Office of Public Sector Information
PART 7 continued
Schedule 26 to this Act contains provisions supplementing—
(a) section 148(3) (meaning of “permanent establishment”: not to include independent agent), and
(b) section 151(2)(c) (limit on income tax chargeable on non-resident company: income arising from transactions carried out through independent agent),
as regards transactions carried out through a broker, investment manager or Lloyd’s agent.
(1) In the following provisions (which relate only to companies) for “branch or agency” or “branches or agencies”, wherever occurring, substitute “permanent establishment” or “permanent establishments”.
The provisions are—
(a) in the Taxes Act 1988, sections 115(4)(b), 338B(2)(d) and (4)(b), 349B(2)(b) and (7)(b)(ii), 402(3B), 403E(1)(a), (2), (4), (5) and (6), 442(1), 444BB(3)(b), 547(6A), 748A(1)(c) and (2), 790(6A)(b), 801(1A)(b), 804A(1)(a), 806L(1), (2), (4), and (5), 806M(2) to (5) and 815A(6); in Schedule 15, paragraphs 17(3)(c) and 25(2)(c); in Schedule 19AA, paragraph 5(5)(c); in Schedule 24, paragraphs 1 and 8; and in Schedule 25, paragraphs 6(2A) and (2C), 8 and 11(3);
(b) in the Taxation of Chargeable Gains Act 1992 (c. 12), sections 140(1), 140C(1)(a), 173(3)(b), 175(1A)(b), 185(4) and 213(5A);
(c) in the Finance Act 2000 (c. 17), section 107(7);
(d) in the Capital Allowances Act 2001 (c. 2), sections 560(2) and 561(1)(c);
(e) in the Finance Act 2002 (c. 23), in Schedule 22, paragraph 10(1)(b)(ii); and in Schedule 29, paragraphs 66(5) and (8)(b), 68(2)(b), 86(1)(a), 87(1)(a), 109(1)(b) and 110(1)(b).
(2) In the following provisions (which relate to companies and other persons), any reference to a branch or agency shall be read, in relation to a company, as a reference to a permanent establishment.
The provisions are—
(a) in the Taxes Act 1988, sections 606(13), 794(2)(bb), 806K(1), 814(1) and 830(4), and in Schedule 23A, paragraphs 3 and 4;
(b) in the Taxation of Chargeable Gains Act 1992, sections 25(2), (3) and (5), 80(4)(a) and (b) and (7)(b), 199(2) and (4) and 276(7);
(c) in the Finance Act 1999 (c. 16), section 85(2)(a);
(d) in the Finance Act 2002, in Schedule 26, paragraph 31(6)(a).
(3) Any reference to a branch or agency—
(a) in subordinate legislation made under an enactment contained in the Tax Acts or relating to chargeable gains, or
(b) that is to be construed as having the same meaning as in any such enactment,
shall be read, in relation to a company, as a reference to a permanent establishment.
“Subordinate legislation” here has the same meaning as in the Interpretation Act 1978 (c. 30).
(4) This section has effect in relation to accounting periods beginning on or after 1st January 2003.
(1) In Part 18 of the Taxes Act 1988 (double taxation relief), section 797 (limits on credit: corporation tax) is amended as follows.
(2) In subsection (1) for “subsections (2) and (3)” substitute “the following provisions of this section”.
(3) In subsection (2) for “subsection (3)” substitute “subsections (2A) and (3)”.
(4) After subsection (2) insert—
“(2A) The provisions of section 11AA (profits attributable to permanent establishment), and of any regulations made under that section, apply, with the necessary modifications, in determining for the purposes of this section how much of the chargeable profits of a company resident in the United Kingdom is attributable to a permanent establishment of the company outside the United Kingdom.”.
(5) The amendments in this section have effect in relation to accounting periods beginning on or after 1st January 2003.
(1) Schedule 27 to this Act provides for amendments consequential on the provisions of sections 148 to 153.
(2) The amendments made by that Schedule have effect in relation to accounting periods beginning on or after 1st January 2003.
(1) The enactments relating to corporation tax have effect in relation to overseas life insurance companies subject to such modifications and exceptions as the Treasury may prescribe by regulations.
(2) The power to make regulations under this section includes power to make provision in place of, and in consequence to repeal or revoke, all or any of the enactments relating to corporation tax that on the passing of this Act make provision in relation to overseas life insurance companies.
(3) Regulations under this section—
(a) may make different provision for different cases, and
(b) may make such consequential amendments of other enactments as appear to the Treasury to be necessary or expedient.
(4) Regulations under this section providing for the application to overseas life insurance companies of sections 148 to 154 of this Act, Schedules 26 and 27 to this Act or any enactment amended by those sections or Schedules may be made so as to have effect from 1st January 2003.
(5) In this section—
“enactment” includes an enactment contained in subordinate legislation within the meaning of the Interpretation Act 1978 (c. 30), and
“overseas life insurance company” means an insurance company (as defined in section 431(2) of the Taxes Act 1988) that is not resident in the United Kingdom but carrying on life assurance business (as so defined) through a permanent establishment in the United Kingdom.
(1) For section 210 of the Taxation of Chargeable Gains Act 1992 (c. 12) substitute—
(1) This section has effect in relation to any policy of insurance or contract for a deferred annuity on the life of any person.
(2) A gain accruing on a disposal of, or of an interest in, the rights conferred by the policy of insurance or contract for a deferred annuity is not a chargeable gain unless subsection (3) below applies.
(3) This subsection applies if—
(a) (in the case of a disposal of the rights) the rights or any interest in the rights, or
(b) (in the case of a disposal of an interest in the rights) the rights, the interest or any interest from which the interest directly or indirectly derives (in whole or in part),
have or has at any time been acquired by any person for actual consideration (as opposed to consideration deemed to be given by any enactment relating to the taxation of chargeable gains).
(4) For the purposes of subsection (3) above —
(a) (in the case of a policy of insurance) amounts paid under the policy by way of premiums, and
(b) (in the case of a contract for a deferred annuity) amounts paid under the contract, whether by way of premiums or as lump sum consideration,
do not constitute actual consideration.
(5) And for those purposes actual consideration for—
(a) a disposal which is made by one spouse to the other or is an approved post-marriage disposal, or
(b) a disposal to which section 171(1) applies,
is to be treated as not constituting actual consideration.
(6) For the purposes of subsection (5)(a) above a disposal is an approved post-marriage disposal if—
(a) it is made in consequence of the dissolution or annulment of a marriage by one person who was a party to the marriage to the other,
(b) it is made with the approval, agreement or authority of a court (or other person or body) having jurisdiction under the law of any country or territory or pursuant to an order of such a court (or other person or body), and
(c) the rights disposed of were, or the interest disposed of was, held by the person by whom the disposal is made immediately before the marriage was dissolved or annulled.
(7) Subsection (8) below applies for the purposes of tax on chargeable gains where—
(a) (if that subsection did not apply) a loss would accrue on a disposal of, or of an interest in, the rights conferred by the policy of insurance or contract for a deferred annuity, but
(b) if sections 37 and 39 were disregarded, there would accrue on the disposal a loss of a smaller amount, a gain or neither a loss nor a gain.
(8) If (disregarding those sections) a loss of a smaller amount would accrue, that smaller amount is to be taken to be the amount of the loss accruing on the disposal; and in any other case, neither a loss nor a gain is to be taken to accrue on the disposal.
(9) But subsection (8) above does not affect the treatment for the purposes of tax on chargeable gains of the person who acquired rights, or an interest in rights, on the disposal.
(10) The occasion of—
(a) the receipt of the sum or sums assured by the policy of insurance,
(b) the transfer of investments or other assets to the owner of the policy of insurance in accordance with the policy, or
(c) the surrender of the policy of insurance,
is for the purposes of tax on chargeable gains an occasion of a disposal of the rights (or of all of the interests in the rights) conferred by the policy of insurance.
(11) The occasion of—
(a) the receipt of the first instalment of the annuity under the contract for a deferred annuity, or
(b) the surrender of the rights conferred by the contract for a deferred annuity,
is for the purposes of tax on chargeable gains an occasion of a disposal of the rights (or of all of the interests in the rights) conferred by the contract for a deferred annuity.
(12) Where there is a disposal on the occasion of the receipt of the first instalment of the annuity under the contract for a deferred annuity—
(a) in the case of a disposal of the rights conferred by the contract, the consideration for the disposal is the aggregate of the amount or value of the first instalment and the market value at the time of the disposal of the right to receive the further instalments of the annuity, and
(b) in the case of a disposal of an interest in the rights, the consideration for the disposal is such proportion of that aggregate as is just and reasonable;
and no gain accruing on any subsequent disposal of, or of any interest in, the rights is a chargeable gain (even if subsection (3) above applies).
(13) In this section “interest”, in relation to rights conferred by a policy of insurance or contract for a deferred annuity, means an interest as a co-owner of the rights (whether the rights are owned jointly or in common and whether or not the interests of the co-owners are equal).”.
(2) This section has effect in relation to disposals on or after 9th April 2003.
(1) In Chapter 3 of Part 4 of the Taxation of Chargeable Gains Act 1992 (c. 12) (miscellaneous provisions relating to options and other matters), after section 144 insert—
(1) This section applies where—
(a) an option is exercised, so that by virtue of section 144(2) or (3) the grant or acquisition of the option and the transaction resulting from its exercise are treated as a single transaction, and
(b) section 17(1) (“the market value rule”) applies, or would apply but for this section, in relation to—
(i) the grant of the option,
(ii) the acquisition of the option (whether directly from the grantor or not) by the person exercising it, or
(iii) the transaction resulting from its exercise.
(2) If the option binds the grantor to sell—
(a) the market value rule does not apply for determining the consideration for the sale, except, where the rule applies for determining the consideration for the option, to that extent (in accordance with section 144(2)(a));
(b) the market value rule does not apply for determining the cost to the person exercising the option of acquiring what is sold, except, where the rule applies for determining the cost of acquiring the option, to that extent (in accordance with section 144(3)(a)).
(3) If the option binds the grantor to buy—
(a) the market value rule does not apply for determining the cost of acquisition incurred by the grantor, but without prejudice to its application (in accordance with section 144(2)(b)) where the rule applies for determining the consideration for the option;
(b) the market value rule does not apply for determining the consideration for the disposal of what is bought, but without prejudice to its application (in accordance with section 144(3)(b)) where the rule applies for determining the cost of the option.
(4) To the extent that, by virtue of this section, the market value rule does not apply for determining an amount or value, the amount or value to be taken into account is (subject to section 120) the actual amount or value.
(5) In this section “option” has the same meaning as in section 144.”.
(2) This section applies in relation to the exercise of an option on or after 10th April 2003.
(1) The Taxation of Chargeable Gains Act 1992 (c. 12) is amended in accordance with Schedule 28 to this Act.
(2) In that Schedule—
Part 1 makes provision as to the cases in which a return of information about chargeable gains is required,
Part 2 contains minor and consequential amendments of the provisions relating to the annual exempt amount, and
Part 3 provides for commencement.
(1) In Schedule A1 to the Taxation of Chargeable Gains Act 1992 (taper relief), paragraph 5 (conditions for assets other than shares to qualify as business assets) is amended as follows.
(2) In sub-paragraph (1) (application of paragraph), after “in the case of the disposal of any asset” insert “by an individual, the trustees of a settlement or an individual’s personal representatives”.
(3) For sub-paragraphs (2) to (5) substitute—
“(1A) The asset was a business asset at that time if at that time it was being used, wholly or partly, for the purposes of a trade carried on by—
(a) an individual or a partnership of which an individual was at that time a member, or
(b) the trustees of a settlement or a partnership whose members at that time included—
(i) the trustees of a settlement, or
(ii) any one or more of the persons who at that time were the trustees of a settlement (so far as acting in their capacity as trustees), or
(c) the personal representatives of a deceased person or a partnership whose members at that time included—
(i) the personal representatives of a deceased person, or
(ii) any one or more of the persons who at that time were the personal representatives of a deceased person (so far as acting in their capacity as personal representatives).
(2) Where the disposal is made by an individual, the asset was a business asset at that time if at that time it was being used, wholly or partly, for the purposes of a trade carried on by—
(a) a company which at that time was a qualifying company by reference to that individual,
(b) a company which at that time was a member of a trading group the holding company of which was at that time a qualifying company by reference to that individual, or
(c) a partnership whose members at that time included a company within paragraph (a) or (b),
or for the purposes of any office or employment held by that individual with a person carrying on a trade.
(3) Where the disposal is made by the trustees of a settlement, the asset was a business asset at that time if at that time it was being used, wholly or partly, for the purposes of a trade carried on by—
(a) a company which at that time was a qualifying company by reference to the trustees of the settlement or an eligible beneficiary,
(b) a company which at that time was a member of a trading group the holding company of which was at that time a qualifying company by reference to the trustees of the settlement or an eligible beneficiary, or
(c) a partnership whose members at that time included a company within paragraph (a) or (b),
or for the purposes of any office or employment held by an eligible beneficiary with a person carrying on a trade.
(4) Where the disposal is made by an individual’s personal representatives, the asset was a business asset at that time if at that time it was being used, wholly or partly, for the purposes of a trade carried on by—
(a) a company which at that time was a qualifying company by reference to the deceased’s personal representatives,
(b) a company which at that time was a member of a trading group the holding company of which was at that time a qualifying company by reference to the deceased’s personal representatives, or
(c) a partnership whose members at that time included a company within paragraph (a) or (b).
(5) Where the disposal is made by an individual who acquired the asset as legatee (as defined in section 64), the asset shall be taken to have been a business asset at that time if at that time it was—
(a) being held by the personal representatives of the deceased, and
(b) being used, wholly or partly, for the purposes of a trade carried on by—
(i) a company which at that time was a qualifying company by reference to the deceased’s personal representatives,
(ii) a company which at that time was a member of a trading group the holding company of which was at that time a qualifying company by reference to the deceased’s personal representatives, or
(iii) a partnership whose members at that time included a company within sub-paragraph (i) or (ii).”.
(4) The following amendments in Schedule A1 to the Taxation of Chargeable Gains Act 1992 (c. 12) are consequential on those above—
(a) in paragraphs 9(1)(a) and 19(1) for “paragraph 5(2) to (5)” substitute “any provision of paragraph 5”;
(b) in paragraph 15(4)(a) for “paragraph 5(2)” substitute “paragraph 5(1) and (2)”.
(5) The amendments in this section apply to disposals on or after 6th April 2004 and as they so apply have effect in relation to periods of ownership on or after that date.
(1) Section 138A of the Taxation of Chargeable Gains Act 1992 (c. 12) (use of earn-out rights for exchange of securities) is amended as follows.
(2) In subsection (2) (seller’s right to elect for earn-out right to be treated as security of new company)—
(a) at the end of paragraph (a) insert “and”; and
(b) omit paragraph (c) (the seller’s right of election) and the word “and” immediately preceding it.
(3) After subsection (2) insert—
“(2A) Subsection (2) above does not have effect if the seller elects under this section for the earn-out right not to be treated as a security of the new company.”.
(4) In subsection (4) (election for corresponding treatment where old right extinguished in consideration of new right)—
(a) at the end of paragraph (c) insert “and”;
(b) omit paragraph (e) (right of election of person on whom the new right is conferred) and the word “and” immediately preceding it; and
(c) in the closing words, for “that person” substitute “the person on whom the new right is conferred”.
(5) After subsection (4) insert—
“(4A) Subsection (4) above does not have effect if the person on whom the new right is conferred elects under this section for it not to be treated as a security of the new company.”.
(6) The amendments made by this section have effect in relation to rights conferred on or after 10th April 2003.
(1) After section 279 of the Taxation of Chargeable Gains Act 1992 insert—
(1) Where—
(a) a person (“the taxpayer”) makes a disposal of a right to which this section applies (see subsection (2) below),
(b) on that disposal an allowable loss (“the relevant loss”) would, apart from section 279C, accrue to him in any year (“the year of the loss”), and
(c) the year of the loss is a year in which the taxpayer is within the charge to capital gains tax (see section 279B(1)),
the taxpayer may make an election under this section for the relevant loss to be treated as accruing in an earlier year in accordance with section 279C if condition 1 in subsection (3) below and condition 2 in subsection (5) below are satisfied.
(2) This section applies to a right if each of the following conditions is satisfied—
(a) the right was, in whole or in part, acquired by the taxpayer as the whole or part of the consideration for a disposal (the “original disposal”) by him of another asset (the “original asset”),
(b) the original disposal was made in a year (“the year of the original disposal”) earlier than the year in which the disposal mentioned in subsection (1)(a) above is made (“the year of the right’s disposal”),
(c) where the right was acquired by the taxpayer as the whole or part of the consideration for two or more disposals (each of which is accordingly an “original disposal”), the condition in paragraph (b) above is satisfied with respect to each of those disposals (the “original disposals”),
(d) on the taxpayer’s acquisition of the right, there was no corresponding disposal of it,
(e) the right is a right to unascertainable consideration (see section 279B(2) to (6)).
(3) Condition 1 for making an election in relation to the relevant loss is that a chargeable gain accrued to the taxpayer on any one or more of the following events—
(a) the original disposal,
(b) an earlier disposal of the original asset by the taxpayer in the year of the original disposal,
(c) a later disposal of the original asset by the taxpayer in a year earlier than the year of the right’s disposal,
or would have so accrued but for paragraph 2(2)(a) of Schedule 5B or 5C (postponement of original gain).
This subsection is subject to subsection (4) below.
(4) If the right to which this section applies was acquired by the taxpayer as the whole or part of the consideration for two or more original disposals (including cases where there are two or more original assets (the “original assets”))—
(a) any reference in subsection (3) above to the original disposal is a reference to any of the original disposals,
(b) any reference in that subsection to the original asset is a reference to the asset which is the original asset in relation to that original disposal, and
(c) any reference in that subsection to the year of the original disposal shall be construed accordingly.
(5) Condition 2 for making an election in relation to the relevant loss is that there is a year (an “eligible year”)—
(a) which is earlier than the year of the loss but not earlier than the year 1992-93,
(b) in which a chargeable gain falling within subsection (3) above or subsection (6) below accrued to the taxpayer, and
(c) for which, immediately before the election, there remains a relevant amount on which capital gains tax is chargeable (see subsection (7) below).
(6) A chargeable gain falling within this subsection accrues to the taxpayer in a year if—
(a) in that year a chargeable gain (the “revived gain”) is treated as accruing to the taxpayer in accordance with paragraphs 4 and 5 of Schedule 5B or 5C (chargeable gain accruing to person on chargeable event), and
(b) the gain which, in determining the amount of the revived gain in accordance with those paragraphs, is the original gain consists of or represents the whole or some part of a gain that would have accrued as mentioned in subsection (3) above but for paragraph 2(2)(a) of Schedule 5B or 5C.
(7) For the purposes of subsection (5)(c) above, a year is one for which, immediately before an election, there remains a relevant amount on which capital gains tax is chargeable if, immediately before the making of that election, there remains an amount in respect of which the taxpayer is chargeable to capital gains tax for the year—
(a) after taking account of any previous elections made by the taxpayer under this section,
(b) after excluding any amounts that fall to be brought into account for that year under section 2(4)(b) by virtue of section 2(5)(b), and
(c) on the assumption that no part of the relevant loss (or of any other loss in respect of which an election under this section may be, but has not been, made) falls to be deducted in consequence of an election under this section from the chargeable gains accruing to the taxpayer in that year.
(8) In this section “year” means year of assessment.
(9) This section and sections 279B to 279D are to be construed as one.
(1) For the purposes of section 279A(1)(c) a person is within the charge to capital gains tax in any year if—
(a) he is chargeable to capital gains tax in respect of chargeable gains accruing to him in that year, or
(b) on the assumption that there accrue to him in that year any chargeable gains (excluding amounts in relation to which section 2(4)(a) applies), he would be so chargeable apart from—
(i) any deductions that fall to be made from the total amount referred to in section 2(2), and
(ii) section 3 (annual exempt amount).
(2) Subsections (3) to (6) below have effect for the purposes of section 279A(2)(e) (right to unascertainable consideration).
(3) A right is a right to unascertainable consideration if, and only if,—
(a) it is a right to consideration the amount or value of which is unascertainable at the time when the right is conferred, and
(b) that amount or value is unascertainable at that time on account of its being referable, in whole or in part, to matters which are uncertain at that time because they have not yet occurred.
This subsection is subject to subsections (4) to (6) below.
(4) The amount or value of any consideration is not to be regarded as being unascertainable by reason only—
(a) that the right to receive the whole or any part of the consideration is postponed or contingent, if the consideration or, as the case may be, that part of it is, in accordance with section 48, brought into account in the computation of the gain accruing to the taxpayer on the disposal of an asset, or
(b) in a case where the right to receive the whole or any part of the consideration is postponed and is to be, or may be, to any extent satisfied by the receipt of property of one description or property of some other description, that some person has a right to select the property, or the description of property, that is to be received.
(5) A right is not to be taken to be a right to unascertainable consideration by reason only that either the amount or the value of the consideration has not been fixed, if—
(a) the amount will be fixed by reference to the value, and the value is ascertainable, or
(b) the value will be fixed by reference to the amount, and the amount is ascertainable.
(6) A right which is by virtue of subsection (2) or (4) of section 138A (use of earn-out rights for exchange of securities) assumed in accordance with subsection (3)(a) of that section to be a security, within the definition in section 132, is not to be regarded as a right to unascertainable consideration.
(7) For the purposes of section 279A, any question as to—
(a) whether a chargeable gain or a loss is one that accrues (or would, apart from any particular provision, accrue) on a particular disposal or a disposal of any particular description, or
(b) the time at which, or year in which, any particular disposal takes place,
is to be determined without regard to section 10A(2) (chargeable gains and losses accruing during temporary non-residence to be treated as accruing in year of return).
This subsection is subject to subsection (8) below.
(8) Subsection (7) above does not affect the determination of any question—
(a) as to the year in which the chargeable gain or loss is, by virtue of section 10A(2), to be treated as accruing (apart from section 279C), or
(b) where (apart from section 279C) a loss is to be treated by virtue of section 10A(2) as accruing in a particular year, whether the loss is an allowable loss.
Finance Act 2003