PART V continued
(1) After section 91B of the Taxes Act 1988 there shall be inserted the following section—
Where—
(a) a person carrying on a trade incurs expenditure on mineral exploration and access as defined in section 121(1) of the [1990 c. 1.] Capital Allowances Act 1990 in an area or group of sands in which the presence of mineral deposits in commercial quantities has already been established, and
(b) if the presence in that area or group of sands of mineral deposits in commercial quantities had not already been established, that expenditure would not have been allowed to be deducted in computing the profits or gains of the trade for the purposes of tax,
that expenditure shall not be so deducted.”
(2) In section 115 of the Capital Allowances Act 1990 (certain expenditure on purchased assets treated as expenditure on mineral exploration and access if attributable to previous trader’s expenditure on mineral exploration and access), after subsection (2) there shall be inserted the following subsection—
“(2A) Expenditure incurred by the previous trader which is or has been deducted in computing, for the purposes of tax, the profits or gains of a trade carried on by him shall not be treated as expenditure on mineral exploration and access for the purposes of subsection (1)(b).”
(3) Subsection (1) above applies to expenditure which—
(a) is incurred on or after 26th November 1996; but
(b) is not incurred before 26th November 1997 in pursuance of a contract entered into before 26th November 1996.
(4) The reference in subsection (3) above to expenditure incurred in pursuance of a contract entered into before 26th November 1996 does not, in the case of a contract varied on or after that date, include a reference to so much of any expenditure of the sort described in section 91C of the Taxes Act 1988 as exceeds the amount of expenditure of that sort that would have been incurred if that contract had not been so varied.
(5) Subsection (2) above applies in relation to claims made on or after 26th November 1996.
(1) In section 437 of the Taxes Act 1988 (extent to which payments in respect of new annuities are to be treated as charges on income), for subsections (1A) and (1B) there shall be substituted the following subsection—
“(1A) In the computation, otherwise than in accordance with the provisions applicable to Case I of Schedule D, of the profits for any accounting period of a company’s life assurance business, new annuities paid by the company in that period shall be brought into account by treating an amount equal to the income limit for that period as a sum disbursed as expenses of management of the company for that period.”
(2) In subsection (1C) of that section (interpretation of section), after “this section” there shall be inserted “(but subject to subsections (1CA) to (1CD) below)”; and after that subsection there shall be inserted the following subsections—
“(1CA) Where a new annuity (“the actual annuity”) is a steep-reduction annuity, the income limit for an accounting period of the company paying the annuity shall be computed for the purposes of this section as if—
(a) the contract providing for the actual annuity provided instead for the annuities identified by subsections (1CB) and (1CC) below; and
(b) the consideration for each of those annuities were to be determined by the making of a just and reasonable apportionment of the consideration for the actual annuity.
(1CB) The annuities mentioned in subsection (1CA)(a) above are—
(a) an annuity the payments in respect of which are confined to the payments in respect of the actual annuity that fall to be made before the earliest time for the making in respect of the actual annuity of a reduced payment such as is mentioned in section 437A(1)(c); and
(b) subject to subsection (1CC) below, an annuity the payments in respect of which are all the payments in respect of the actual annuity other than those mentioned in paragraph (a) above.
(1CC) Where an annuity identified by paragraph (b) of subsection (1CB) above (“the later annuity”) would itself be a steep-reduction annuity, the annuities mentioned in subsection (1CA)(a) above—
(a) shall not include the later annuity; but
(b) shall include, instead, the annuities which would be identified by subsection (1CB) above (with as many further applications of this subsection as may be necessary for securing that none of the annuities mentioned in subsection (1CA)(a) above is a steep-reduction annuity) if references in that subsection to the actual annuity were references to the later annuity.
(1CD) Subsections (1CA) to (1CC) above shall be construed in accordance with section 437A.”
(3) After that section there shall be inserted the following section—
(1) For the purposes of section 437 an annuity is a steep-reduction annuity if—
(a) the amount of any payment in respect of the annuity (but not the term of the annuity) depends on any contingency other than the duration of a human life or lives;
(b) the annuitant is entitled in respect of the annuity to payments of different amounts at different times; and
(c) those payments include a payment (“a reduced payment”) of an amount which is substantially smaller than the amount of at least one of the earlier payments in respect of that annuity to which the annuitant is entitled.
(2) Where there are different intervals between payments to which an annuitant is entitled in respect of any annuity, the question whether or not the conditions in subsection (1)(b) and (c) above are satisfied in the case of that annuity shall be determined by assuming—
(a) that the annuitant’s entitlement, after the first payment, to payments in respect of that annuity is an entitlement to payments at yearly intervals on the anniversary of the first payment; and
(b) that the amount to which the annuitant is assumed to be entitled on each such anniversary is equal to the annuitant’s assumed entitlement for the year ending with that anniversary.
(3) For the purposes of subsection (2) above an annuitant’s assumed entitlement for any year shall be determined as follows—
(a) the annuitant’s entitlement to each payment in respect of the annuity shall be taken to accrue at a constant rate during the interval between the previous payment and that payment; and
(b) his assumed entitlement for any year shall be taken to be equal to the aggregate of the amounts which, in accordance with paragraph (a) above, are treated as accruing in that year.
(4) In the case of an annuity to which subsection (2) above applies, the reference in section 437(1CB)(a) to the making of a reduced payment shall be construed as if it were a reference to the making of a payment in respect of that annuity which (applying subsection (3)(a) above) is taken to accrue at a rate that is substantially less than the rate at which at least one of the earlier payments in respect of that annuity is taken to accrue.
(5) Where—
(a) any question arises for the purposes of this section whether the amount of any payment in respect of any annuity—
(i) is substantially smaller than the amount of, or
(ii) accrues at a rate substantially less than,
an earlier payment in respect of that annuity, and
(b) the annuitant or, as the case may be, every annuitant is an individual who is beneficially entitled to all the rights conferred on him as such an annuitant,
that question shall be determined without regard to so much of the difference between the amounts or rates as is referable to a reduction falling to be made as a result of the occurrence of a death.
(6) Where the amount of any one or more of the payments to which an annuitant is entitled in respect of an annuity depends on any contingency, his entitlement to payments in respect of that annuity shall be determined for the purposes of section 437(1CA) to (1CC) and this section according to whatever (applying any relevant actuarial principles) is the most likely outcome in relation to that contingency.
(7) Where any agreement or arrangement has effect for varying the rights of an annuitant in relation to a payment in respect of any annuity, that payment shall be taken, for the purposes of section 437(1CA) to (1CC) and this section, to be a payment of the amount to which the annuitant is entitled in accordance with that agreement or arrangement.
(8) References in this section to a contingency include references to a contingency that consists wholly or partly in the exercise by any person of any option.”
(4) Section 434B(2) of that Act (treatment of annuities paid by an insurance company) shall cease to have effect and accordingly—
(a) in section 76(2A)(b) of that Act (limit on expenses of management of insurance companies), the word “and” shall be inserted at the end of sub-paragraph (ii), and sub-paragraph (iv) (together with the word “and” immediately preceding it) shall be omitted; and
(b) in section 337(2B) of that Act, for “the references in sections 338(2) and 434B(2)” there shall be substituted “the reference in section 338(2)”.
(5) In paragraph 9B of Schedule 19AC to that Act (subsection (3) inserted in section 434B in relation to overseas life insurance companies), for the words from the beginning to “An” there shall be substituted—
“9B The following section shall be treated as inserted after section 434A—
An”.”
(6) In sub-paragraph (1) of paragraph 16 of Schedule 7 to the [1991 c. 31.] Finance Act 1991 (which makes transitional provision for annuities under contracts made in accounting periods beginning before 1st January 1992), for the words before paragraph (a) there shall be substituted—
“(1) In the computation, otherwise than in accordance with the provisions applicable to Case I of Schedule D, of the profits for any accounting period of an insurance company’s life assurance business, an amount equal to the lesser of the following amounts shall be treated (if it is not nil) as a sum disbursed as expenses of management of the company for that period, that is to say—”.
(7) Subsections (1) and (4) to (6) above have effect in relation to accounting periods beginning after 5th March 1997.
(8) Subsections (2) and (3) above have effect in relation to accounting periods ending on or after 5th March 1997 but do not affect the computation of the capital elements contained in any annuity payments made before that date.
In section 410 of the Taxes Act 1988 (group relief not available in certain cases including those where a person, either alone or with connected persons, controls 75% or more of the voting rights in a company owned by a consortium), in the definition of “connected persons” in subsection (5) after “in accordance with section 839” there shall be inserted “but as if subsection (7) of that section (persons acting together to control a company are connected) were omitted”.
Schedule 7 to this Act (which makes provision for the treatment of distributions arising on the purchase etc. by a company of its own shares and for cases where a distribution has a connection with a transaction in securities) shall have effect.
(1) In subsection (5) of section 236 of the Taxes Act 1988 (meaning of “relevant profits”)—
(a) in paragraph (a), after “franked investment income” there shall be inserted “and foreign income dividends”; and
(b) in paragraph (b), for “and franked investment income” there shall be substituted “, franked investment income and foreign income dividends”.
(2) After subsection (7) of that section there shall be inserted the following subsection—
“(8) In this section “foreign income dividends” shall be construed in accordance with Chapter VA of Part VI.”
(3) This section has effect (subject to subsection (4) below) for the purposes of computing the relevant profits (within the meaning of section 236 of the Taxes Act 1988) arising to a company in any period falling wholly or partly after 7th October 1996.
(4) No foreign income dividend paid before 8th October 1996 shall be included or, as the case may be, excluded by virtue of this section from any such profits as are mentioned in subsection (3) above.
Section 242 of the Taxes Act 1988 (set-off of losses against surplus franked investment income) shall have effect, and be deemed always to have had effect, as if at the end of paragraph (c) of subsection (6) (power to carry set-off forward) there were inserted “and
(d) in relation to relief given in respect of amounts available to be set against profits under section 83 of the [1996 c. 8.] Finance Act 1996 or paragraph 4 of Schedule 11 to that Act or under section 131(4) of the [1993 c. 34.] Finance Act 1993 (which are provisions relating to deficits on loan relationships, foreign exchange losses and losses on certain financial instruments);”.
(1) In section 246D(5) of the Taxes Act 1988 (section 233(1) and (1A) of that Act not to apply to FIDs paid to individuals, personal representatives or certain trustees), after “representatives” there shall be inserted “, a foreign income dividend paid to the trustees of a unit trust scheme to which section 469 applies”.
(2) This section has effect in relation to distributions made on or after 26th November 1996.
(1) In section 709 of the Taxes Act 1988 (meaning of “tax advantage” etc. in Chapter I of Part XVII of that Act), after subsection (2) there shall be inserted the following subsection—
“(2A) In this Chapter references to a relief and to a repayment of tax include, respectively, references to a tax credit and to a payment of any amount in respect of a tax credit.”
(2) This section—
(a) has effect for the purposes of the application of provisions of Chapter I of Part XVII of the Taxes Act 1988 in relation to chargeable periods ending at any time, including times before the passing of this Act, but
(b) without prejudice to the construction of that Chapter apart from this section, does not apply in the case of a tax credit in respect of a distribution made before 8th October 1996.
Schedule 8 to this Act (which amends the provisions in Chapter III of Part VII of the Taxes Act 1988 about the companies which are qualifying companies for the purposes of the enterprise investment scheme and makes related amendments to that Chapter) shall have effect.
(1) Section 842AA of the Taxes Act 1988 (venture capital trusts) shall have effect, and be deemed always to have had effect, with the following subsections inserted after subsection (5)—
“(5A) Subsection (5B) below applies where—
(a) there has been an issue of ordinary share capital of a company (“the first issue”),
(b) an approval of that company for the purposes of this section has taken effect on or before the day of the making of the first issue, and
(c) a further issue of ordinary share capital of that company has been made since the making of the first issue.
(5B) Where this subsection applies, the use to which the money raised by the further issue is put, and the use of any money deriving from that use, shall be disregarded in determining whether any of the conditions specified in subsection (2)(b) and (c) above are, have been or will be fulfilled in relation to—
(a) the accounting period in which the further issue is made; or
(b) any later accounting period ending no more than three years after the making of the further issue.”
(2) Subsection (6) of that section (withdrawal of approval) shall have effect, and be deemed always to have had effect, with the insertion of the following paragraph before the word “or” at the end of paragraph (c)—
“(ca) in a case where the use of any money falls to be disregarded for any accounting period in accordance with subsection (5B) above—
(i) that the first accounting period of the company for which the use of that money will not be disregarded will be a period in relation to which a condition specified in subsection (2) above will fail to be fulfilled; or
(ii) that the company has not fulfilled such other conditions as may be prescribed by regulations made by the Board in relation to, or to any part of, an accounting period for which the use of that money falls to be disregarded;”.
(3) Schedule 9 to this Act (which amends the provisions of Schedule 28B to the Taxes Act 1988 defining “qualifying holdings”) shall have effect.
Schedule 10 to this Act (which makes provision for the treatment for the purposes of income tax, corporation tax and capital gains tax of stock lending arrangements and manufactured payments) shall have effect.
(1) After subsection (2A) of section 731 of the Taxes Act 1988 (disapplication of bond washing rules where buyer has to make manufactured payment) there shall be inserted the following subsections—
“(2B) Subject to subsection (2E) below, where there is a repo agreement in relation to any securities—
(a) neither—
(i) the purchase of the securities by the interim holder from the original owner, nor
(ii) the repurchase of the securities by the original owner,
shall be a purchase of those securities for the purposes of subsection (2) above; and
(b) neither—
(i) the sale of the securities by the original owner to the interim holder, nor
(ii) the sale by the interim holder under which the securities are bought back by the original owner,
shall be taken for the purposes of subsection (2) above to be a subsequent sale of securities previously purchased by the seller.
(2C) Accordingly, where there is a repo agreement, the securities repurchased by the original owner shall be treated for the purposes of subsection (2) above (to the extent that that would not otherwise be the case) as if they were the same as, and were purchased by the original owner at the same time as, the securities sold by him to the interim holder.
(2D) For the purposes of subsections (2B) and (2C) above there is a repo agreement in relation to any securities if there is an agreement in pursuance of which a person (“the original owner”) sells the securities to another (“the interim holder”) and, in pursuance of that agreement or a related agreement, the original owner—
(a) is required to buy back the securities;
(b) will be required to buy them back on the exercise by the interim holder of an option conferred by the agreement or related agreement; or
(c) is entitled, in pursuance of any obligation arising on a person’s becoming entitled to receive an amount in respect of the redemption of those securities, to receive from the interim holder an amount equal to the amount of the entitlement.
(2E) Subsections (2B) and (2C) above do not apply if—
(a) the agreement or agreements under which the arrangements are made for the sale and repurchase of the securities are not such as would be entered into by persons dealing with each other at arm’s length; or
(b) any of the benefits or risks arising from fluctuations, before the securities are repurchased, in the market value of the securities in question accrues to or falls on the interim holder.
(2F) Section 730B applies for the purposes of subsections (2B) to (2E) above as it applies for the purposes of section 730A.”
(2) This section applies in relation to cases in which the interest becomes payable on or after the day on which this Act is passed.
(1) In section 349(3) of the Taxes Act 1988 (cases where yearly interest may be paid without deduction of tax), after paragraph (b) there shall be inserted the following paragraph—
“(ba) to interest paid on deposits with the National Savings Bank; or”.
(2) This section applies to interest whenever paid (including interest paid before the day on which this Act is passed).
(1) In this section “relevant excepted benefit” means so much of any qualifying payment under a relevant life insurance policy as—
(a) is a sum falling, but for this section, to be treated for the purposes of the Tax Acts as an amount of interest or as an annual payment;
(b) is not a sum paid or falling to be paid by virtue of provisions of that policy which, taken alone, would constitute a different sort of policy; and
(c) does not represent interest for late payment on—
(i) any other part of that qualifying payment, or
(ii) the whole or any part of any other qualifying payment under the policy.
(2) For the purposes of subsection (1)(c) above, interest on the whole or any part of a qualifying payment under a policy (“the relevant amount”) is interest for late payment if it is interest for a period beginning on or after the date of the occurrence of the event or contingency as a result of the occurrence of which the relevant amount falls to be paid.
(3) The Tax Acts shall have effect, and be deemed always to have had effect, as if—
(a) a relevant excepted benefit were neither an amount of interest nor an annual payment;
(b) the payments which are relevant capital payments for the purposes of section 541 of the Taxes Act 1988 (computation of gain in the case of life policies) included the payment of a relevant excepted benefit;
(c) on the payment of a relevant excepted benefit there were a surrender—
(i) except in a case falling within sub-paragraph (ii) below, of a part of the rights conferred by the policy in question; and
(ii) in a case where the payment of the benefit (or of that benefit together with any interest falling within subsection (1)(c) above) comprises the whole of the last payment to be made under the policy, of all of the remaining rights so conferred;
and
(d) the value of the part or rights treated as surrendered on the payment of a relevant excepted benefit were equal to the amount of the payment.
(4) For the purposes of this section a qualifying payment under a relevant life insurance policy is any amount which has been or is to be paid under that policy by the insurer.
(5) In this section “relevant life insurance policy” means any contract of insurance (whenever effected) which—
(a) is of a description applying to contracts the effecting and carrying out of which falls within Class I or III of the classes of long term business specified in Schedule 1 to the [1982 c. 50.] Insurance Companies Act 1982; and
(b) is neither—
(i) an annuity contract, nor
(ii) a contract effected in the course of a company’s pension business (within the meaning given by section 431B of the Taxes Act 1988 or the corresponding enactment in force when the contract was effected).
(6) In subsection (1)(b) above, the reference to a different sort of policy is a reference to any contract of a description applying to contracts the effecting and carrying out of which falls within any class of business specified in Schedule 1 or 2 to the [1982 c. 50.] Insurance Companies Act 1982 other than the Classes I and III specified in Schedule 1.
(7) This section shall be deemed to have had effect, for the purposes of the cases to which the enactments applied, in relation to enactments directly or indirectly re-enacted in the Tax Acts, as it has effect in relation to those Acts.
(8) For the purposes of subsection (7) above the reference in subsection (3)(b) above to section 541 of the Taxes Act 1988 shall be taken to include a reference to any corresponding provision contained in the enactments directly or indirectly re-enacted in the Tax Acts.
(1) After section 127 of the Taxes Act 1988 there shall be inserted the following section—
Schedule 5AA (which makes provision for the taxation of the profits and gains arising from transactions in futures and options that are designed to produce guaranteed returns) shall have effect.”
(2) After Schedule 5 to that Act there shall be inserted, as Schedule 5AA to that Act, the Schedule set out in Schedule 11 to this Act.
(3) In section 128 of that Act (profits arising from commodity and financial futures etc. to be taxed only under the provisions relating to chargeable gains)—
(a) after the word “which”, where it first occurs, there shall be inserted “is not chargeable to tax in accordance with Schedule 5AA and”; and
(b) for “that Schedule” there shall be substituted “Schedule D”.
(4) In section 399 of that Act (withdrawal of loss relief for losses from dealing in futures etc.), after subsection (1) there shall be inserted the following subsection—
“(1A) Subsection (1) above does not apply to a loss arising from a transaction to which Schedule 5AA applies.”
(5) In section 469(9) of that Act (sections 686 and 687 disapplied in relation to unauthorised unit trusts), at the end there shall inserted “except as respects income to which section 686 is treated as applying by virtue of paragraph 7 of Schedule 5AA.”
(6) Subject to subsection (7) below, this section and Schedule 11 to this Act shall have effect, and be deemed to have had effect, for chargeable periods ending on or after 5th March 1997 in relation to profits and gains realised, and losses sustained, on or after that date.
(7) In relation to profits and gains realised, and losses sustained, on or after 5th March 1997, paragraph 1(6) and (7) of the Schedule 5AA to the Taxes Act 1988 (rule against double counting) inserted by this section shall be deemed to have had effect for chargeable periods beginning before that date (as well as for those beginning on or after that date).
(1) After section 739(1) of the Taxes Act 1988 (prevention of avoidance of income tax by means of transfer of assets with or without associated operations) there shall be inserted the following subsection—
“(1A) Nothing in subsection (1) above shall be taken to imply that the provisions of subsections (2) and (3) below apply only if—
(a) the individual in question was ordinarily resident in the United Kingdom at the time when the transfer was made; or
(b) the avoiding of liability to income tax is the purpose, or one of the purposes, for which the transfer was effected.”
(2) This section applies irrespective of when the transfer or associated operations took place, but applies only to income arising on or after 26th November 1996.
Schedule 12 to this Act (which makes provision about arrangements such as are treated for certain accounting purposes as finance leases or loans) shall have effect.
(1) Chapter II of Part IV of the [1996 c. 8.] Finance Act 1996 (loan relationships) shall be amended as follows.
(2) In subsection (5) of section 90 (changes in accounting methods), before the word “and” at the end of paragraph (a) there shall be inserted the following paragraph—
“(aa) the relationship is one to which the company in question is still a party at the end of the period or part of a period for which the accruals basis of accounting is used,”.
(3) In that subsection for the words after paragraph (b) there shall be substituted—
“that amount shall be computed using for the closing value as at the end of that period or part of a period the amount specified in subsection (6) below.”
(4) For subsection (6) of that section (amounts used for computations under subsection (5)) there shall be substituted the following subsection—
“(6) That amount is—
(a) in a case to which subsection (3) above applies, the amount taken for the purposes of subsection (3)(a)(ii) above to be the closing value as at the end of the period for which the accruals basis of accounting is used; and
(b) in a case to which subsection (2) above applies, the amount which, without the making of the assumptions mentioned in subsection (4) above, would be taken to be the closing value as at the end of the part of the period for which that basis is used.”
(5) Subsections (2) to (4) above apply where the period or part of a period for which the superseded accounting method is or was used is a period ending on or after 14th November 1996.
(6) Schedule 13 to this Act (which contains amendments of the transitional provisions in Schedule 15 to the Finance Act 1996) shall have effect.
Schedule 14 to this Act (which reduces the rate at which expenditure on long-life assets is written down for the purposes of writing-down allowances) shall have effect.
Schedule 15 to this Act (which makes provision in relation to capital allowances for cases where persons have income chargeable to tax under Schedule A or make lettings of furnished holiday accommodation in the United Kingdom) shall have effect.
Schedule 16 to this Act (which makes amendments relating to the provisions of the [1990 c. 1.] Capital Allowances Act 1990 about fixtures) shall have effect.
Schedule 17 to this Act (which amends Chapter IA of Part V of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992) shall have effect.