PART 3 continued CHAPTER 10 continued
(2) In a case falling within sub-paragraph (1)(a) above, the person shall be treated for the purposes of paragraphs 1(2)(b) and 14A(3)(b) above on a transfer of the strip by him as if he had paid in respect of his acquisition of the strip an amount equal to the market value of the strip at the time of that acquisition.
(3) In a case falling within sub-paragraph (1)(b) above, the person shall be treated for the purposes of paragraphs 1(2)(b) and 14A(3)(b) above as if the amount payable to him on the transfer were an amount equal to the market value of the strip at the time of the transfer.
(4) In a case falling within sub-paragraph (1)(c) above, the person shall be treated for the purposes of paragraphs 1(2)(b) and 14A(3)(b) above as if the amount payable to him on redemption were an amount equal to the market value of the strip on the day before redemption.
(5) For the purposes of this paragraph, no account shall be taken of any costs incurred in connection with any transfer or redemption of a strip or its acquisition.
(6) Paragraph 14E below makes provision as to the manner of determining for the purposes of this paragraph the market value at any time of a strip.
(7) In this paragraph “tax advantage” has the meaning given by section 709(1) of the Taxes Act 1988.”.
(6) After paragraph 14B insert—
14C (1) Where—
(a) as a result of any scheme or arrangement which has an unallowable purpose, the circumstances are, or might have been, as mentioned in paragraph (a), (b) or (c) of paragraph 14B(1) above,
(b) under the scheme or arrangement, a payment falls to be made otherwise than in respect of the acquisition or disposal of a strip, and
(c) as a result of that payment or the circumstances in which it is made, a loss accrues to any person for the purposes of capital gains tax,
the loss shall not be an allowable loss for the purposes of capital gains tax.
(2) For the purposes of this paragraph a scheme or arrangement has an unallowable purpose if the main benefit, or one of the main benefits, that might have been expected to result from, or from any provision of, the scheme or arrangement (apart from paragraph 14B above and this paragraph) is—
(a) the obtaining of a tax advantage by any person, or
(b) the accrual to any person of an allowable loss for the purposes of capital gains tax.
(3) In this paragraph “tax advantage” has the meaning given by section 709(1) of the Taxes Act 1988.”.
(7) After paragraph 14C insert—
14D (1) This paragraph has effect for the purpose of excluding from charge or, as the case may be, relief under this Schedule so much of—
(a) any profit realised by a person from the discount on a strip, or
(b) any loss sustained by a person from the discount on a strip,
as is referable to a relevant amount being less than the person’s original acquisition cost for the strip.
For this purpose a relevant amount is any amount that falls to be brought into account as paid in respect of the acquisition of the strip or as payable on the transfer or redemption of the strip.
(2) Where, on the transfer or redemption of a strip,—
(a) a person realises a profit (apart from this paragraph) from the discount on the strip and amount C exceeds amount A, or
(b) a person sustains a loss (apart from this paragraph) from the discount on the strip and amount C exceeds amount P,
then, for the purposes of the other provisions of this Schedule, the profit or loss shall be restricted or eliminated in accordance with the following provisions of this paragraph.
(3) For the purposes of this paragraph—
“amount A” is the amount that falls to be brought into account as the amount paid by the person in respect of his acquisition of the strip in determining the amount of the profit or loss apart from this paragraph;
“amount C” is the person’s original acquisition cost for the strip (see sub-paragraph (6) below);
“amount L” is the amount (apart from this paragraph) of the loss mentioned in sub-paragraph (2)(b) above;
“amount P” is the amount that falls to be brought into account as the amount payable on the transfer or redemption of the strip in determining the amount of the profit or loss apart from this paragraph.
(4) In a case falling within sub-paragraph (2)(a) above (person realising a profit)—
(a) if amount P exceeds amount C, the amount of the profit is restricted to the amount of that excess;
(b) if amount P does not exceed amount C, the person shall be treated as not realising a profit from the discount on the strip.
(5) In a case falling within sub-paragraph (2)(b) above (person sustaining a loss)—
(a) if amount A exceeds amount C, the amount of the loss is restricted to so much of amount L as remains after deducting from it the amount by which amount C exceeds amount P;
(b) if amount A does not exceed amount C, the person shall be treated for the purposes of this Schedule as not sustaining a loss from the discount on the strip.
(6) For the purposes of this paragraph a person’s “original acquisition cost” in the case of a strip is the amount which—
(a) disregarding any deemed transfers or re-acquisitions under paragraph 14(4) above (other than the transfer mentioned in sub-paragraph (2) above, if it is such a transfer), but
(b) otherwise giving effect, so far as applicable, to paragraph 8, 9, 14 or 14B above (each of which treats a person acquiring a security as having paid an amount equal to its market value determined in accordance with paragraph 14E below),
would fall to be taken into account as the amount paid by the person in respect of his acquisition of the strip in determining whether a profit is realised, or a loss is sustained, from the discount on the strip.
(7) In this paragraph any reference to a transfer includes a reference to a deemed transfer under paragraph 14(4) above.
(8) In this paragraph any reference to sustaining a loss from the discount on a strip shall be construed in accordance with paragraph 14A above.”.
(8) After paragraph 14D insert—
14E (1) This paragraph makes provision as to the manner of determining—
(a) for the purposes of paragraph 8, 9, 14 or 14B above, the market value at any time of a strip, and
(b) for the purposes of paragraph 14(2) above, the market value at any time of a security exchanged for strips of that security.
(2) The market value on any day of a strip or security quoted in the Daily List shall be—
(a) the lower of the two figures shown in the Daily List for the strip or security for that day,
plus
(b) one-quarter of the difference between those two figures,
unless the Stock Exchange is closed on that day.
(3) If the Stock Exchange is closed on any day, the market value on that day of any such strip or security shall be taken to be its market value on the latest previous day or earliest subsequent day on which the Stock Exchange is open, whichever affords the lower value.
(4) In the case of a strip or security which—
(a) is a security, or a strip of a security, issued by or on behalf of the government of a territory outside the United Kingdom, and
(b) is not quoted in the Daily List, but
(c) is quoted in a foreign stock exchange list,
the market value shall be determined in accordance with sub-paragraph (5) below.
(5) In any such case, sub-paragraphs (2) and (3) above shall have effect for determining the market value of the strip or security, but for this purpose those provisions shall have effect—
(a) with the substitution for references to the Daily List of references to the foreign stock exchange list,
(b) with the substitution for references to the Stock Exchange of references to the foreign stock exchange to which that list relates, and
(c) with any modifications which are necessary by reason of the form of quotation adopted in the foreign stock exchange list (including, in a case where a single figure only is published, taking that figure as the market value).
(6) Where a strip or security is quoted in more than one foreign stock exchange list—
(a) any such list published for a foreign stock exchange in the territory of the issuing government shall be used for the purposes of sub-paragraph (5) above in preference to any other such list, and
(b) any such list published for a foreign stock exchange which is regarded as the major exchange in that territory for strips or securities shall be used for those purposes in preference to any other such list.
(7) In this paragraph—
“the Daily List” means the The Stock Exchange Daily Official List;
“foreign stock exchange” means a recognised stock exchange in a territory outside the United Kingdom on which strips are traded;
“foreign stock exchange list” means any publication which performs in the case of a foreign stock exchange a function equivalent, or broadly similar, to that performed by the Daily List in relation to strips;
“issuing government” means the government which issued the security mentioned in sub-paragraph (4)(a) above.
(8) The Treasury may by regulations make provision as to the manner of determining, for any of the purposes mentioned in sub-paragraph (1) above, the market value at any time of—
(a) any strip, or
(b) any security exchanged for strips of that security.
(9) Regulations under sub-paragraph (8) above may—
(a) amend or modify any provision of this paragraph other than that sub-paragraph, sub-paragraph (1) above or this sub-paragraph;
(b) make different provision for different cases; and
(c) contain such incidental, supplemental, consequential and transitional provision and savings as the Treasury may think fit.”.
(9) In paragraph 15(1) (general interpretation) in the definition of “market value” (which applies except in paragraph 14) for “(except in paragraph 14 above)” substitute “(except as provided in relation to paragraph 8, 9, 14 or 14B above by paragraph 14E above)”.
(10) The amendments made by—
(a) subsections (2) and (3), and
(b) subsections (8) and (9), so far as relating to paragraph 8 or 9 of Schedule 13 to the Finance Act 1996 (c. 8),
have effect in relation to any transfer of a strip on or after 17th March 2004.
(11) The amendments made by—
(a) subsection (4), and
(b) subsections (8) and (9), so far as relating to paragraph 14 of Schedule 13 to the Finance Act 1996,
have effect in relation to exchanges on or after 17th March 2004 and deemed transfers and re-acquisitions under sub-paragraph (4) of that paragraph on or after that date.
(12) The amendments made by—
(a) subsection (5), and
(b) subsections (8) and (9), so far as relating to paragraph 14B of Schedule 13 to the Finance Act 1996,
have effect in relation to any strip held on 15th January 2004 or acquired after that date (and see subsection (15)).
(13) The amendment made by subsection (6) has effect in relation to losses accruing on or after 17th March 2004.
(14) The amendment made by subsection (7) has effect in relation to any strip acquired on or after 15th January 2004 (and see subsection (15)).
(15) In determining when a strip is acquired for the purposes of subsection (12) or (14), any deemed transfers or re-acquisitions under paragraph 14(4) of Schedule 13 to the Finance Act 1996 shall be disregarded.
(1) Section 587B of the Taxes Act 1988 (gifts of shares, securities and real property to charities etc) is amended as follows.
(2) For subsection (4) (the relevant amount) substitute—
“(4) Subject to subsections (5) to (7) below, the relevant amount is an amount equal to—
(a) where the disposal is a gift, the value of the net benefit to the charity at, or immediately after, the time when the disposal is made (whichever time gives the lower value);
(b) where the disposal is at an undervalue, the amount by which—
(i) the value described in paragraph (a) above, exceeds
(ii) the amount or value of the consideration for the disposal,
or, if there is no such excess, nil.”.
(3) After subsection (8) insert—
“(8A) The value of the net benefit to the charity is—
(a) the market value of the qualifying investment, unless subsection (8B) below applies;
(b) where that subsection applies, that market value reduced by the aggregate amount of the related liabilities of the charity (see subsections (8E) to (8G)).
(8B) This subsection applies in any case where—
(a) the charity is, or becomes, subject to an obligation to any person (whether or not the person making the disposal or a person connected with him), and
(b) one or more of the conditions in subsection (8C) below is satisfied.
(8C) For the purposes of subsection (8B) above—
(a) condition 1 is that, taking into account all the circumstances (including, in particular, the difference in the value of the net benefit to the charity if subsection (8B) applies and if it does not), it is reasonable to suppose that the disposal of the qualifying investment to the charity would not have been made in the absence of the obligation;
(b) condition 2 is that the obligation (whether in whole or in part) relates to, is framed by reference to, or is conditional on the charity receiving, the qualifying investment or a related investment (see subsection (8D)).
(8D) In subsection (8C) above “related investment” means any of the following—
(a) any asset of the same class or description as the qualifying investment (irrespective of size, quantity or amount);
(b) any asset derived from, or representing, the qualifying investment whether in whole or in part and whether directly or indirectly;
(c) any asset from which the qualifying investment is derived, or which the qualifying investment represents, whether in whole or in part and whether directly or indirectly.
(8E) For the purposes of this section, the liabilities which are related liabilities in the case of any qualifying investment are the liabilities of the charity under each of the obligations that fall within subsection (8B) above (as read with subsection (8C) above) in relation to that investment.
(8F) Where an obligation is contingent and the contingency occurs, the amount to be brought into account for the purposes of this section at any time in respect of the liability, so far as contingent, under the obligation is the amount or value of the liability actually incurred in consequence of the occurrence of the contingency.
(8G) Where an obligation is contingent and the contingency does not occur, the amount to be brought into account for the purposes of this section at any time in respect of the liability, so far as contingent, is nil.”.
(4) In subsection (9) (definitions) insert each of the following definitions at the appropriate place—
““obligation” includes a reference to each of the following—
(a) any scheme, arrangement or understanding of any kind, whether or not legally enforceable;
(b) a series of obligations (whether or not between the same parties);”;
““related liabilities” shall be construed in accordance with subsection (8E) above;”;
““value of the net benefit to the charity” shall be construed in accordance with subsection (8A) above;”.
(5) After subsection (10) (market value) insert—
“(10A) Section 839 (connected persons) applies for the purposes of this section.”.
(6) The amendments made by this section have effect in relation to any disposal to a charity on or after 2nd July 2004, except where the disposal is in performance of a contract entered into before that date and not varied on or after that date.
(1) In Chapter 2 of Part 13 of the Taxes Act 1988 (life policies, life annuities and capital redemption policies), section 549 (certain deficiencies allowable as deductions) is amended as follows.
(2) In subsection (1) for the words from “the total amount” to the end substitute “the allowable amount”.
(3) After that subsection insert—
“(1A) The allowable amount is the total of any amounts that—
(a) were treated as a gain by virtue of section 541(1)(d), 543(1)(c) or 546C(7) on the previous happenings of chargeable events, and
(b) formed part of that individual’s total income for a previous year of assessment.”.
(4) This section applies in relation to a deficiency occurring in connection with a policy of life insurance if—
(a) it is issued in respect of an insurance made on or after 3rd March 2004, or
(b) it is issued in respect of an insurance made before that date but on or after that date—
(i) it is varied so as to increase the benefits secured (any exercise of rights conferred by the policy being regarded for this purpose as a variation),
(ii) there is an assignment (whether or not for money or money’s worth) of the rights, or a share of the rights, conferred by the policy, or
(iii) all or part of the rights conferred by the policy become held as security for a debt.
(5) This section applies in relation to a deficiency occurring in connection with a contract for a life annuity if—
(a) it is entered into on or after 3rd March 2004, or
(b) it is entered into before that date but on or after that date—
(i) it is varied so as to increase the benefits secured (any exercise of rights conferred by the contract being regarded for this purpose as a variation),
(ii) there is an assignment (whether or not for money or money’s worth) of the rights, or a share of the rights, conferred by the contract, or
(iii) all or part of the rights conferred by the contract become held as security for a debt.
(6) This section applies in relation to a deficiency occurring in connection with a capital redemption policy if—
(a) it is effected on or after 3rd March 2004, or
(b) it is effected before that date but on or after that date—
(i) it is varied so as to increase the benefits secured (any exercise of rights conferred by the policy being regarded for this purpose as a variation),
(ii) there is an assignment (whether or not for money or money’s worth) of the rights, or a share of the rights, conferred by the policy, or
(iii) all or part of the rights conferred by the policy become held as security for a debt.
(1) In Schedule 20 to the Finance Act 2000 (c. 17) (tax relief for expenditure on research and development) for paragraph 6 (expenditure on consumable stores) substitute—
6 (1) For the purposes of this Schedule expenditure on software or consumable items means expenditure on—
(a) computer software, or
(b) consumable or transformable materials,
and references to software or consumable items shall be construed accordingly.
(2) For the purposes of this Schedule consumable or transformable materials include water, fuel and power.
(3) Expenditure on software or consumable items is attributable to relevant research and development if the software or consumable items are employed directly in such research and development.
(4) In the case of software or consumable items partly employed directly in relevant research and development, an appropriate portion of the expenditure on the software or consumable items is treated as attributable to relevant research and development.
(5) For the purposes of sub-paragraphs (3) and (4), software or consumable items employed in the provision of services, such as secretarial or administrative services, in support of other activities are not, by virtue of their employment in the provision of those services, to be treated as themselves directly employed in those other activities.”.
(2) In each of the following enactments (which relate to tax relief for expenditure on research and development)—
(a) Schedule 20 to the Finance Act 2000 (c. 17) (small or medium-sized enterprises), other than paragraph 6,
(b) Schedule 12 to the Finance Act 2002 (c. 23) (large companies, work sub-contracted to, and large company relief for, small or medium-sized enterprises),
(c) Schedule 13 to that Act (vaccine research etc),
for the words “consumable stores”, wherever occurring, substitute “software or consumable items”.
(3) The amendments made by this section to Schedule 12 to the Finance Act 2002 (large companies etc) have effect in relation to expenditure incurred on or after 1st April 2004.
(4) Except as provided by subsection (5), the amendments made by this section to—
(a) Schedule 20 to the Finance Act 2000 (small or medium-sized enterprises),
(b) Schedule 13 to the Finance Act 2002 (vaccine research etc),
have effect in relation to expenditure incurred on or after the appointed day.
(5) The amendment made by subsection (1) (substitution of paragraph 6 of Schedule 20 to the Finance Act 2000), in its application for the purposes of Schedule 12 to the Finance Act 2002 by virtue of the amendments made to that Schedule by subsection (2), has effect in relation to expenditure incurred on or after 1st April 2004.
(6) In this section “the appointed day” means such day as the Treasury may by order appoint; and different days may be so appointed for different provisions or different purposes.
(7) The days that may be appointed by an order under subsection (6) include days earlier than the day on which this Act is passed, but not days earlier than 1st April 2004.
(1) The amount of a first-year allowance under section 44 of the Capital Allowances Act 2001 (c. 2) (expenditure incurred by small or medium-sized enterprises) shall be determined, in the case of expenditure to which this subsection applies, as if the percentage specified in the entry relating to that section in the Table in section 52(3) of that Act were 50%.
(2) Subsection (1) applies to expenditure incurred by a small enterprise (within the meaning of section 44 of that Act) in the period of 12 months beginning with—
(a) 1st April 2004, if the small enterprise is within the charge to corporation tax, or
(b) 6th April 2004, if the small enterprise is within the charge to income tax.
(3) Accordingly, in section 52(3) of the Capital Allowances Act 2001, after the Table insert—
“In the case of expenditure qualifying under section 44, see also section 142 of the Finance Act 2004 (substitution of 50% in the case of expenditure incurred by a small enterprise in 2004-05 or financial year 2004).”.
(1) After section 31 of the Taxes Act 1988 (Schedule A deductions and allowances: provisions supplementary to sections 25 to 30) insert—
(1) This section applies to a Schedule A business if the land mentioned in paragraph 1(1) of Schedule A consists of or includes a dwelling-house.
(2) In computing for the purposes of income tax the profits of a Schedule A business to which this section applies, a deduction shall be allowed in respect of any expenditure to which subsection (3) applies.
That is subject to any provision of regulations under subsection (13).
(3) This subsection applies to expenditure as respects which the numbered conditions set out in the following provisions of this section (“the qualifying conditions”) are satisfied.
(4) Condition 1 is that the expenditure is incurred in the provision of a qualifying energy-saving item in the dwelling-house.
(5) Condition 2 is that the expenditure is incurred on or after 6th April 2004 but before 6th April 2009.
(6) Condition 3 is that the expenditure is incurred wholly and exclusively for the purposes of the Schedule A business.
(7) Condition 4 is that the expenditure is capital expenditure.
(8) Condition 5 is that, apart from this section, the expenditure is not deductible in computing the profits of the Schedule A business.
(9) Condition 6 is that no allowance under the Capital Allowances Act may be claimed in respect of the expenditure.
(10) Condition 7 is that the expenditure is not incurred in respect of the provision of an item in a dwelling-house which, at the time when the item is installed,—
(a) is in the course of construction, or
(b) is comprised in land in which the person claiming the deduction under this section does not have an interest or is in the course of acquiring an interest or further interest.
(11) Condition 8 is that for the purposes of section 503 (letting of furnished holiday accommodation to be treated as a trade for certain purposes) either—
(a) the Schedule A business does not consist to any extent in the commercial letting of furnished holiday accommodation, or
(b) if it does so consist to any extent, the dwelling-house does not constitute any or all of the furnished holiday accommodation in question.
(12) Condition 9 is that the income of the person claiming the deduction is not computed in accordance with paragraph 9 or 11 of Schedule 10 to the Finance (No. 2) Act 1992 (furnished accommodation) in respect of any qualifying residence which consists of or includes the dwelling-house.
(13) The Treasury may by regulations make provision for any of the following purposes—
(a) restricting or reducing the amount of expenditure in respect of which deductions may be claimed under this section;
(b) excluding entitlement to a deduction under this section in such cases as may be specified in, or determined in accordance with, the regulations;
(c) determining which of two or more persons is (and which is not) entitled to a deduction under this section in cases where different persons have different interests in land consisting of or including the whole or part of a building containing one or more dwelling-houses;
(d) making apportionments (including apportioning amounts to companies which are not entitled to a deduction under this section) in cases where—
(i) a Schedule A business is carried on by two or more persons in partnership, or
(ii) an interest in land is beneficially owned by two or more persons jointly or in common.
(14) Section 31B supplements this section.
(1) This section has effect for the purpose of supplementing section 31A and shall be construed as one with that section.
(2) Section 31A does not have effect for the purposes of corporation tax.
(3) No deduction may be made under section 31A unless a claim is made.
(4) Where, on a just and reasonable apportionment of any expenditure, the qualifying conditions—
(a) would be satisfied as respects some part or parts of the expenditure, but
(b) would not be satisfied as respects the remainder of the expenditure,
a deduction under section 31A shall be allowed in respect of the part or parts mentioned in paragraph (a) but not in respect of the remainder.
Any such deduction is subject to, and must be in accordance with, the other provisions of this section and regulations under section 31A(13).
(5) Expenditure incurred by a person—
(a) for the purposes of a Schedule A business, but
(b) before the time when he begins to carry on that business,
is not deductible under section 31A by virtue of section 401 (relief for pre-trading expenditure) unless the expenditure is incurred not more than 6 months before that time (and on or after 6th April 2004).
The reference to section 401 is a reference to that section as it applies for the purposes of Schedule A in relation to a Schedule A business by virtue of section 21B.
(6) “Qualifying energy-saving items” are items of any of the following descriptions—
(a) cavity wall insulation;
(b) loft insulation.