otherwise be chargeable to tax, an amount equal to whichever is the less of--

(a) one-third of the original amount of the adjustment income, and

(b) one-sixth of the profits of the business for that tax year,

is treated as arising and charged to tax.

(3) In the fourth and fifth tax years, if the whole of the adjustment income has not been charged to tax in previous tax years, an amount equal to whichever is the least of--

(a) the amount remaining untaxed,

(b) one-third of the original amount of the adjustment income, and

is treated as arising and charged to tax.

(4) In the sixth tax year so much (if any) of the adjustment income as has not previously been charged to tax is treated as arising and is charged to tax.

(5) For the purposes of this paragraph "the profits of the business" means the profits of the business as calculated for income tax purposes leaving out of account--

(a) any adjustment expenses under Chapter 17 of Part 2 of ITTIOIA 2005, and

(b) any allowances or charges under CAA 2001.

(6) This paragraph has effect subject to--

(a) paragraph 3 (effect of cessation of business), and

(b) paragraph 4 (election to accelerate charge).

Effect of cessation of business

3 If before the whole of the adjustment income has been charged to tax the person permanently ceases to carry on the business in question, paragraph 2 continues to apply but with the omission of the alternative limit in sub-paragraph (2)(b) and (3)(c) referring to the profits of the business.

Election to accelerate charge

4 (1) A person who under paragraph 2 is liable to tax for a tax year on an amount of adjustment income may elect for an additional amount to be treated as arising in that tax year.

(2) The election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year.

(3) The election must specify the amount to be treated as income arising in the tax year (which may be any amount up to the whole of the adjustment income not previously charged to tax).

(4) If an election is made, paragraph 2 applies in relation to any subsequent tax year as if the original amount of adjustment income (as reduced by the previous application of this sub-paragraph) were reduced by the additional amount treated as arising in the tax year for which the election is made.

Liability of personal representatives

5 (1) This paragraph applies in the case of the death of a person who would otherwise have been liable to tax under this Part of this Schedule on adjustment income.

(2) The tax under this Part of this Schedule for which the person would otherwise have been liable--

(a) shall be assessed and charged on the personal representatives, and

(b) is a debt due from and payable out of the deceased's estate.

(3) The personal representatives may make any election under this Part of this Schedule that the deceased might have made.

Meaning of "business"

6 In this Part of this Schedule "business" means--

(a) a trade, profession or vocation, or

(b) a UK property business or overseas property business.

Application of provisions to partnerships

7 (1) This paragraph applies where the business is carried on by the person in partnership.

(2) The amounts chargeable to tax under this Part of this Schedule for any tax year are calculated as if the partnership were an individual resident in the United Kingdom.

(3) The person's share of the amount charged to tax is determined--

(a) for the first tax year, according to the profit-sharing arrangements for the twelve months ending immediately before the date on which the change of accounting practice was adopted;

(b) for any subsequent tax year, according to the profit-sharing arrangements for the twelve months immediately following the twelve months used to determine the person's share for the previous year.

An election under paragraph 4 (election to accelerate charge) in relation to a tax year must be made jointly by all the persons who have been members of the partnership in the relevant twelve month period and are chargeable to income tax.

(4) If paragraph 3 applies (effect of cessation of business), each partner's share of any amount charged to tax on or after the cessation is determined as follows--

(a) if the cessation occurs on the date on which the change of accounting approach was adopted, according to the profit-sharing arrangements for the twelve months ending immediately before that date;

(b) if the cessation occurs after that date, but on or before the first anniversary of that date, according to the profit-sharing arrangements for the period between that date and the date of cessation;

(c) if the cessation occurs after the first anniversary of the date on which the change of accounting approach was adopted, according to the profit-sharing arrangements for the period between the immediately preceding anniversary of that date and the date of cessation.

An election under paragraph 4 after the cessation must be made by each former partner separately.

(5) For the purposes of this paragraph "profit-sharing arrangements" means the rights of the partners to share in the profits of the business for the period in question.

(6) In the case of a business carried on by a limited liability partnership the operation of this Part of this Schedule is not affected by the partnership's ceasing to be one carrying on a trade, profession or other business with a view to profit.

Cases where spreading already available

8 This Part of this Schedule does not apply to adjustment income to which section 238 of that Act applies (spreading on ending of special provision for barristers and advocates in early years of practice).

Part 2 Corporation tax

Application of this Part of this Schedule

9 (1) This Part of this Schedule applies where--

(a) there is a change of accounting approach from one period of account to the next in calculating the profits of a business for corporation tax purposes,

and has effect in relation to any positive adjustment under section 64 of and Schedule 22 to FA 2002 attributable to the change of basis from that mentioned in paragraph (c) to that mentioned in paragraph (b).

(3) In this paragraph--

"SSAP 9" means Statement of Standard Accounting Practice No.9 on Long-term contracts, issued by the Accounting Standards Board;
"Application Note G" means Application Note G to Financial Reporting Standard 5 issued by the Accounting Standards Board in November 2003;
"UITF 40" means Abstract No.40 on Revenue recognition and service contracts, issued by the Urgent Issues Task Force of the Accounting Standards Board on 10th March 2005.

(4) Any reference in this Part of this Schedule to the date on which the change of accounting approach was adopted is to the first day of the first period of account for which it was adopted.

(5) To determine the amount of positive adjustment attributable to the change of basis mentioned in the closing words of sub-paragraph (1), assume that there was no other change of accounting approach.

Spreading of adjustment

10 (1) The adjustment shall be spread in accordance with the following rules.

(2) In each of the first three accounting periods beginning with that in which the whole of the adjustment would otherwise be charged to tax, an amount equal to whichever is the less of--

(a) one-third of the amount of the original adjustment, and

(b) one-sixth of the profits of the business for that period,

is treated as arising and charged to tax.

(3) In the fourth and fifth accounting periods, if the whole of the adjustment has not been charged to tax in the previous periods, an amount equal to whichever is the least of--

(a) the amount remaining untaxed,

(b) one-third of the amount of the original adjustment, and

is treated as arising and charged to tax.

(4) In the sixth accounting period so much (if any) of the adjustment as has not previously been charged to tax is treated as arising and is charged to tax.

(5) For the purposes of this paragraph "the profits of the business" means the profits of the business as calculated for corporation tax purposes leaving out of account--

(a) any adjustment under Schedule 22 to FA 2002, and

(b) any allowances or charges under CAA 2001.

(6) This paragraph has effect subject to--

(a) paragraph 11 (accounting periods of less than twelve months),

(b) paragraph 12 (effect of other events bringing accounting period to an end), and

Accounting periods of less than twelve months

11 (1) This paragraph applies where by reason of--

(a) a change of accounting date,

(b) the company entering administration (see section 12(7ZA) of ICTA), or

an accounting period to which paragraph 10 applies is a period of less than twelve months (a "short period").

(2) In relation to a short period the references in that paragraph to one-third of the amount of the original adjustment shall be read as references to the proportion of that amount that the period bears to twelve months.

(3) Where any of the accounting periods of the company falling within the period of six years following the change of accounting approach is a short period--

(a) the rule in paragraph 10(3) applies in relation to every accounting period after the third and before that in which the sixth anniversary of the change of accounting approach falls, and

(b) the rule in paragraph 10(4) applies in relation to the accounting period in which that anniversary falls.

Effect of other events bringing accounting period to an end

12 (1) If before the whole of the adjustment has been charged to tax an accounting period of the company ends by reason of--

(a) the company ceasing to be within the charge to corporation tax,

(b) the commencement of winding-up proceedings in respect of the company (see section 12(7) of ICTA),

the rule in paragraph 10(4) applies in relation to that accounting period.

(2) If the company permanently ceases to carry on the business in question (without there being any event within sub-paragraph (1) above), paragraph 10 continues to apply but with the omission of the alternative limit in sub-paragraph (2)(b) and (3)(c) referring to the profits of the business.

Election to accelerate charge

13 (1) A company that under paragraph 10 is liable to tax for an accounting period on any amount may elect for an additional amount to be treated as arising in that period.

(2) The election must be made on or before the first anniversary of the filing date for the company's company tax return for the accounting period for which the election is made.

(3) The election must specify the amount to be treated as arising in the accounting period (which may be any amount up to the whole of the adjustment not previously charged to tax).

(4) If an election is made, paragraph 10 applies in relation to any subsequent accounting period as if the amount of the original adjustment (as reduced by any previous application of this sub-paragraph) were reduced by the additional amount treated as arising in the accounting period for which the election is made.

Meaning of "business" etc

14 (1) In this Part of this Schedule "business" means--

(a) a trade or vocation, or

(b) a Schedule A business or overseas property business.

Application of provisions to partnerships

15 (1) This paragraph applies where the business is carried on by the company in partnership.

(2) The amounts chargeable to tax under this Part of this Schedule are calculated as if the partnership were a company resident in the United Kingdom.

(3) The company's share of any such amount is determined by reference to the profit-sharing arrangements for the previous accounting period.

An election under paragraph 13 (election to accelerate charge) must be made jointly by all the persons who have been members of the partnership in the previous accounting period and are chargeable to corporation tax.

(4) If paragraph 12(2) applies (effect of cessation of business), each partner's share of any amount charged to tax on or after the cessation is determined as follows--

(a) if the cessation occurs on the date on which the change of accounting approach was adopted, according to the profit-sharing arrangements for the twelve months ending immediately before that date;

An election under paragraph 13 after the cessation must be made by each former partner separately.

(5) For the purposes of this paragraph "profit-sharing arrangements" means the rights of the partners to share in the profits of the business for the period in question.

(6) A change in the persons carrying on a business does not constitute the permanent cessation of the business for the purposes of this Part of this Schedule so long as a person carrying on the business immediately before the change continues to carry on the business immediately after the change.

(7) In the case of a business carried on by a limited liability partnership the operation of this Part of this Schedule is not affected by the partnership's ceasing to be one carrying on a trade, profession or other business with a view to profit.

(8) Nothing in this paragraph shall be read as affecting the operation of--

(a) paragraph 19 of Schedule 9 to FA 1996 (loan relationships), or

(b) paragraph 49 of Schedule 26 to FA 2002 (derivative contracts),

(under which certain debits and credits are not to be brought into account as if the partnership were a company).

Section 104

SCHEDULE 16 Real Estate Investment Trusts: excluded business and income

Part 1 Classes of business

1 Incidental letting of property (whether in the United Kingdom or outside) which is held in connection with a trade in property.

2 Letting of property which is held for use for administrative purposes in carrying on property rental business but is temporarily surplus to requirements for those purposes, provided that--

(a) the space let is comparatively small compared to the space occupied for administrative purposes, and

(b) the letting is for a term of not more than three years.

3 (1) Letting of property if the following two conditions are satisfied.

(2) Condition 1 is that the property is let--

(a) by one member of a group to another, or

(b) by a member of a group to a company the shares in which are stapled to the shares of a member of the group.

(3) Condition 2 is that the property would fall in accordance with generally accepted accounting practice to be described as owner-occupied.

(4) For the purpose of sub-paragraph (2)(b), shares of one company are stapled to shares of another if in consequence of the nature of the rights attaching to the shares of the one company (including any terms or conditions attaching to the right to transfer the shares) it is necessary or advantageous for a person who has, disposes of or acquires shares of that company also to have, to dispose of or to acquire a holding of shares of the other company.

4 The provision of services in connection with property outside the United Kingdom where the services would not fall within Schedule A if provided in connection with property in the United Kingdom.

5 Entering into structured finance arrangements to which section 774B or 774D of ICTA applies (factoring of rent and other income receipts).

Part 2 Classes of income or profit

6 All income in connection with the operation of a caravan site, if section 20(1) of ITTOIA 2005 (caravan sites) would apply in respect of any receipts in connection with the operation of the site.

7 Rent in respect of an electric-line wayleave.

8 Rent in respect of the siting of a pipeline for gas.

9 Rent in respect of the siting of a pipeline for oil.

10 Rent in respect of the siting of a mast or similar structure designed for use in a mobile telephone network or other system of electronic communication.

11 Rent in respect of the siting of a wind turbine.

12 Dividends from shares in a company to which this Part of this Act applies.

13 Income arising out of an interest in a limited liability partnership where section 118ZA(4) of ICTA (winding-up) applies.

Part 3 Power to amend

14 The Commissioners for Her Majesty's Revenue and Customs may by regulations--

(a) add a paragraph to Part 1 or 2 of this Schedule,

(b) amend a paragraph of Part 1 or 2 of this Schedule, or

Section 134

SCHEDULE 17 Group Real Estate Investment Trusts: modifications

Introduction

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