Finance Act 2006 (c. 25)

(The document as of February, 2008)

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(8) A notice under this section must--

(a) specify the arrangements,

(b) specify the accounting period in which the relevant gain accrues, and

(9) If relevant gains accrue in more than one accounting period, a single notice under this section may specify all the accounting periods concerned.

(10) In this section--

"arrangements" includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable),
"group", in relation to companies, means a group determined in accordance with section 170,
"qualifying time", in relation to any arrangements, means any time which falls in the period--
(a)
beginning with the time at which the arrangements are made, and
(b)
ending with the time at which the matters (other than any tax advantage) intended to be secured by the arrangements are secured,
"tax advantage" has the meaning given by section 184D.

184H Avoidance involving losses: schemes securing deductions

(1) This section applies for the purposes of corporation tax in respect of chargeable gains if conditions A to D are satisfied.

(2) Condition A is that--

(a) a chargeable gain (the "relevant gain") accrues to a company ("the relevant company") directly or indirectly in consequence of, or otherwise in connection with, any arrangements, and

(b) losses accrue (or have accrued) to the relevant company on any disposal of any asset (whether before or after or as part of the arrangements).

(3) Condition B is that the relevant company, or a company connected with the relevant company, incurs any expenditure--

(a) which is allowable as a deduction in calculating its total profits chargeable to corporation tax but which is not allowable as a deduction in computing its gains under section 38, and

(b) which is incurred directly or indirectly in consequence of, or otherwise in connection with, the arrangements.

(4) Condition C is that the main purpose, or one of the main purposes, of the arrangements is to secure a tax advantage that involves both--

(a) the deduction of the expenditure in calculating total profits, and

(b) the deduction of any of the losses from the relevant gain,

whether or not it also involves anything else.

(5) Condition D is that the arrangements are not excluded arrangements.

For this purpose arrangements are excluded arrangements if--

(a) the arrangements are made in respect of land or any estate or interest in land,

(b) the arrangements fall within section 779(1) or (2) of the Taxes Act (sale and lease-back: limitation on tax reliefs),

(c) the person to whom the payment mentioned in that subsection is payable is not a company connected with the relevant company, and

(d) the arrangements are made between persons dealing at arm's length.

(6) If the Board consider, on reasonable grounds, that conditions A to D are or may be satisfied, they may give the company a notice in respect of the arrangements (but see also section 184I).

(7) If, when the notice is given, conditions A to D are satisfied, no loss accruing to the company at any time is to be deductible from the relevant gain.

(8) A notice under this section must--

(a) specify the arrangements,

(b) specify the accounting period in which the relevant gain accrues, and

(9) If relevant gains accrue in more than one accounting period, a single notice under this section may specify all the accounting periods concerned.

(10) In this section--

"arrangements" includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable),
"tax advantage" has the meaning given by section 184D.

(11) For the purposes of this section it does not matter whether the tax advantage is secured for the relevant company or for any other company.

184I Notices under sections 184G and 184H

(1) Subsection (2) applies if--

(a) the Board give a notice under section 184G or 184H (a "relevant notice") to a company that specifies an accounting period, and

(b) the notice is given before the company has made its company tax return for that accounting period.

(2) If the company makes its return for that period before the end of the applicable 90 day period (see subsection (12)), it may--

(a) make a return that disregards the notice, and

(b) at any time after making the return and before the end of the applicable 90 day period, amend the return for the purpose of complying with the provision referred to in the notice.

(3) If a company has made a company tax return for an accounting period, the Board may give the company a relevant notice in relation to that period only if a notice of enquiry has been given to the company in respect of its return for that period.

(4) After any enquiries into the return for that period have been completed, the Board may give the company a relevant notice only if requirements A and B are met.

(5) Requirement A is that at the time the enquiries into the return were completed, the Board could not have been reasonably expected, on the basis of information made available--

(a) to them before that time, or

(b) to an officer of theirs before that time,

to have been aware that the circumstances were such that a relevant notice could have been given to the company in relation to that period.

(6) For the purposes of requirement A, paragraph 44(2) and (3) of Schedule 18 to the Finance Act 1998 (information made available) applies as it applies for the purposes of paragraph 44(1).

(7) Requirement B is that--

(a) the company or any other person was requested to produce or provide information during an enquiry into the return for that period, and

(b) if the request had been duly complied with, the Board could reasonably have been expected to give the company a relevant notice in relation to that period.

(8) If--

(a) a company makes a company tax return for an accounting period, and

(b) the company is subsequently given a relevant notice that specifies that period,

it may amend the return for the purpose of complying with the provision referred to in the notice at any time before the end of the applicable 90 day period.

(9) If the relevant notice is given to the company after it has been given a notice of enquiry in respect of its return for the period, no closure notice may be given in relation to its company tax return until--

(a) the end of the applicable 90 day period, or

(b) the earlier amendment of its company tax return for the purpose of complying with the provision referred to in the notice.

(10) If the relevant notice is given to the company after any enquiries into the return for the period are completed, no discovery assessment may be made as regards the chargeable gain to which the notice relates until--

(a) the end of the applicable 90 day period, or

(b) the earlier amendment of the company tax return for the purpose of complying with the provision referred to in the notice.

(11) Subsections (2)(b) and (8) do not prevent a company tax return for a period becoming incorrect if--

(a) a relevant notice is given to the company in relation to that period,

(b) the return is not amended in accordance with subsection (2)(b) or (8) for the purpose of complying with the provision referred to in the notice, and

(12) In this section--

"the applicable 90 day period", in relation to a relevant notice, means the period of 90 days beginning with the day on which the notice is given,
"closure notice" means a notice under paragraph 32 of Schedule 18 to the Finance Act 1998,
"company tax return" means the return required to be delivered pursuant to a notice under paragraph 3 of that Schedule, as read with paragraph 4 of that Schedule,
"discovery assessment" means an assessment under paragraph 41 of that Schedule,
"notice of enquiry" means a notice under paragraph 24 of that Schedule. " .

(2) In Schedule 18 to FA 1998 (company tax returns, assessments, etc), in paragraph 25(1) (scope of enquiry), after "relief)" insert "or a notice under section 184G or 184H of the Taxation of Chargeable Gains Act 1992 (avoidance involving capital losses)".

(3) In paragraph 42 of that Schedule (restrictions on power to make discovery assessment etc), in sub-paragraph (2A), after "1988" insert "or section 184G or 184H of the Taxation of Chargeable Gains Act 1992".

(4) The amendments made by this section have effect in relation to chargeable gains accruing on any disposal that is made on or after 5th December 2005.

72 Repeal of s.106 of TCGA 1992

(1) Section 106 of TCGA 1992 (disposal of shares and securities by company within prescribed period of acquisition) shall cease to have effect.

(2) In consequence of that repeal--

(a) in section 104(2)(b) of TCGA 1992 (share pooling: general interpretative provisions) omit ", 106",

(b) in section 105 of that Act (disposal on or before day of acquisition of shares and other unidentified assets)--

(i) in subsection (2)(b) for "any of the provisions of section 106 or" substitute "section", and

(ii) in subsection (2)(c) omit "106,",

(c) in section 108(8) of that Act (identification of relevant securities) omit "shall have effect subject to section 106 but",

(d) in section 110(1)(b) of that Act (section 104 holdings: indexation allowance) for "sections 105 and 106" substitute "section 105", and

(e) in Schedule 15 to FA 2000 (corporate venture scheme), in paragraph 93(6) (identification of shares on a disposal), for "Sections 104 to 106" substitute "Sections 104, 105".

(3) The amendments made by this section have effect in relation to any disposal that is made on or after 5th December 2005.

Insurance policies and annuities

73 Policies of insurance and non-deferred annuities

(1) TCGA 1992 is amended as follows.

(2) For section 204 (policies of insurance) substitute--

" 204 Policies of insurance and non-deferred annuities

(1) A gain accruing on a disposal of, or of an interest in, the rights conferred by a non-life policy of insurance is not a chargeable gain (but see subsection (2)).

(2) If a disposal is of, or of an interest in, the rights conferred by a non-life policy of insurance of the risk of--

(a) any kind of damage to assets, or

(b) the loss or depreciation of assets,

the exemption under subsection (1) does not apply so far as those rights relate to chargeable assets.

(3) For this purpose "chargeable assets" means assets on the disposal of which a chargeable gain--

(a) may accrue, or

(b) might have accrued.

(4) Nothing in subsections (1) and (2) prevents sums received under a non-life policy of insurance of the risk of--

(a) any kind of damage to assets, or

(b) the loss or depreciation of assets,

from being sums derived from the assets for the purposes of this Act (and, in particular, for the purposes of section 22).

(5) A gain accruing on a disposal of, or of an interest in, the rights conferred by a contract for an annuity is not a chargeable gain if the annuity is--

(a) a non-deferred annuity, or

(b) an annuity granted (or deemed to be granted) under the Government Annuities Act 1929.

(6) If any investments or other assets are, in accordance with a policy issued in the course of life assurance business carried on by an insurance company, transferred to the policy holder--

(a) the policy holder's acquisition of the assets, and

(b) the disposal of the assets to the policy holder,

are to be taken for the purposes of this Act to be for a consideration equal to the market value of the assets.

(7) In this section "interest", in relation to any rights, means an interest as a co-owner of the rights.

(8) It does not matter--

(a) whether the rights are owned jointly or in common, or

(b) whether or not the interests of the co-owners are equal.

(9) In this section a "non-deferred annuity" means an annuity--

(a) which is not granted under a contract for a deferred annuity, and

(b) which is granted in the ordinary course of a business of granting annuities on the life of any person,

and it does not matter whether the annuity includes instalments of capital.

(10) In this section a "non-life policy of insurance" means--

(a) a contract made in the course of a capital redemption business, as defined in section 458(3) of the Taxes Act, and

(b) any other policy of insurance which is not a policy of insurance on the life of any person. " .

(3) In section 237 (superannuation funds, annuities and annual payments)--

(a) at the end of paragraph (a), insert "or", and

(b) omit paragraph (b) (exemption for disposals of non-deferred annuities etc).

(4) The amendments made by this section have effect in relation to disposals made on or after 5th December 2005.

Capital gains tax

74 Exception to "bed and breakfasting" rules etc

(1) TCGA 1992 is amended as follows.

(2) In section 106A (identification of securities: general rules for capital gains tax), after subsection (5) (acquisition of securities within 30 days after disposing of securities of same class) insert--

" (5A) Subsection (5) above shall not require securities to be identified with securities which the person making the disposal acquires at a time when--

(a) he is neither resident nor ordinarily resident in the United Kingdom, or

(b) he is resident or ordinarily resident in the United Kingdom but is Treaty non-resident. " .

(3) In section 288 (interpretation), after subsection (7A) (meaning of "surrender" in application of Act to Scotland) insert--

" (7B) For the purposes of this Act, a person is Treaty non-resident at any time if, at that time, he falls to be regarded as resident in a territory outside the United Kingdom for the purposes of double taxation relief arrangements having effect at that time. " .

(4) In consequence of the amendment made by subsection (3)--

(a) in section 10A (temporary non-residents), omit subsection (9A) (meaning of "Treaty non-resident"), and

(b) in section 83A (trustees both resident and non-resident in a year of assessment), omit subsection (5) (meaning of "Treaty non-resident").

(5) The amendment made by subsection (2) has effect in relation to any acquisition made at any time on or after 22nd March 2006.

(6) The amendments made by subsections (3) and (4) have effect in relation to any time on or after 22nd March 2006.

Chapter 8 Avoidance: miscellaneous

Film partnerships

75 Interest relief: film partnership

(1) The amount of interest on a loan in respect of which an individual ("the borrower") is eligible for relief for a year of assessment under sections 353 and 362 of ICTA (interest on loan to buy into partnership) shall, where this section applies, be restricted to 40% of the interest that would otherwise be eligible for relief.

(2) This section applies where--

(a) the partnership ("the film partnership") carries on a trade,

(b) the profits or losses of the trade are computed in accordance with Chapter 9 of Part 2 of ITTOIA 2005 (films, etc),

(d) the borrower is or has been a member of the investment partnership, and

(e) at a time in the year of assessment the proportion of the profits of the investment partnership to which the borrower is entitled is less than the proportion of the partnership's capital contributed by him at that time.

(3) For the purposes of subsection (2)(c) a loan is secured on an asset or activity of a partnership if there is any arrangement--

(a) under which an asset of the partnership may be used or relied upon wholly or partly to guarantee repayment of any part of the loan, or

(b) by virtue of which any part of the loan is expected to be repaid (directly or indirectly) out of assets or income held by or accruing to the partnership.

(4) For the purposes of subsection (2)(e) the reference to profits excludes any amount that would not be taken into account as, or for the purpose of calculating, income for the purposes of the Tax Acts.

(5) In subsection (2)(e) the reference to the partnership's capital is a reference to--

(a) anything that is, or in accordance with generally accepted accounting practice would be, accounted for as partners' capital or partners' equity, and

(b) amounts lent to the partnership by the partners.

(6) For the purposes of subsection (2)(e) the reference to the proportion of the partnership's capital contributed by the borrower includes, in particular, a reference to--

(a) any amount paid by the borrower to acquire an interest in the investment partnership if or in so far as the borrower retains the interest at that time,

(b) any amount made available by the borrower (directly or indirectly) to another person who acquires an interest in the investment partnership if or in so far as that other person retains the interest at that time,

(d) any amount made available by the borrower (directly or indirectly) to another person who lends it to the investment partnership, and

(e) an amount made available in any other way prescribed by regulations made by the Commissioners for Her Majesty's Revenue and Customs.

(7) Regulations under subsection (6)(e)--

(a) may make provision having retrospective effect,

(b) may make provision generally or only in relation to specified cases or circumstances,

(d) may make transitional, consequential or incidental provision,

(e) shall be made by statutory instrument, and

(f) shall not be made unless a draft has been laid before and approved by resolution of the House of Commons.

(8) In subsections (2) to (6) a reference to the borrower or another partner includes a reference to a person connected with him within the meaning of section 839(2) of ICTA.

(9) This section shall have effect in relation to the payment of interest accruing on or after 10th March 2006.

Financial instruments

76 Avoidance involving financial arrangements

Schedule 6 (which makes provision in relation to tax avoidance involving financial arrangements) has effect.

Intangible fixed assets

77 Treating assets as "existing assets" etc

(1) Schedule 29 to FA 2002 (gains and losses of a company from intangible fixed assets) is amended as follows.

(2) In paragraph 13 (credits in respect of intangible fixed assets: introduction), in sub-paragraph (1) (credits brought into account under Part 3), after paragraph (a) (receipts recognised in determining profit or loss), insert--

" (aa) receipts in respect of royalties so far as the receipts do not give rise to a credit under paragraph 14 (see paragraph 14A), " .

(3) After paragraph 14 (receipts recognised as they accrue) insert--

" Receipts in respect of royalties so far as not dealt with under paragraph 14

14A (1) So far as a receipt in respect of any royalty does not give rise to a credit under paragraph 14 (whether in the period of account in which it is received or in a subsequent period of account), a credit shall be brought into account for tax purposes.

(2) The amount of the credit to be brought into account for tax purposes is equal to so much of the amount of the receipt as does not give rise to a credit under paragraph 14.

(3) The credit shall be brought into account for tax purposes in the accounting period in which the receipt is recognised for accounting purposes. " .

(4) In paragraph 82 (assets excluded to extent specified: research and development), in sub-paragraph (2) (provisions of Schedule not applying to asset so far as representing expenditure on research and development)--

(a) in paragraph (a) (Part 2 not to apply subject to exception relating to paragraph 14), at the end insert "or 14A (receipts in respect of royalties so far as not dealt with under paragraph 14)", and

(b) in paragraph (b) (Part 3 not to apply subject to exception for paragraph 14), for "paragraph 14" substitute "paragraphs 14 and 14A".

(5) In paragraph 83 (assets excluded to extent specified: election to exclude capital expenditure on computer software), in sub-paragraph (3) (effect of election)--

(b) in paragraph (b) (Part 3 not to apply subject to exception for paragraph 14), for "paragraph 14" substitute "paragraphs 14 and 14A".

(6) In paragraph 118 (application of Schedule to assets created or acquired after commencement, that is to say, on or after 1st April 2002)--

(a) in sub-paragraph (4) (application of sub-paragraph (1) subject to other paragraphs), at the end insert " and

(d) paragraph 127B (assets acquired in connection with disposals of existing assets treated as existing assets). " , and

(b) in sub-paragraph (6) (nothing in paragraph 118 restricts application of Schedule in accordance with paragraph 119), at the end insert ", but see sub-paragraph (5) of that paragraph.".

(7) In paragraph 119 (application of Schedule to royalties), at the end insert--

" (5) Nothing in this paragraph shall be read as authorising or requiring an amount to be brought into account in connection with the realisation of an existing asset within the meaning of Part 4. " .

(8) After paragraph 127 (certain assets acquired on transfer of business treated as existing assets) insert--

" Assets whose value derives from existing assets treated as existing assets

127A (1) This paragraph applies where--

(a) a company acquires an intangible fixed asset ("the acquired asset") after commencement from a person ("the transferor") who at the time of the acquisition is a related party in relation to the company,

(b) the acquired asset is created, whether by the transferor or any other person, after commencement,

(d) the other asset has not at any time on or after 5th December 2005 been a chargeable intangible asset in the hands of the company or a related party in relation to the company or the transferor, and

(e) the existing asset condition is met.

(2) The existing asset condition is that, after commencement,--

(a) the other asset has been an existing asset in the hands of the transferor at a time when the transferor was a related party in relation to the company, or

(b) the other asset has been an existing asset in the hands of any other person at a time when the other person was a related party in relation to the company or the transferor.

(3) Where this paragraph applies the acquired asset shall be treated for the purposes of this Schedule as an existing asset in the hands of the company, but only so far as its value derives from the other asset.

(4) If only part of the value of the acquired asset so derives--

(a) this Schedule has effect as if there were a separate asset representing the part of the value not so derived, and

(b) the enactments that apply where this Schedule does not apply have effect as if there were a separate asset representing the part of the value so derived.

Any apportionment necessary for this purpose shall be made on a just and reasonable basis.

(5) For the purposes of this paragraph the cases in which the value of an asset may be derived from any other asset include any case where--

(a) assets have been merged or divided,

(b) assets have changed their nature, or

(6) For the purposes of this paragraph the time at which an asset is created or acquired is the time at which it would be regarded as created or acquired for the purposes of paragraph 118 (application of Schedule to assets created or acquired after commencement).

Assets acquired in connection with disposals of existing assets treated as existing assets

127B (1) This paragraph applies where--

(a) a person disposes of an asset which, at the time of the disposal, is an existing asset in the hands of the person,

(b) a company which at the time of the disposal is a related party in relation to the person acquires an intangible fixed asset directly or indirectly in consequence of, or otherwise in connection with, the disposal, and

(c) the intangible fixed asset that is acquired would, apart from this paragraph, at the time of the acquisition be a chargeable intangible asset in the hands of the company.

(2) Where this paragraph applies the intangible fixed asset that is acquired shall be treated for the purposes of this Schedule as an existing asset in the hands of the company.

(3) For the purposes of this paragraph--

(a) "asset", in relation to any disposal, means any asset for the purposes of the Taxation of Chargeable Gains Act 1992,

(b) a person "disposes of" an asset if, for the purposes of that Act, the person makes a part disposal of the asset or any other disposal of the asset,

(4) For the purposes of this paragraph it does not matter--

(a) whether the asset that the person disposes of is the same asset as the one that the company acquires,

(b) whether the asset that is acquired is acquired at the time of the disposal or at any other time, or

(9) In paragraph 143 (index of defined expressions), in the entry relating to existing asset, in the second column, for "paragraph 127" substitute "paragraphs 127 to 127B".

(10) The amendments made by this section have effect in relation to the debits or credits to be brought into account for any accounting period beginning on or after 5th December 2005 (and, in relation to the debits or credits to be brought into account for any such period, shall be deemed always to have had effect).

(11) For this purpose an accounting period beginning before, and ending on or after, that date is treated as if--

(a) so much of that period as falls before that date, and

(b) so much of that period as falls on or after that date,

were separate accounting periods.

International matters

78 Controlled foreign companies and treaty non-resident companies

(1) Section 90 of FA 2002 (controlled foreign companies and treaty non-resident companies) is amended as follows.

(2) In subsection (2) (application of subsection (1), which inserted section 747(1B) of ICTA (disregard of section 249 of FA 1994 for most purposes of Chapter 4 of Part 17 of ICTA (controlled foreign companies))), for paragraph (b) (exclusion for companies which were non-resident immediately before 1st April 2002) substitute--

" (b) does not apply to a company ("the non-resident company") that--

(i) by virtue of section 249 of the Finance Act 1994 was treated as resident outside the United Kingdom, and not resident in the United Kingdom, immediately before that date, and

(ii) has not subsequently ceased to be so treated,

unless condition A or B is met in relation to the non-resident company at any time on or after 22nd March 2006. " .

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