Office of Public Sector Information
Income tax shall be charged for the year 2005-06, and for that year—
(a) the starting rate shall be 10%;
(b) the basic rate shall be 22%;
(c) the higher rate shall be 40%.
(1) For the year 2005-06—
(a) the amount specified in section 257(2) of ICTA (claimant aged 65 or more) shall be £7,090; and
(b) the amount specified in section 257(3) of that Act (claimant aged 75 or more) shall be £7,220.
(2) Accordingly, section 257C(1) of that Act (indexation), so far as it relates to the amounts so specified, does not apply for that year.
Corporation tax shall be charged for the financial year 2006 at the rate of 30%.
For the financial year 2005—
(a) the small companies' rate shall be 19%, and
(b) the fraction mentioned in section 13(2) of ICTA (marginal relief for small companies) shall be 11/400ths.
For the financial year 2005—
(a) the corporation tax starting rate shall be 0%, and
(b) the fraction mentioned in section 13AA of ICTA (marginal relief for small companies) shall be 19/400ths.
The non-corporate distribution rate for the financial year 2005 shall be 19%.
(1) In ICTA, after section 686C insert—
(1) This section applies where income arising (or treated as arising) to the trustees of a trust in a year of assessment consists of or includes income subject to a special trust tax rate (“the special trust tax rate income”).
(2) “Income subject to a special trust tax rate” means any income which is (or apart from this section would be) chargeable to income tax at—
(a) the dividend trust rate, or
(b) the rate applicable to trusts.
(3) So much of the special trust tax rate income as does not exceed £500 is not chargeable to income tax at the dividend trust rate or the rate applicable to trusts (but is instead chargeable to income tax at the basic rate, the lower rate or the dividend ordinary rate, depending on the nature of the income).
(4) In the following provisions “the relevant purposes” means the purposes of—
(a) determining (in accordance with section 1A(5)) which of the special trust tax rate income is not chargeable to income tax at the dividend trust rate, or the rate applicable to trusts, by virtue of subsection (3), and
(b) determining at which of the basic rate, the lower rate and the dividend ordinary rate that special trust tax rate income is chargeable to income tax.
(5) For the relevant purposes the fact that any amount forming part of the special trust tax rate income is subject to a special trust tax rate is to be disregarded if, in any circumstances, an amount of that description is chargeable on trustees at the basic rate, the lower rate or the dividend ordinary rate.
(6) For the relevant purposes any of the special trust tax rate income that consists of—
(a) an amount which, by virtue of section 686A, is treated for the purposes of the Tax Acts as if it were income to which section 686 applies, or
(b) income treated as arising under Chapter 5 of Part 4 of ITTOIA 2005 (stock dividends from UK resident companies),
is to be regarded as income to which section 1A applies and which is chargeable at the dividend ordinary rate.
(7) For the relevant purposes any of the special trust tax rate income that consists of—
(a) income treated as arising under section 761(1) (offshore income gains),
(b) income treated as received under section 68 of FA 1989 (employee share ownership trusts), or
(c) profits or gains which are treated as income under Chapter 12 of Part 4 of ITTOIA 2005 (guaranteed returns on disposals of futures and options) and in relation to which section 568 of that Act applies (profits or gains not meeting conditions of that section),
is or are to be regarded as chargeable at the basic rate.
(8) For the relevant purposes any of the special trust tax rate income that consists of—
(a) income treated as received under section 714(2) or 716(3) (transfers of securities),
(b) profits taken to be income arising under Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted securities), or
(c) gains which are treated as arising under Chapter 9 of that Part and on which tax is charged at the rate applicable to trusts under section 467(7)(b) of that Act (gains from contracts for life assurance),
is or are chargeable at the lower rate.”
(2) In section 686(1) of ICTA (accumulation and discretionary trusts: special rates of tax), after “shall” insert “(subject to section 686D)”.
(3) In subsection (3) of section 687 of ICTA (payments under discretionary trusts: amounts to be set against amount assessable on trustees under subsection (2)(b) of that section), after paragraph (a) insert—
“(aa1) the amount of any tax on income arising to the trustees which is charged by virtue of section 686D(3) at the basic rate or the lower rate;”.
(4) After that subsection insert—
“(3A) Paragraphs (a1) to (bc) of subsection (3) above do not apply in relation to income, distributions or sums chargeable to tax by virtue of section 686D(3) at the basic rate, the lower rate or the dividend ordinary rate.”
(5) This section applies for the year 2005-06 and subsequent years of assessment.
(1) Section 270A of ITEPA 2003 (limited exemption for qualifying childcare vouchers) is amended as follows.
(2) In subsection (6) (exempt amount), for “£50 for each qualifying week in that year” substitute “the sum of—
(a) £50 for each qualifying week in that year, and
(b) the voucher administration costs for that year.”
(3) After that subsection insert—
“(6A) The “voucher administration costs” for any tax year in respect of which qualifying childcare vouchers are provided for an employee means the difference between the cost of provision of the vouchers and their face value.
The face value of a voucher is the amount stated on or recorded in the voucher as the value of the provision of care for a child that may be obtained by using it.”
(4) After subsection (10) insert—
“(10A) In this section “ cost of provision”, in relation to a childcare voucher, has the meaning given in section 87(3) and (3A).”
(5) This section has effect for the year 2005-06 and subsequent years of assessment.
(1) ITEPA 2003 is amended as follows.
(2) In section 237(1) (exemption for provision of workplace parking), for “No liability to income tax arises by virtue of Chapter 10 of Part 3 (taxable benefits: residual liability to charge)” substitute “No liability to income tax arises”.
(3) In section 244(1) (exemption for provision of cycles and cyclist’s safety equipment), for “No liability to income tax arises by virtue of Chapter 10 of Part 3 (taxable benefits: residual liability to charge)” substitute “No liability to income tax arises”.
(4) In section 270A(1) (limited exemption for qualifying childcare vouchers), for “employee, liability” substitute “employee—
(a) no liability to income tax arises by virtue of section 62 (general definition of earnings), and
(b) liability”.
(5) In section 318(1) (childcare: exemption for employer-provided care), for “No liability to income tax arises by virtue of Chapter 10 of Part 3 (taxable benefits: residual liability to charge)” substitute “No liability to income tax arises”.
(6) In section 318A(1) (childcare: limited exemption for other care), for “child, liability” substitute “child—
(a) no liability to income tax arises by virtue of section 62 (general definition of earnings), and
(b) liability”.
(7) This section has effect for the year 2005-06 and subsequent years of assessment.
(1) Section 206 of ITEPA 2003 (cost of the benefit: transfer of used or depreciated asset) is amended as follows.
(2) In subsection (3)(a), for “a car (within the meaning of Chapter 6)” substitute “an excluded asset (see subsection (6))”.
(3) After subsection (5) insert—
“(6) An excluded asset is—
(a) a car (within the meaning of Chapter 6),
(b) computer equipment that has previously been applied as mentioned in subsection (3)(b) in circumstances in which the conditions set out in section 320 were met, or
(c) a cycle or cyclist’s safety equipment that has previously been so applied in circumstances in which the conditions set out in section 244 were met.”
(4) This section has effect for the year 2005-06 and subsequent years of assessment.
(1) ITEPA 2003 is amended as follows.
(2) In section 310 (counselling and other outplacement services) in subsection (4) (person to have been employed full-time in the employment which is ceasing for a specified period) omit “full-time”.
(3) In section 311 (retraining courses) in subsection (3) (conditions to be satisfied in relation to the course)—
(a) at the end of paragraph (b) insert “and”;
(b) in paragraph (c) (course to last no more than one year) for “one year” substitute “two years”;
(c) omit paragraph (d) (employee to attend the course on a full-time or substantially full-time basis) and the word “and” before it.
(4) In that section, in subsection (4)(c) (person to be employed full-time in the employment which is ceasing for a specified period) omit “full-time”.
(5) This section has effect in relation to the year 2005-06 and subsequent years of assessment.
(1) ITEPA 2003 is amended as follows.
(2) In subsection (1) of section 393 as originally enacted (application of Chapter 2 of Part 6) after “non-approved retirement benefits scheme” insert “other than a scheme established by an order under section 1(2) of the Armed Forces (Pensions and Compensation) Act 2004 (armed and reserve forces compensation schemes)”.
(3) In paragraph (a) of section 639 (exemption from income tax for pensions due to military service etc)—
(a) for “the Department of Work and Pensions” substitute “the Ministry of Defence”;
(b) for “any Order in Council, Royal Warrant, order or scheme” substitute “instrument specified in subsection (2),”.
(4) At the end of section 639 (which becomes subsection (1)) insert—
“(2) The instruments referred to in subsection (1)(a) are—
Defence (Local Defence Volunteers) Regulations 1940 (S.R. & O. 1940/748),
War Pensions (Coastguards) Scheme 1944 (S.R. & O. 1944/500),
War Pensions (Naval Auxiliary Personnel) Scheme 1964 (S.I. 1964/1985),
Pensions (Polish Forces) Scheme 1964 (S.I. 1964/2007),
War Pensions (Mercantile Marine) Scheme 1964 (S.I. 1964/2058),
Order by Her Majesty concerning pensions and other grants in respect of disablement or death due to service in the Home Guard (1964 Cmnd. 2563),
Order by Her Majesty concerning pensions and other grants in respect of disablement or death due to service in the Home Guard after 27th April 1952 (1964 Cmnd. 2564),
Order by Her Majesty concerning pensions and other grants in respect of disablement or death due to service in the Ulster Defence Regiment (1971 Cmnd. 4567),
Personal Injuries (Civilians) Scheme 1983 (S.I. 1983/686),
Naval, Military and Air Forces etc. (Disablement and Death) Service Pensions Order 1983 (S.I. 1983/883).
(3) The Treasury may by order amend subsection (2).”.
(5) After section 640 insert—
No liability to income tax arises on a lump sum provided under a scheme established by the Armed Forces Early Departure Payments Scheme Order 2005 (S.I. 2005/437).”.
(6) In section 641 (exemption from income tax for armed forces disability pensions etc), after paragraph (g) of subsection (1) insert—
“(h) a benefit under a scheme established by an order under section 1(2) of the Armed Forces (Pensions and Compensation) Act 2004 payable to a person by reason of his illness or injury—
(i) by way of a lump sum, or
(ii) following the termination of the person’s service in the armed forces or reserve forces.”.
(7) The amendment made by subsection (2) has effect for the year 2005-06.
(8) The amendments made by subsections (3) and (4) are deemed always to have had effect.
(9) The amendments made by subsections (5) and (6) have effect for the year 2005-06 and subsequent years of assessment.
(1) In Part 7 of ITEPA 2003 (employment income: income and exemptions relating to securities), after Chapter 4 insert—
(1) This Chapter applies where—
(a) an agreement is made for one or more transfers of intellectual property (an “intellectual property agreement”) from one or more research institutions to a company (a “spin-out company”),
(b) a person acquires shares (or an interest in shares) in the spin-out company before the intellectual property agreement is made or within the period of 183 days beginning with the date on which it is made,
(c) the right or opportunity to acquire the shares (or interest in shares) was available by reason of employment by the research institution (or any of them) or by the spin-out company, and
(d) the person is involved in research in relation to any of the intellectual property that is the subject of the intellectual property agreement.
(2) But this Chapter does not apply if the avoidance of tax or national insurance is the main purpose (or one of the main purposes) of the arrangements under which the right or opportunity to acquire the shares (or interest in shares) is made available.
(1) For the relevant tax purposes the market value of the shares (or interest in shares) at the time of the acquisition is to be calculated disregarding the effect on that market value of the intellectual property agreement and any transfer of intellectual property pursuant to it.
(2) For the purposes of subsection (1) “the relevant tax purposes” are—
(a) determining any amount that is to constitute earnings from the employment under Chapter 1 of Part 3 (earnings),
(b) determining the amount of any gain realised on the occurrence of an event that is a chargeable event by virtue of section 439(3)(a) (conversion),
(c) operating Chapter 3C of this Part (acquisition of securities for less than market value), and
(d) determining any amount that counts as employment income of the employee under Chapter 5 of this Part (securities acquired pursuant to securities option).
(1) If the shares are (or interest in shares is) acquired before the intellectual property agreement is made, or before any transfer of intellectual property pursuant to it, and any benefit deriving from the intellectual property agreement or any such transfer is received by the employee in connection with the shares (or interest in shares), the taxable amount determined under section 448 (post-acquisition benefits from securities: amount of charge) is to be treated as nil.
(2) But this section does not apply if something which affects the shares (or interest in shares) has been done (at or before the time when the intellectual property agreement is made or intellectual property is transferred) as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.
(1) If the shares are restricted securities (or the interest in shares is a restricted interest in securities), the employer and the employee are to be treated as making an election under section 431(1) (election for disapplication of Chapter 2) in relation to the shares (or interest in shares).
(2) But the employer and the employee may agree that subsection (1) is not to apply in relation to the shares (or interest in shares).
(3) An agreement under subsection (2) is irrevocable and—
(a) must be made in a form approved by the Board of the Inland Revenue, and
(b) may not be made more than 14 days after the acquisition.
(4) If the employer and the employee make an agreement under subsection (2) in relation to the shares (or interest in shares), subsection (5) applies for the purposes of determining the taxable amount for the purposes of section 426 (charge on occurrence of chargeable event) on the occurrence on any chargeable event in relation to the shares (or interest in shares).
(5) In determining under section 428(3) (amount of charge) what would have been the market value of the shares (or interest in shares) at the time of the acquisition but for any restrictions (IUMV), that market value is to be calculated disregarding the effect on that market value of the intellectual property agreement and any transfer of intellectual property pursuant to it.
For the purposes of Chapter 3B (securities with artificially enhanced market value) neither the intellectual property agreement nor any transfer of intellectual property pursuant to it are things done otherwise than for genuine commercial purposes.
(1) In this Chapter “intellectual property” means—
(a) any patent, trade mark, registered design, copyright or design right, plant breeders' rights or rights under section 7 of the Plant Varieties Act 1997,
(b) any right under the law of a country or territory outside the United Kingdom corresponding to, or similar to, a right within paragraph (a),
(c) any information or technique not protected by a right within paragraph (a) or (b) but having industrial, commercial or other economic value,
(d) any licence or other right in respect of anything within paragraph (a), (b) or (c), or
(e) any goodwill (having the meaning that it has for accounting purposes) associated with anything within paragraphs (a) to (d).
(2) The Treasury may by order amend the definition of “intellectual property” in subsection (1).
(3) For the purposes of this Chapter a transfer of intellectual property includes—
(a) a sale of the intellectual property,
(b) the grant of a licence or other right in respect of it, and
(c) the assignment of a licence or other right in respect of it.
(1) In this Chapter “research institution” means—
(a) any university or other institution that is a publicly funded institution as defined in section 41(2) of the Higher Education Act 2004, or
(b) any institution that carries out research activities otherwise than for profit and that is neither controlled nor wholly or mainly funded by a person who carries on activities for profit.
(2) The Treasury may by order amend subsection (1) to include in or exclude from the definition of “research institution” a person specified in the order or persons of a description specified in the order.
For the purposes of this Chapter a person is involved in research in relation to any intellectual property transferred or to be transferred from one or more research institutions if—
(a) he has been actively engaged for the research institution (or any of them) in connection with research (whether as an employee or otherwise), and
(b) that research is relevant to anything to which the intellectual property relates.
(1) For the purposes of this Chapter where a research institution has control of a company, a transfer of intellectual property from the company is to be treated as a transfer from the research institution.
(2) For the purposes of this Chapter where two or more research institutions together have control of a company, a transfer of intellectual property from the company is to be treated as a transfer from those research institutions.
(3) In this section “control” means control within the meaning of section 416 of ICTA.
(1) In this Chapter—
“interest”, in relation to shares, and
“shares”,
have the meaning indicated in section 420.
(2) In this Chapter “market value” has the meaning indicated in section 421(1).
(3) In this Chapter—
“the acquisition”,
“the employee”, and
“the employer”,
have the meaning indicated in section 421B(8).
(4) In this Chapter—
“restricted interest in securities”, and
“restricted securities”,
have the meaning indicated in sections 423 and 424.”
(2) In consequence of the amendment made by subsection (1), Chapter 1 of Part 7 of ITEPA 2003 (income and exemptions relating to securities: introduction) is amended as follows.
(3) Substitute “4A” for “4” in—
(a) subsections (1), (4) and (8) of section 421B,
(b) the heading of and the heading above that section, and
(c) subsections (5) and (6) of section 421D.
(4) In section 421K(3)(g) (reportable events), after “securities)” insert “or would give rise to such an amount but for Chapter 4A (shares in research institution spin-out companies)”.
(5) The amendments made by this section have effect in relation to shares (or an interest in shares) acquired before an agreement for the transfer of intellectual property is made, or within the period of 183 days beginning with the date on which such an agreement is made, if—
(a) the date of acquisition of the shares (or interest in shares), or
(b) the date on which the agreement was made,
or both, fell on or after 2nd December 2004.
(6) Where section 454 of ITEPA 2003 (as inserted by subsection (1)) has effect (by virtue of subsection (5)) in relation to shares (or an interest in shares) acquired before 2nd December 2004, it applies in relation to them (or it) so as to treat the election under section 431(1) as made on that date.
(7) Where section 454 of ITEPA 2003 (as inserted by subsection (1)) has effect (by virtue of subsection (5)) in relation to shares (or an interest in shares) acquired before 1st October 2005, it has effect with the substitution in subsection (3)(b) of that section of “later than 15th October 2005” for “more than 14 days after the acquisition of the shares (or interest in shares)”.
(1) Subsections (2) to (7) have effect where—
(a) Chapter 4A of Part 7 of ITEPA 2003 (as inserted by section 20) would apply but for subsection (5) of that section (commencement), and
(b) an election is made under this subsection by the employee and the employer no later than 15th October 2005.
(2) Section 452(1) and (2)(a), (c) and (d) and section 453(1) of ITEPA 2003 apply.
(3) But when the chargeable event occurs in relation to the shares (or interest in shares), the taxable amount counts as employment income of the employee for the tax year in which the chargeable event occurs.
(4) The chargeable event occurs in relation to the shares (or interest in shares) on the earlier of—
(a) the day on which there is a disposal for consideration of the shares, or any interest in them, by an associated person otherwise than to another associated person, and
(b) the day specified in any election made by an employee under this subsection.
(5) The taxable amount for the purposes of subsection (3) is—
MV - DA
where—
MV is the market value of the shares (or interest in shares) immediately before the occurrence of the chargeable event, and
DA is the total of any deductible amounts.
Finance Act 2005