Finance Act 1997 (c. 16)

(The document as of February, 2008)

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(1A) Accordingly, where a dealer receives a qualifying distribution to which Schedule 7 to the Finance Act 1997 applies--

(a) tax shall not be charged under Schedule F in respect of that distribution;

(b) that distribution shall not be treated for the purposes of sections 246D and 246F as a foreign income dividend received by the dealer;

(d) paragraph 2A(2) of Schedule 23A shall not apply to the payment by the dealer of an amount which is representative of that distribution and is paid by him on or after the date appointed under paragraph 16(1) of Schedule 10 to the Finance Act 1997.

(1B) Where the result of any transaction is that a qualifying distribution to which Schedule 7 to the Finance Act 1997 applies is receivable by a dealer, that distribution shall not, in relation to that transaction, be treated as interest for the purposes of determining whether section 732 applies by virtue of section 731.

(2) For the purposes of this section a person is a dealer in relation to any qualifying distribution if--

(a) were there a sale by that person of the shares in respect of which the distribution is made, and

(b) the circumstances of that sale were such that the price would not fall to be treated as a qualifying distribution,

the price would be taken into account in computing the profits of that person which are chargeable to tax in accordance with the provisions of this Act applicable to Case I or II of Schedule D. "

(2) In that Act--

(a) in section 20(1), in paragraph 1 of Schedule F, for "95(1)(a)" there shall be substituted "95(1A)(a)"; and

(b) in section 234(1) (information relating to distributions), for "95(1)(c)" there shall be substituted "95(1A)(c)".

(3) This paragraph has effect in relation to distributions made on or after 26th November 1996.

Information to be provided about deemed FID

9 (1) In section 246G(1)(d) of that Act (information to be provided about a foreign income dividend), after "carries no entitlement to a tax credit" there shall be inserted "and, in the case of a qualifying distribution to which Schedule 7 to the Finance Act 1997 applies, that it is a foreign income dividend by virtue of paragraph 2(1) of that Schedule".

(2) This paragraph has effect in relation to distributions made on or after 26th November 1996.

Group income

10 (1) In subsection (5A) of section 247 of that Act (under which the group income provisions do not apply to FIDs), at the beginning there shall be inserted the words "Subject to subsections (5B) to (5D) below,"; and after that subsection there shall be inserted the following subsections--

" (5B) Where--

(a) a company falling within subsection (5C) below and resident in the United Kingdom receives a dividend, and

(b) that dividend would, apart from subsection (5D) below, be a distribution to which Schedule 7 to the Finance Act 1997 (special treatment for certain distributions) applies,

the dividend shall be taken to be one in relation to which an election under subsection (1) above may have effect in accordance with this section.

(5C) The receiving company falls within this subsection if--

(a) it directly or indirectly owns all the ordinary share capital of the paying company, or

(b) all the ordinary share capital of the paying company is owned directly or indirectly by a company resident in the United Kingdom which also owns, directly or indirectly, all the ordinary share capital of the receiving company;

and section 838 shall apply for construing the references in this subsection to directly or indirectly owning ordinary share capital of a company.

(5D) If an election under subsection (1) above has effect in relation to such a distribution as is mentioned in subsection (5B) above, that distribution shall be deemed to be a distribution to which Schedule 7 to the Finance Act 1997 does not apply. "

(2) This paragraph has effect in relation to distributions made on or after 26th November 1996.

Distribution accounts

11 (1) In section 468I of that Act (distribution accounts of authorised unit trusts), after subsection (5) there shall be inserted the following subsection--

" (5A) The following amounts shown as available for distribution in the distribution accounts must be shown in those accounts as available for distribution as foreign income dividends--

(a) amounts deriving from qualifying distributions to which Schedule 7 to the Finance Act 1997 (special treatment for certain distributions) applies; and

(b) so much of any amounts not falling within paragraph (a) above as, if shown as available for distribution as dividends, would fall to be treated as distributions to which that Schedule applies. "

(2) This paragraph applies to distribution accounts for any distribution period ending on or after 26th November 1996.

Amendments consequential on paragraph 3 above

12 (1) In section 686 of that Act (application of rate applicable to trusts to income of certain discretionary trusts), paragraph (d) of subsection (2) shall be omitted; and after that subsection there shall be inserted the following subsection--

" (2AA) The rate at which income tax is chargeable on so much of any income arising to trustees in any year of assessment as--

(a) is income to which this section applies, and

(b) is treated in accordance with section 689B as applied in defraying the expenses of the trustees in that year which are properly chargeable to income (or would be so chargeable but for any express provisions of the trust),

shall be the rate at which it would be chargeable on that income apart from this section, instead of the rate applicable to trusts. "

(2) In subsection (2A) of that section, for "subsection (2)(d)" there shall be substituted "subsection (2AA)".

(3) In section 233(1A)(a) of that Act (taxation of non-resident recipients of distributions), for sub-paragraph (ii) there shall be substituted--

" (ii) income to which section 686 applies, " .

(4) This paragraph has effect for the year 1997-98 and subsequent years of assessment and shall be deemed to have had effect for the year 1996-97.

Section 74.

SCHEDULE 8 Enterprise investment scheme: qualifying companies

Introductory

1 Chapter III of Part VII of the Taxes Act 1988 (the enterprise investment scheme)--

(a) in its application in relation to shares issued after 26th November 1996, and

(b) in its application after 26th November 1996 in relation to shares which--

(i) were issued on or after 1st January 1994 but before 27th November 1996, and

(ii) immediately before 27th November 1996 were held by an individual and at that time were shares to which, within the meaning of that Chapter, any relief was attributable,

shall have effect with the following amendments.

Requirements to be satisfied by the company for whose business activity money is raised

2 (1) In subsection (1) of section 289 (conditions for eligibility for relief), immediately before the word "and" at the end of paragraph (b) there shall be inserted the following paragraph--

" (ba) the requirements of subsection (1A) below are satisfied in relation to the company, " .

(2) After that subsection there shall be inserted the following subsections--

" (1A) The requirements of this subsection are satisfied in relation to a qualifying company if throughout the relevant period the active company--

(a) is such a company as is mentioned in section 293(2)(a), or

(b) would be such a company if its purposes were disregarded to the extent that they consist in the carrying on of activities such as are mentioned in section 293(3D)(a) and (b) and (3E)(a), or

(1B) A subsidiary of the qualifying company falls within this subsection if--

(a) apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of its activities, it exists wholly for the purpose of carrying on activities such as are mentioned in section 293(3D)(b); or

(b) it has no profits for the purposes of corporation tax and no part of its business consists in the making of investments.

(1C) In subsection (1A) above "the active company" means the qualifying company or, where the qualifying business activity mentioned in subsection (1) above consists in a subsidiary of that company carrying on or preparing to carry on a qualifying trade, research and development or oil exploration, that subsidiary.

(1D) Subsection (6) of section 293 shall apply in relation to the requirements of subsection (1A) above as it applies in relation to subsection (2) of that section. "

Limit on relief for trading groups which let or operate ships

3 (1) In subsection (6) of section 290A (maximum sum eligible for relief in cases of trades involving the letting or operating of ships), for paragraphs (b) and (c) there shall be substituted " or

(aa) in the case of a company falling within subsection (2)(aa) of that section--

(i) it satisfies the requirements of subsection (6A) below, and

(ii) each of its subsidiaries is a shipping company, " .

(2) After that subsection there shall be inserted the following subsections--

" (6A) A company satisfies the requirements of this subsection if, apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of its activities, the company exists wholly--

(a) for the purpose of carrying on activities such as are mentioned in section 293(3D)(a) and (b); or

(b) for the purpose of carrying on one or more qualifying trades which or each of which is a trade to which subsection (7) below applies; or

(6B) For the purposes of subsection (6) above a subsidiary of a company falling within section 293(2)(aa) is a shipping company if--

(a) that subsidiary satisfies the requirements of subsection (6A) above, or

(b) it would satisfy those requirements if the reference in subsection (6A)(a) above to section 293(3D)(a) and (b) included a reference to section 293(3E)(a), or

(c) it has no profits for the purposes of corporation tax and no part of its business consists in the making of investments. "

Meaning of "qualifying company"

4 (1) In subsection (2) of section 293 (meaning of "qualifying company"), for paragraph (b) there shall be substituted the following paragraph--

" (aa) the parent company of a trading group. "

(2) After subsection (3) of that section there shall be inserted the following subsections--

" (3A) For the purposes of this section a company is the parent company of a trading group if--

(a) it has one or more subsidiaries;

(b) each of its subsidiaries is a qualifying subsidiary of the company; and

(c) the requirements of subsection (3B) below are fulfilled by what would be the business of the company and its subsidiaries if all the activities, taken together, of the company and its subsidiaries were regarded as one business.

(3B) A business fulfils the requirements of this subsection if neither the business nor a substantial part of it consists in, or in either of, the following, that is to say--

(a) activities falling within section 297(2)(a) to (g) but not within subsection (3C) below; and

(b) activities carried on otherwise than in the course of a trade.

(3C) The activities falling within this subsection are--

(a) the receiving of royalties or licence fees in circumstances where the requirements mentioned in paragraphs (a) and (b) of section 297(4) or (5) are satisfied in relation to the company receiving them;

(b) the letting of ships, other than oil rigs or pleasure craft, on charter in circumstances where the requirements mentioned in paragraphs (a) to (d) of section 297(6) are satisfied in relation to the company so letting them.

(3D) Activities of a company or of any of its subsidiaries shall be disregarded for the purposes of subsections (3A) to (3C) above to the extent that they consist in--

(a) the holding of shares in or securities of, or the making of loans to, one or more of the company's subsidiaries; or

(b) the holding and managing of property used by the company or any of its subsidiaries for the purposes of--

(i) research and development from which it is intended that a qualifying trade to be carried on by the company or any of its subsidiaries will be derived; or

(ii) one or more qualifying trades so carried on.

(3E) Activities of a subsidiary of a company shall also be disregarded for the purposes of subsections (3A) to (3C) above to the extent that they consist in--

(a) the making of loans to the company; or

(b) in the case of a mainly trading subsidiary, activities carried on otherwise than in pursuance of its main purpose.

(3F) For the purposes of subsection (3E) above--

(a) "mainly trading subsidiary" means a subsidiary which, apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of its activities, exists wholly for the purpose of carrying on one or more qualifying trades; and

(b) that purpose shall be taken to be its main purpose. "

Consequential amendments of section 297

5 In section 297(3)(c)(i), and in the words after paragraph (d) in section 297(6) (which refer to the activities falling within section 297(2)), for "(2)" there shall be substituted "(2)(a) to (g)".

Consequential repeals of provisions about subsidiaries

6 In section 308 (subsidiaries)--

(a) paragraph (b) of subsection (1), and the word "and" immediately preceding that paragraph, and

(b) paragraphs (a) and (b) of subsection (5),

shall be omitted.

Section 75.

SCHEDULE 9 Venture capital trusts: qualifying holdings

Introductory

1 Schedule 28B to the Taxes Act 1988 (venture capital trusts: meaning of "qualifying holdings") shall be amended as follows.

Requirements as to business of company whose shares etc. are qualifying holdings

2 (1) In paragraph 3 (requirements as to company's business), for paragraphs (b) and (c) of sub-paragraph (2) (company must be of one of the given descriptions) there shall be substituted " or

(aa) the parent company of a trading group. "

(2) After sub-paragraph (5) of that paragraph there shall be inserted the following sub-paragraphs--

" (6) For the purposes of this paragraph a company is the parent company of a trading group if--

(a) it has one or more subsidiaries;

(b) each of its subsidiaries is a qualifying subsidiary of the company; and

(c) the requirements of sub-paragraph (7) below are fulfilled by what would be the business of the company and its qualifying subsidiaries if all the activities, taken together, of the company and its qualifying subsidiaries were regarded as one business.

(7) A business fulfils the requirements of this sub-paragraph if neither the business nor a substantial part of it consists in, or in either of, the following, that is to say--

(a) activities falling within paragraph 4(2)(a) to (f) below but not within sub-paragraph (8) below; and

(b) activities carried on otherwise than in the course of a trade.

(8) The activities falling within this sub-paragraph are--

(a) the receiving of royalties or licence fees in circumstances where the requirements mentioned in paragraphs (a) and (b) of paragraph 4(5) or (6) below are satisfied in relation to the company receiving them;

(b) the letting of ships, other than oil rigs or pleasure craft, on charter in circumstances where the requirements mentioned in paragraphs (a) to (d) of paragraph 4(7) below are satisfied in relation to the company so letting them.

(9) Activities of a company or of any of its qualifying subsidiaries shall be disregarded for the purposes of sub-paragraphs (6) to (8) above to the extent that they consist in--

(a) the holding of shares in or securities of, or the making of loans to, one or more of the company's qualifying subsidiaries; or

(b) the holding and managing of property used by the company or any of its qualifying subsidiaries for the purposes of--

(i) research and development from which it is intended that a qualifying trade to be carried on by the company or any of its qualifying subsidiaries will be derived; or

(ii) one or more qualifying trades so carried on.

(10) Activities of a qualifying subsidiary of a company shall also be disregarded for the purposes of sub-paragraphs (6) to (8) above to the extent that they consist in--

(a) the making of loans to the company; or

(b) in the case of a mainly trading subsidiary, activities carried on in pursuance of its insignificant purposes (within the meaning given by sub-paragraph (11) below).

(11) In sub-paragraph (10) above "mainly trading subsidiary" means a qualifying subsidiary which, apart from purposes ("its insignificant purposes") which are capable of having no significant effect (other than in relation to incidental matters) on the extent of its activities, exists wholly for the purpose of carrying on one or more qualifying trades. "

Consequential amendment of paragraph 4(7)

3 In paragraph 4(7), in the words after paragraph (d) (which contain a reference to activities of a kind falling within paragraph 4(2)) for "(2)" there shall be substituted "(2)(a) to (f)".

Application of investment

4 In paragraph 6 (requirements as to the money raised by the investment in question), after sub-paragraph (2) there shall be inserted the following sub-paragraphs--

" (2A) Where the relevant company is a company falling within paragraph 3(2)(aa) above, the requirements of this paragraph are not satisfied unless--

(a) the trader company is a company in relation to which the requirements of paragraph 3(2)(a) above are satisfied, or

(b) the trader company is a company in relation to which those requirements would be satisfied if its purposes were disregarded to the extent that they consist in the carrying on of activities such as are mentioned in paragraph 3(9)(a) and (b) and (10)(a) above, or

(2B) A qualifying subsidiary of the relevant company falls within this sub-paragraph if--

(b) it has no profits for the purposes of corporation tax and no part of its business consists in the making of investments.

(2C) In sub-paragraph (2A) above "the trader company" means the company (whether the relevant company or a qualifying subsidiary of the relevant company) carrying on, or preparing to carry on, the trade by reference to which the requirements of paragraph 3(3) above are satisfied. "

Qualifying subsidiaries

5 (1) In sub-paragraph (1) of paragraph 10 (meaning of "qualifying subsidiary"), for "each of sub-paragraphs (2) and" there shall be substituted "sub-paragraph".

(2) Sub-paragraph (2) of that paragraph (requirements as to purposes for which subsidiaries exist) shall be omitted.

(3) In each of sub-paragraphs (4) and (5) of that paragraph (which contain references to companies falling within sub-paragraphs (2) and (3)), for "sub-paragraphs (2) and" there shall be substituted "sub-paragraph".

(4) In sub-paragraph (4)(a) of that paragraph, for "those sub-paragraphs" there shall be substituted "that sub-paragraph".

Commencement

6 This Schedule has effect for the purposes of determining whether shares or securities are, as at any time after 26th November 1996, to be regarded as comprised in a company's qualifying holdings.

Section 76.

SCHEDULE 10 Stock lending arrangements and manufactured payments

Part I Stock lending

Approved stock lending arrangements: traders

1 (1) Section 129 of the Taxes Act 1988 (treatment of approved stock lending arrangements when computing the profits of a trade) shall cease to have effect.

(2) Section 129A of, and Schedule 5A to, that Act (interest on cash collateral for approved stock lending arrangements) shall also cease to have effect.

Stock lending fees

2 (1) In subsection (3) of section 129B of the Taxes Act 1988 (stock lending fees under approved stock lending arrangements), for "an approved" there shall be substituted "any".

(2) For subsection (4) of that section (meaning of approved stock lending arrangement) there shall be substituted the following subsection--

" (4) In this section "stock lending arrangement" has the same meaning as in section 263B of the 1992 Act. "

Stock lending agreements under which manufactured payments are not made

3 After section 736A of the Taxes Act 1988 (manufactured dividends and interest) there shall be inserted the following section--

" 736B Deemed manufactured payments in the case of stock lending arrangements

(1) This section applies where--

(a) any interest on securities transferred by the lender under a stock lending arrangement is paid, as a consequence of the arrangement, to a person other than the lender; and

(b) no provision is made for securing that the lender receives payments representative of that interest.

(2) Where this section applies, Schedule 23A and the provisions for the time being contained in any regulations under that Schedule shall apply as if--

(a) the borrower were required under the stock lending arrangement to pay the lender an amount representative of the interest mentioned in subsection (1)(a) above;

(b) a payment were made by the borrower in discharge of that requirement; and

(3) In this section--

"interest" includes dividends; and
"stock lending arrangement" and "securities" have the same meanings as in section 263B of the 1992 Act. "

Manufactured payments in stock lending cases etc.

4 In Schedule 23A to the Taxes Act 1988 (manufactured payments)--

(a) paragraph 6 (unapproved manufactured payments) shall cease to have effect; and

(b) in paragraph 7(3)--

(i) in paragraph (a), the words "except where paragraph 6 above applies, and" shall be omitted;

(ii) paragraph (b) shall be omitted; and

(iii) for the words "3, 4 or 6" there shall be substituted "3 or 4".

Stock lending arrangements: capital gains

5 (1) After section 263A of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (agreements for sale and repurchase of securities) there shall be inserted the following sections--

" 263B Stock lending arrangements

(1) In this section "stock lending arrangement" means so much of any arrangements between two persons ("the borrower" and "the lender") as are arrangements under which--

(a) the lender transfers securities to the borrower otherwise than by way of sale; and

(b) a requirement is imposed on the borrower to transfer those securities back to the lender otherwise than by way of sale.

(2) Subject to the following provisions of this section and section 263C(2), the disposals and acquisitions made in pursuance of any stock lending arrangement shall be disregarded for the purposes of capital gains tax.

(3) Where--

(a) the borrower under any stock lending arrangement disposes of any securities transferred to him under the arrangement,

(b) that disposal is made otherwise than in the discharge of the requirement for the transfer of securities back to the lender, and

(c) that requirement, so far as it relates to the securities disposed of, has been or will be discharged by the transfer of securities other than those transferred to the borrower,

any question relating to the acquisition of the securities disposed of shall be determined (without prejudice to the provisions of Chapter I of Part IV) as if the securities disposed of were the securities with which that requirement (so far as relating to the securities disposed of) has been or will be discharged.

(4) Where, in the case of any stock lending arrangement, it becomes apparent, at any time after the making of the transfer by the lender, that the requirement for the borrower to make a transfer back to the lender will not be complied with--

(a) the lender shall be deemed for the purposes of this Act to have made a disposal at that time of the securities transferred to the borrower;

(b) the borrower shall be deemed to have acquired them at that time; and

(c) subsection (3) above shall have effect in relation to any disposal before that time by the borrower of securities transferred to him by the lender as if the securities deemed to have been acquired by the borrower in accordance with paragraph (b) above were to be used for discharging a requirement to transfer securities back to the lender.

(5) References in this section, in relation to a person to whom securities are transferred, to the transfer of those securities back to another person shall be construed as if the cases where those securities are taken to be transferred back to that other person included any case where securities of the same description as those securities are transferred to that other person either--

(a) in accordance with a requirement to transfer securities of the same description; or

(b) in exercise of a power to substitute securities of the same description for the securities that are required to be transferred back.

(6) For the purposes of this section securities shall not be taken to be of the same description as other securities unless they are in the same quantities, give the same rights against the same persons and are of the same type and nominal value as the other securities.

(7) In this section--

"interest" includes dividends; and
"securities" means United Kingdom equities, United Kingdom securities or overseas securities (within the meaning, in each case, of Schedule 23A to the Taxes Act).

263C Stock lending involving redemption

(1) In section 263B references to the transfer back to a person of securities transferred by him shall be taken to include references to the payment to him, in pursuance of an obligation arising on any person's becoming entitled to receive an amount in respect of the redemption of those securities, of an amount equal to the amount of the entitlement.

(2) Where, in pursuance of any such obligation, the lender under any stock lending arrangement is paid any amount in respect of the redemption of any securities to which the arrangement relates--

(a) that lender shall be deemed for the purposes of this Act to have disposed, for that amount, of the securities in respect of whose redemption it is paid ("the relevant lent securities");

(b) the borrower shall not, in respect of the redemption, be taken for the purposes of this Act to have made any disposal of the relevant lent securities; and

(c) section 263B(3) shall have effect in relation to disposals of any of the relevant lent securities made by the borrower before the redemption as if--

(i) the amount paid to the lender were an amount paid for the acquisition of securities, and

(ii) the securities acquired were to be used by the borrower for discharging a requirement under the arrangement to transfer the relevant lent securities back to the lender.

(3) Expressions used in this section and section 263B have the same meanings in this section as in that section. "

(2) Section 271(9) of that Act (treatment of approved stock lending arrangements) shall cease to have effect.

(3) In section 727(2) of the Taxes Act 1988 (stock lending and the accrued income scheme), for "section 271(9) of the 1992 Act" there shall be substituted "section 263B(2) of the 1992 Act".

Premiums trust funds of Lloyd's members

6 The following provisions of Chapter III of Part II of the [1993 c. 34.] Finance Act 1993 and Chapter V of Part IV of the [1994 c. 9.] Finance Act 1994 (Lloyd's members) shall cease to have effect--

(a) section 174(4) and (5) and section 182(1)(ca)(i) of that Act of 1993 (stock lending arrangements applying to securities in the premiums trust funds of individual members); and

(b) section 222(4) and (5) and section 229(ca)(i) of that Act of 1994 (which makes corresponding provision for the premiums trust funds of corporate members).

Commencement

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