Part I The windfall tax

1 Charge to windfall tax

(1) Every company which, on 2nd July 1997, was benefitting from a windfall from the flotation of an undertaking whose privatisation involved the imposition of economic regulation shall be charged with a tax (to be known as the “windfall tax”) on the amount of that windfall.

(2) Windfall tax shall be charged at the rate of 23 per cent.

(3) Schedule 1 to this Act (which sets out how to quantify the windfall from which a company was benefitting on 2nd July 1997) shall have effect.

2 The companies benefitting from windfalls

(1) For the purposes of this Part a company in existence on 2nd July 1997 was benefitting on that date from a windfall from the flotation of an undertaking whose privatisation involved the imposition of economic regulation if—

(a) that company, or a company of which it was on that date a demerged successor, had before that date been privatised by means of a flotation;

(b) there had, before that flotation, been a statutory transfer of property, rights and liabilities from a public corporation to the floated company or to a company which, at the time of the flotation, was a subsidiary undertaking of the floated company; and

(c) at the time of the flotation, the floated company was carrying on an undertaking whose privatisation involved the imposition of economic regulation.

(2) For the purposes of this Part a company was privatised by means of a flotation if—

(a) an offer of shares in that company was at any time made to the public in the United Kingdom;

(b) the shares which were the subject-matter of the offer were publicly-owned at the time of the offer;

(c) the offer was or included an offer of shares for disposal at a fixed price; and

(d) shares in that company were first admitted to listing on the Official List of the Stock Exchange in pursuance of an application made in connection with the offer.

(3) In this Part references, in relation to a company privatised by means of a flotation, to the time of the company’s flotation are references to the time when shares in the floated company were first admitted to listing on the Official List of the Stock Exchange.

(4) For the purposes of this Part a company in existence on 2nd July 1997 (“the relevant company”) was on that date a demerged successor of a company privatised by means of a flotation if—

(a) after the flotation of the floated company but before 2nd July 1997, there had been a statutory transfer of property, rights and liabilities from the floated company to a company (“the transferee company”) which was a subsidiary undertaking of the floated company at the time of the transfer;

(b) the transferee company was not a subsidiary undertaking of the floated company on 2nd July 1997 but was, on that date, a subsidiary undertaking of the relevant company; and

(c) before 2nd July 1997 shares in the relevant company had been admitted to listing on the Official List of the Stock Exchange in pursuance of an application made in connection with the transaction, or series of transactions, by virtue of which the transferee company ceased to be a subsidiary undertaking of the floated company.

(5) For the purposes of this section a company was, at the time of its flotation, carrying on an undertaking whose privatisation involved the imposition of economic regulation if that company, or a company which at that time was a subsidiary undertaking of that company, was at that time—

(a) a public telecommunications operator, within the meaning of the [1984 c. 12.] Telecommunications Act 1984;

(b) an airport operator in relation to an airport subject to economic regulation under Part IV of the [1986 c. 31.] Airports Act 1986;

(c) the holder of an authorisation granted under section 7 of the [1986 c. 44.] Gas Act 1986, as originally enacted (public gas suppliers);

(d) the holder of an appointment under section 11 of the [1989 c. 15.] Water Act 1989 as the water undertaker for any area of England and Wales;

(e) the holder of a licence granted under section 6 of the [1989 c. 29.] Electricity Act 1989 or Article 10 of the [S.I. 1992/231 (N.I. 1).] Electricity (Northern Ireland) Order 1992 (licences authorising generation, transmission and supply of electricity); or

(f) a company authorised by a licence under section 8 of the [1993 c. 43.] Railways Act 1993 to be the operator of a railway asset.

(6) In subsection (5) above “airport operator” has the [1986 c. 31.] same meaning as in the Airports Act 1986.

3 Administration of the windfall tax etc

(1) The windfall tax shall be under the care and management of the Commissioners of Inland Revenue.

(2) Schedule 2 to this Act (which makes provision with respect to the management and collection of the windfall tax) shall have effect.

(3) Subject to paragraph 19(5) of Schedule 8 to the Taxes Act 1988 (which is the provision about profit-related pay schemes that is amended by section 4 below), nothing in this Act or the Tax Acts shall have the effect of allowing or requiring any amount of windfall tax to be deducted in computing income, profits or losses for any of the purposes of the Tax Acts.

4 The windfall tax and profit-related pay

(1) In paragraph 19 of Schedule 8 to the Taxes Act 1988 (ascertainment of profits for the purposes of profit-related pay schemes)—

(a) in sub-paragraph (5)(b), after “1985” there shall be inserted “or section 3(3) of the Finance (No. 2) Act 1997”; and

(b) after paragraph (ff) of sub-paragraph (6) there shall be inserted the following paragraph—

“(fg) windfall tax charged under Part I of the Finance (No. 2) Act 1997;”.

(2) Subsection (1) above has effect in relation to the preparation, for the purposes of any scheme, of a profit and loss account for any period ending on or after 2nd July 1997.

(3) Subsection (1) above shall not have effect in relation to an existing scheme unless, before the end of the period of six months beginning with the day on which this Act is passed, the scheme is altered, with effect for all periods ending on or after 2nd July 1997, to take account of that subsection.

(4) Provision made, in compliance with paragraph 20(1) of Schedule 8 to the Taxes Act 1988 (consistency in preparation of accounts), by any existing scheme that is altered to take account of subsection (1) above shall not prevent a profit and loss account from being prepared in accordance with the alteration.

(5) An alteration of an existing scheme to take account of subsection (1) above shall be treated as being within section 177B of the Taxes Act 1988 (alterations which are registrable and which, when registered, cannot give rise to the Board’s power of cancellation).

(6) In this section “existing scheme” means a scheme which at any time in the period beginning with 2nd July 1997 and ending immediately before the day on which this Act is passed was a registered scheme under Chapter III of Part V of the Taxes Act 1988.

(7) The preceding provisions of this section shall cease to have effect, in accordance with the notes to Part VI(3) of Schedule 18 to the [1997 c. 16.] Finance Act 1997, as if they were included in the repeal of Schedule 8 to the Taxes Act 1988.

5 Interpretation of Part I

(1) In this Part—

• “company” means a company within the meaning of the [1985 c. 6.] Companies Act 1985 or the [S.I. 1986/1032 (N.I. 6).] Companies (Northern Ireland) Order 1986;

• “fixed price”, in relation to any offer of publicly-owned shares in a company, means—

  (a)

  a price set out in the offer; or

  (b)

  a price subsequently fixed by a Minister of the Crown in a case in which the amount of a first instalment of the price was fixed by the offer;

• “the floated company”, in relation to the privatisation of a company by means of a flotation, means the company so privatised;

• “public corporation”, in relation to a statutory transfer, means any body corporate in existence at the time of the transfer which—

  (a)

  had been established by or in accordance with the provisions of any enactment; and

  (b)

  had a membership consisting of, or including, persons appointed as members by a Minister of the Crown;

• “publicly-owned”, in relation to any shares, means held by—

  (a)

  a Minister of the Crown or the Treasury; or

  (b)

  a nominee for a Minister of the Crown or for the Treasury;

• “share” includes any right to require the issue of a share;

• “statutory transfer” means a transfer under a transferring enactment or by or in accordance with a statutory scheme;

• “subsidiary undertaking”—

  (a)

  except in relation to a company formed and registered in Northern Ireland, means a subsidiary undertaking within the meaning of Part VII of the Companies Act 1985; and

  (b)

  in relation to a company so formed and registered, means a subsidiary undertaking within the meaning of Part VIII of the Companies (Northern Ireland) Order 1986.

(2) In this section—

• “enactment” means an enactment contained in a public general Act or any provision of Northern Ireland legislation;

• “Minister of the Crown” includes a Northern Ireland department or the head of such a department;

• “statutory scheme” means any scheme which—

  (a)

  has been made in exercise of any power or duty conferred or imposed by any enactment;

  (b)

  contains provision for the division of property, rights and liabilities between different persons, or for the transfer of property, rights and liabilities to a company; and

  (c)

  would not have taken effect or come into force but for having been approved by a Minister of the Crown;

• “transferring enactment” means an enactment under which property, rights and liabilities of a person specified in the enactment became, by virtue of that enactment, the property, rights or liabilities of a company nominated under that enactment.

(3) In subsection (2) above the reference, in relation to a scheme, to its having been approved by a Minister of the Crown includes a reference to its having been made by a Minister of the Crown.

(4) The reference in subsection (1) above to Part VII of the [1985 c. 6.] Companies Act 1985 shall be construed, in relation to times in relation to which that Part had effect without the amendments made by the [1989 c. 40.] Companies Act 1989, as if those amendments did have effect in relation to those times.

Part II Value Added Tax and Excise Duties

Value Added Tax

6 Fuel and power for domestic or charity use

(1) In section 2(1A) of the [1994 c. 23.] Value Added Tax Act 1994 (rate of VAT on fuel and power for domestic use etc.), for “8 per cent.” there shall be substituted “5 per cent.”.

(2) This section applies in relation to any supply made on or after 1st September 1997 and any acquisition or importation taking place on or after that date.

Alcoholic liquor duties

7 Rate of duty on spirits

(1) In section 5 of the [1979 c. 4.] Alcoholic Liquor Duties Act 1979 (spirits), for “£18.99” there shall be substituted “£19.56”.

(2) This section shall come into force on 1st January 1998.

8 Rate of duty on beer

(1) In section 36(1) of the Alocoholic Liquor Duties Act 1979 (beer), for “£10.82” there shall be substituted “£11.14”.

(2) This section shall come into force on 1st January 1998.

9 Rates of duty on wine and made-wine

(1) For the Table of rates of duty in Schedule 1 to the Alocoholic Liquor Duties Act 1979 (wine and made-wine) there shall be substituted—

“Table of Rates of Duty on Wine and Made-Wine

Part I Wine or Made-Wine of a Strength not Exceeding 22 Per Cent.

Part II Wine or Made-Wine of a Strength Exceeding 22 Per Cent.

(2) This section shall come into force on 1st January 1998.

10 Rates of duty on cider

(1) In section 62 of the Alcoholic Liquor Duties Act 1979 (cider), for subsection (1A) there shall be substituted—

“(1A) The rates at which the duty shall be charged are—

(a) £37.54 per hectolitre in the case of sparkling cider of a strength exceeding 5.5 per cent.;

(b) £36.74 per hectolitre in the case of cider of a strength exceeding 7.5 per cent. which is not sparkling cider; and

(c) £24.49 per hectolitre in any other the case.”

(2) This section shall come into force on 1st January 1998.

Hydrocarbon oil duties

11 Rates of hydrocarbon oil duties etc

(1) In relation to times before the coming into force of section 7(2) and (3) of the [1997 c. 16.] Finance Act 1997 (which makes amendments specifying separate rates of duty for light oil, for ultra low sulphur diesel and for heavy oil which is not ultra low sulphur diesel), section 6(1) of the [1979 c. 5.] Hydrocarbon Oil Duties Act 1979 (“the 1979 Act”) shall have effect as follows—

(a) for “£0.4168” (rate of duty on light oil) there shall be substituted “£0.4510”; and

(b) for “£0.3686” (rate of duty on heavy oil) there shall be substituted “£0.4028”.

(2) In relation to times after the coming into force of section 7(2) and (3) of the Finance Act 1997, section 6(1A) of the 1979 Act (which is inserted by section 7(3) of the Finance Act 1997) shall have effect as follows—

(a) in paragraph (a) (rate of duty on light oil), for “£0.4168” there shall be substituted “£0.4510”;

(b) in paragraph (b) (rate of duty on ultra low sulphur diesel), for “£0.3586” there shall be substituted “£0.3928”; and

(c) in paragraph (c) (rate of duty on heavy oil that is not ultra low sulphur diesel), for “£0.3686” there shall be substituted “£0.4028”.

(3) In section 11(1) of the 1979 Act (rebate on heavy oil), for “£0.0194” (fuel oil) and “£0.0250” (gas oil) there shall be substituted “£0.0200” and “£0.0258”, respectively.

(4) In section 14(1) of the 1979 Act (rebate on light oil for use as furnace fuel), for “£0.0194” there shall be substituted “£0.0200”.

(5) This section shall be deemed to have come into force at 6 o'clock in the evening of 2nd July 1997.

Tobacco products duty

12 Rates of tobacco products duty

(1) For the Table of rates of duty in Schedule 1 to the [1979 c. 7.] Tobacco Products Duty Act 1979 there shall be substituted—

(2) This section shall come into force on 1st December 1997.

Vehicle excise and registration

13 Rates of vehicle excise duty

(1) In Schedule 1 to the [1994 c. 22.] Vehicle Excise and Registration Act 1994 (annual rates of duty) in paragraph 1(2) (the general rate), for “£145” there shall be substituted “£150”.

(2) For the table in paragraph 9(1) of that Schedule (rates of duty for rigid goods vehicles) there shall be substituted the following table—

(3) For the table in paragraph 11(1) of that Schedule (rates of duty for tractive units) there shall be substituted the following table—

(4) This section applies in relation to licences taken out after 15th November 1997.

14 Payments where vehicle information transmitted electronically

(1) In section 7 of the Vehicle Excise and Registration Act 1994 (issue of vehicle licences), in subsection (3B) (conditions that may be imposed in place of requirement to make a declaration), after “include” there shall be inserted “(a)” and at the end there shall be inserted “; and

(b) a condition requiring such payments as may be specified by the Secretary of State to be made to him in respect of—

(i) steps taken by him for facilitating compliance by any person with any condition falling within paragraph (a); and

(ii) in such circumstances as may be so specified, the processing of applications for vehicle licences where particulars are transmitted in accordance with that paragraph.”

(2) Subsection (1) above applies to applications made on or after the day on which this Act is passed.

(3) In section 22 of the [1994 c. 22.] Vehicle Excise and Registration Act 1994, after subsection (2) (regulations about registration and identification of exempt vehicles, etc.) there shall be inserted the following subsections—

“(2A) Regulations under subsection (2) may, in particular—

(a) require a person applying for a nil licence—

(i) to make such a declaration, and

(ii) to furnish such particulars,

(whether or not with respect to the vehicle for which the licence is to be taken out) as may be prescribed by the regulations, and

(b) provide for any requirement to make such a declaration not to apply in such circumstances as may be so prescribed.

(2B) The circumstances which may be prescribed by the regulations by virtue of subsection (2A)(b) include where a person applying for a nil licence agrees to comply with such conditions as may be specified in relation to him by the Secretary of State.

(2C) The conditions which may be specified by virtue of subsection (2B) include—

(a) a condition that particulars for the time being prescribed by the regulations by virtue of subsection (2A)(a) are furnished by being transmitted to the Secretary of State by such electronic means as he may specify; and

(b) a condition such as is mentioned in section 7(3B)(b) (treating the references to paragraph (a) of subsection (3B) as references to paragraph (a) of this subsection).”

Part III Income tax and corporation tax

Reliefs for interest and private medical insurance

15 Mortgage interest payments

(1) In section 353 of the Taxes Act 1988 (general provision for relief for interest payments), in subsection (1G) (amount of relief for interest on loans to buy land, etc.), for paragraph (a) there shall be substituted—

“(a) in relation to so much of any interest as is eligible for relief under this section by virtue of section 354, means 10 per cent; and”.

(2) In section 369 of that Act (deduction at source of mortgage interest relief), in subsection (1A) (percentage of interest deductible), for paragraph (a) there shall be substituted—

“(a) in relation to so much of any payment of relevant loan interest as is not a payment in relation to which paragraph (b) below has effect, means 10 per cent; and”.

(3) Subsection (1) above has effect in relation to any payment of interest (whenever falling due) made in the year 1998-99 or any subsequent year of assessment; and subsection (2) above has effect in relation to any payment of interest which becomes due in the year 1998-99 or any subsequent year of assessment.

16 Limit on relief for interest for 1998-99

For the year 1998-99 the qualifying maximum defined in section 367(5) of the Taxes Act 1988 (limit on relief for interest on certain loans) shall be £30,000.

17 Withdrawal of relief on medical insurance premiums

(1) Subject to subsections (2) and (3) below, relief under section 54 of the [1989 c. 26.] Finance Act 1989 (medical insurance) shall not be given in respect of any payment where either—

(a) the premium in respect of which the payment is made is a premium under a contract entered into on or after 2nd July 1997; or

(b) the payment is received by the insurer on or after 6th April 1999.

(2) Subsection (1) above shall not affect the giving of relief in respect of a payment received by an insurer before 6th April 1999 where—

(a) the premium in respect of which the payment is made is a premium under a contract entered into on or after 2nd July 1997 but before 1st August 1997;

(b) the contract is one entered into in pursuance of a written proposal received by or on behalf of the insurer before 2nd July 1997;

(c) the contract is not a contract entered into by way of the renewal of an earlier contract; and

(d) if the payment is not itself a payment received before 1st August 1997, the insurer had before 1st August 1997 received an earlier payment in respect of a premium under the contract in question.

(3) Subsection (1) above shall not affect the giving of relief in respect of a payment received by an insurer before 6th April 1999 where—

(a) the premium in respect of which the payment is made is a premium under a contract entered into on or after 2nd July 1997 but before 1st August 1997;

(b) that contract is one entered into by way of the renewal of an earlier contract;

(c) the period of insurance under the earlier contract ended before 2nd July 1997; and

(d) if the payment is not itself a payment received before 1st August 1997, the insurer had before 1st August 1997 received an earlier payment in respect of a premium under the renewal contract.

(4) For the purposes of the preceding provisions of this section a contract shall be taken to have been entered into by way of the renewal of an earlier contract only if—

(a) it was entered into by way of the renewal of a contract which was an eligible contract for the purposes of section 54 of the [1989 c. 26.] Finance Act 1989 when that earlier contract was entered into;

(b) the insurer under the earlier contract and the insurer under the contract by which it has been renewed are the same; and

(c) the period of insurance under the earlier contract ended immediately before the beginning of the period of insurance under the contract by which it has been renewed.

(5) This section has effect for the year 1997-98 and subsequent years of assessment.

Corporation tax

18 Rates for financial year 1997

(1) The rate at which corporation tax is charged for the financial year 1997 shall be, and shall be deemed always to have been, 31 per cent. (and not 33 per cent. as provided by section 58 of the [1997 c. 16.] Finance Act 1997).

(2) The small companies' rate for that year shall be, and shall be deemed always to have been, 21 per cent. (and not 23 per cent. as provided by section 59(a) of that Act).

(3) All such adjustments shall be made, whether by way of discharge or repayment of tax or otherwise, as may be required in consequence of the provisions of this section.

Distributions, tax credits etc on and after 2nd July 1997

19 Pension funds no longer entitled to payment of tax credits

(1) In section 231 of the Taxes Act 1988 (tax credits for certain recipients of qualifying distributions)—

(a) in subsection (2) (payment of tax credits to companies resident in the United Kingdom) for “Subject to section 241(5)” there shall be substituted “Subject to sections 231A and 241(5)”; and

(b) at the beginning of subsection (3) (claims by other persons to set tax credits against income tax liability and to receive payment of any excess of tax credit over that liability) there shall be inserted “Subject to section 231A,”.

(2) After section 231 of the Taxes Act 1988 there shall be inserted—

“231A Restrictions on the use of tax credits by pension funds

(1) No claim shall be made under section 231(2) for payment of the amount of a tax credit if or to the extent that the qualifying distribution to which the credit relates is income of a pension fund.

(2) In the case of any pension fund, for any year of assessment the aggregate amount of the tax credits in respect of which claims are made under section 231(3) must not exceed the aggregate amount of the tax credits in respect of the qualifying distributions comprised in the income of the pension fund and brought into charge to tax.

(3) Accordingly, no payment shall be made under section 231(3) in respect of so much of the excess there mentioned as is referable to a tax credit in respect of a qualifying distribution if or to the extent that the qualifying distribution is income of a pension fund.

(4) In this section—

• “income”, in relation to a pension fund, means income derived from investments or deposits held for the purposes of the pension fund;

• “pension fund” means any scheme, fund or other arrangements established and maintained (whether in the United Kingdom or elsewhere) for the purpose of providing pensions, retirement annuities, allowances, lump sums, gratuities or other superannuation benefits (with or without subsidiary benefits);

• “scheme” includes any deed, agreement or series of agreements.

(5) For convenience of identification only, the schemes, funds or other arrangements which are “pension funds” for the purposes of this section by virtue of the definition of that expression in subsection (4) above include, in particular, those whose income is, in whole or in part, exempt, or eligible for exemption, from tax under or by virtue of any of the following provisions—

(a) section 512(2);

(b) section 592(2);

(c) section 608(2)(a);

(d) section 613(4);

(e) section 614(2), (3), (4) or (5);

(f) section 620(6);

(g) section 643(2).

(6) The preceding provisions of this section do not have effect in relation to—

(a) claims made in respect of tax credits to which entitlement arises by virtue of section 232(3); or

(b) claims made by virtue of arrangements having effect under section 788.”

(3) This section has effect in relation to qualifying distributions made on or after 2nd July 1997.

20 Losses etc not to be set against surplus franked investment income

(1) No claim shall be made under section 242 or 243 of the Taxes Act 1988 (set off of losses etc against surplus of franked investment income) for any accounting period beginning on or after 2nd July 1997; and section 244(1) of that Act shall cease to have effect accordingly.

(2) Sections 242(5) and (6) and 243(4) of the Taxes Act 1988 (restoration of loss etc in later accounting period for which there is a surplus of franked payments) shall not have effect where the later accounting period mentioned in section 242(5)(b) begins on or after 2nd July 1997.

(3) No amount shall be deducted under paragraph (a), or carried forward and deducted under paragraph (b), of section 244(2) (deduction of tax credit paid from ACT subsequently available for set off or surrender) for any accounting period beginning on or after 2nd July 1997.

(4) For the purposes of sections 242 and 243 of the Taxes Act 1988, if—

(a) a company has a surplus of franked investment income for an accounting period beginning before 2nd July 1997 and ending on or after that date, and

(b) that surplus exceeds the surplus of franked investment income which the company would have had for that accounting period had it ended on 1st July 1997,

the surplus shall be treated as reduced by the excess.

(5) Sections 242 to 244 of the Taxes Act 1988 cease to have effect in consequence of, and in accordance with, the foregoing provisions of this section.

(6) In section 237(4) of the Taxes Act 1988 (bonus issue and related tax credit not to be franked investment income for the purposes of sections 241 and 244) for “sections 241 and 244” there shall be substituted “section 241”.

(7) Subsection (6) above has effect in accordance with subsection (5) above.

21 Estates in administration: distributions to which s.233(1) applies

(1) Section 699A of the Taxes Act 1988 (untaxed sums comprised in the income of the estate) shall be amended as follows.

(2) In subsection (1) (which defines “a relevant amount” by reference to an amount which is or would be paid out of sums to which paragraphs (a) and (b) apply) after paragraph (b) there shall be inserted—

“or out of any sums included in the aggregate income of the estate of the deceased which fall within subsection (1A) below.”

(3) After subsection (1) there shall be inserted—

“(1A) A sum falls within this subsection if it is a sum in respect of a distribution to which section 233(1) applies.

(1B) Any reference in this Part to a sum to which subsection (1)(a) and (b) above applies includes a reference to a sum falling within subsection (1A) above which is included in the aggregate income of the estate of the deceased.”

(4) In subsection (4) (rate at which sums are assumed to bear tax) after paragraph (b) there shall be inserted “; and

(c) in the case of sums falling within subsection (1A) above, at the lower rate.”

(5) This section has effect in relation to amounts which a person is deemed by virtue of Part XVI of the Taxes Act 1988 (estates in the course of administration) to receive, or to have a right to receive, on or after 2nd July 1997.

22 Lloyd’s underwriters

(1) In section 171 of the [1993 c. 34.] Finance Act 1993 (taxation of profits, and allowance of losses, of non-corporate members) after subsection (2A) there shall be inserted—

“(2B) Section 231(1) of the Taxes Act 1988 (entitlement to tax credit) shall not apply where the distribution there mentioned is a distribution in respect of any asset of a member’s premiums trust fund.”

(2) In section 219 of the [1994 c. 9.] Finance Act 1994 (taxation of profits of corporate members) at the beginning of subsection (3) there shall be inserted “Subject to subsection (4A) below,”.

(3) In subsection (4) of that section (subsection (2) applies in relation to distributions and associated tax credits notwithstanding section 11(2)(a) or 208 of the Taxes Act 1988)—

(a) for “dividends or other distributions of a company resident in the United Kingdom” there shall be substituted “UK distributions”; and

(b) the words “(and any associated tax credits)” shall cease to have effect.

(4) After that subsection there shall be inserted—

“(4A) Notwithstanding anything in section 11(2)(a) or 208 of the Taxes Act 1988, UK distributions in respect of any assets of a corporate member which are mentioned in paragraph (a) or (b) of subsection (3) above—

(a) shall be taken into account in computing profits of the corporate member for tax purposes; and

(b) shall be so taken into account under Case I of Schedule D (and not under any other Schedule or any other Case of Schedule D).

(4B) Section 231(1) of the Taxes Act 1988 (entitlement to tax credit) shall not apply where the distribution there mentioned is a distribution in respect of any asset of a corporate member’s premiums trust fund.

(4C) In this section “UK distributions” means dividends or other distributions of a company resident in the United Kingdom.”

(5) In section 20(1) of the Taxes Act 1988, as amended by section 24(10) below, in paragraph 2 of Schedule F (distribution in respect of which a person is entitled to a tax credit treated for the purposes of the Tax Acts, other than section 95(1), as representing income equal to the aggregate of the distribution and the tax credit) after “95(1)” there shall be inserted “of this Act and section 219(4A) of the Finance Act 1994”.

(6) In section 231(1) of the Taxes Act 1988 (recipient of distribution made by UK resident company entitled to tax credit subject to sections 247 and 441A) after “441A,” there shall be inserted “section 171(2B) of the Finance Act 1993 and section 219(4B) of the Finance Act 1994,”.

(7) This section has effect in relation to distributions made on or after 2nd July 1997.

23 Insurance companies and friendly societies

Schedule 3 to this Act (which makes provision in relation to insurance companies and friendly societies) shall have effect.

Distributions, tax credits etc: avoidance

24 Taxation of dealers in respect of distributions etc

(1) Section 95 of the Taxes Act 1988 (taxation of dealers in respect of certain qualifying distributions etc) shall be amended in accordance with subsections (2) to (9) below.

(2) For subsection (1) (qualifying distributions to which Schedule 7 to the [1997 c. 16.] Finance Act 1997 applies which are received by a dealer, and payments made by a dealer which are representative of such distributions, to be taken into account in computing profits of the dealer) there shall be substituted—

“(1) Where a dealer—

(a) receives a relevant distribution, that is to say—

(i) any distribution which is made by a company resident in the United Kingdom (“a UK distribution”), or

(ii) any payment which is representative of a UK distribution, or

(b) makes any payment which is representative of a UK distribution,

the distribution or, as the case may be, the payment shall be taken into account in computing the profits of the dealer which are chargeable to tax in accordance with the provisions of this Act applicable to Case I or II of Schedule D.”

(3) In subsection (1A) (provisions consequential on subsection (1) where dealer receives qualifying distribution to which Schedule 7 to the Finance Act 1997 applies)—

(a) in the words preceding paragraph (a), for “qualifying distribution to which Schedule 7 to the Finance Act 1997 applies” there shall be substituted “relevant distribution”;

(b) paragraph (b) (distribution not to be treated for the purposes of sections 246D and 246F as a FID received by the dealer) shall cease to have effect;

(c) in paragraph (c), for “sections 208 and 234(1)” there shall be substituted “section 208”;

(d) paragraph (d) (which disapplies paragraph 2A(2) of Schedule 23A to the Taxes Act 1988 which is repealed by this section) shall be omitted; and

(e) the following paragraph shall be inserted at the appropriate place—

“(e) section 11(2)(a) shall have effect in relation to that distribution with the omission of the words “(but so that this paragraph shall not include distributions received from companies resident in the United Kingdom)”.”

(4) Subsection (1B) (which relates to the application of section 732 and which becomes unnecessary in consequence of the amendments made to that section by section 26 below) shall cease to have effect.

(5) In subsection (2) (meaning of “dealer”)—

(a) the word “qualifying” shall be omitted in both places where it occurs; and

(b) in paragraph (a), after “shares” there shall be inserted “or stock”.

(6) After subsection (2) there shall be inserted—

“(2A) The reference in subsection (2) above to the profits of a person does not include the profits of that person in respect of insurance business or any category of insurance business.”

(7) Subsection (4) (which makes special provision in relation to preference shares) shall cease to have effect.