Office of Public Sector Information
SCHEDULE 7 continued
(8) In this paragraph—
“assignment”, in relation to Scotland, means an assignation;
“chargeable payment” has the meaning given by section 214(2) of the Taxes Act 1988;
“exempt distribution” means a distribution which is exempt by virtue of section 213(2) of the Taxes Act 1988;
“the relevant 6 year period” means the period of 6 years following—
in case A, the transaction mentioned in paragraph 12(1)(a) above, or
in case B, the last of the series of transactions mentioned in paragraph 12(1)(b) above;
“the relevant group” means—
in case A, the group mentioned in paragraph 12(1)(a) above, or
in case B, the group mentioned in paragraph 12(1)(b) above;
“the relevant loan relationship” means the loan relationship mentioned in paragraph 12(1) above;
“the transferee company” means the company referred to as such in paragraph 12(1) above.
(9) Paragraph 12(14) of Schedule 26 to the Finance Act 2002 (hedging relationships) has effect for the purposes of this paragraph.”.
(2) The amendment made by this paragraph has effect where a company ceases to be a member of a group on or after 16th March 2005.
19 (1) In Schedule 9 to FA 1996 (loan relationships) paragraph 15 is amended as follows.
(2) At the end of sub-paragraph (2) (disposals and acquisitions to which the paragraph applies) add
“and as is, in the case of those arrangements, the disposal or acquisition effected by—
(a) the transfer by A to B mentioned in sub-paragraph (3)(a) below, or
(b) any transfer to A that gives effect to the entitlement or requirement described in sub-paragraph (3)(b) below.”.
(3) In sub-paragraph (3) (meaning of “repo or stock-lending arrangements”)—
(a) in paragraph (a), after “one person” insert “(“A”)” and after “another” insert “(“B”)”;
(b) in paragraph (b), for “the transferor” substitute “A”.
(4) In sub-paragraph (4A) (which states certain consequences of sub-paragraph (1) for each party), omit paragraph (b) (transferee not to be regarded as a party to the loan relationship) and the word “and” before it, and for the words following that paragraph substitute—
“but nothing in sub-paragraph (1) above prevents the person to whom those rights are transferred from being regarded for the purposes of this Chapter as being party to the loan relationship as a result of the transfer.”.
(5) The amendments made by this paragraph have effect in any case where the transfer mentioned in paragraph 15(3)(a) of Schedule 9 to FA 1996 is on or after 2nd December 2004, whenever the repo or stock-lending arrangements in question were entered into.
(6) In any case involving an arrangement for the sale and repurchase of securities where the arrangement—
(a) falls within section 737E(1)(b) of ICTA, and
(b) involves securities (“substituted securities”) being substituted for other securities,
the substitution of any securities on or after 2nd December 2004 shall be treated for the purposes of sub-paragraph (5) as if it were a transfer falling within paragraph 15(3)(a) of Schedule 9 to FA 1996.
20 (1) In Schedule 11 to FA 1996 (loan relationships: special provision for insurers) paragraph 1 (I minus E basis) is amended as follows.
(2) After sub-paragraph (1B) insert—
“(1C) In applying the I minus E basis for any accounting period in respect of any life assurance business carried on by an insurance company, no credits or debits shall be brought into account in respect of any debtor relationship that represents a capital redemption policy, within the meaning of Chapter 2 of Part 13 of the Taxes Act 1988.”.
(3) The amendment made by this paragraph has effect in relation to a debtor relationship on and after 10th February 2005 (whenever the capital redemption policy was effected).
21 (1) Schedule 13 to FA 1996 (discounted securities: income tax) is amended as follows.
(2) In paragraph 3 (meaning of “relevant discounted security”) in sub-paragraph (1), for “paragraph 14(1)” substitute “paragraphs 13B(1) and 14(1)”.
(3) In paragraph 4 (meaning of “transfer”)—
(a) in sub-paragraph (1), after “Subject to sub-paragraph (2)” insert “and paragraph 13B(4)”;
(b) in sub-paragraph (5), after “without prejudice to paragraph” insert “13B(2) to (5) or”.
(4) In paragraph 5 (redemption to include conversion), in sub-paragraph (3), after “This paragraph does not apply to” insert “—
(a) the conversion of an interest-bearing corporate security into corporate strips (see paragraph 13A(2) to (7) below), or
(b)”.
(5) After paragraph 13 (excluded indexed securities) insert—
13A (1) In this Schedule “corporate strip” means any asset—
(a) which is, or has at any time been, one of the separate assets mentioned in sub-paragraph (2) below, and
(b) which is not prevented from being a corporate strip by sub-paragraph (9) below.
(2) For the purposes of this Schedule a person converts an interest-bearing corporate security into corporate strips of the security if he has an interest-bearing corporate security (“the converted corporate security”) but—
(a) as a result of any scheme or arrangements, he comes to have two or more separate assets in place of the converted corporate security,
(b) each of those separate assets satisfies condition A,
(c) those separate assets, taken together, satisfy condition B, and
(d) at least one of those separate assets is not prevented from being a corporate strip by sub-paragraph (9) below,
and related expressions shall be construed accordingly.
(3) Condition A is that the asset—
(a) represents the right to, or
(b) secures,
one or more stripped payments.
(4) For the purposes of this paragraph, a “stripped payment” is—
(a) the payment of, or
(b) a payment corresponding to,
the whole or a part of one or more payments (whether of interest or principal) remaining to be made under the converted corporate security.
(5) Condition B is that the assets, taken together,—
(a) represent the right to, or
(b) secure,
every payment (whether of interest or principal) remaining to be made under the converted corporate security (or payments corresponding to every such payment).
(6) Where a person—
(a) has an interest-bearing corporate security, but
(b) sells or transfers the right to one or more payments remaining to be made under it (so that, as a result, there are two or more separate assets which, taken together, satisfy condition B),
this Schedule has effect as if, as a result of a scheme or arrangements, the person had come to have the separate assets in place of the security immediately before the sale or transfer.
(7) For the purposes of this Schedule, sub-paragraphs (2) to (6) above also have effect in relation to each of the separate assets mentioned in sub-paragraph (2) above as if it were itself an interest-bearing corporate security (if that is not in fact the case).
(8) Where sub-paragraphs (2) to (6) above have effect by virtue of sub-paragraph (7) above—
(a) any reference in this Schedule to converting an interest-bearing corporate security into corporate strips of the security shall be construed accordingly, and
(b) sub-paragraph (1) above (meaning of “corporate strip”) has effect accordingly.
(9) An asset is not a corporate strip if it—
(a) represents the right to, or
(b) secures,
payments of, or corresponding to, a part of every payment remaining to be made under an interest-bearing corporate security or a corporate strip.
(10) After a balance has been struck for a dividend on an interest-bearing corporate security, any payment to be made in respect of that dividend shall, at times falling after that balance has been struck, be treated for the purposes of this paragraph as not being a payment remaining to be made under the security.
References to payments the right to which a separate asset represents or secures shall be construed accordingly.
13B (1) Every corporate strip is a relevant discounted security.
(2) Where a person converts an interest-bearing corporate security into corporate strips of the security, he shall be deemed to have paid, in respect of his acquisition of each corporate strip, an amount determined in accordance with sub-paragraph (3) below.
(3) The amount is that which bears to the acquisition cost of the converted corporate security the proportion that SMV bears to TMV, where—
SMV is the market value of the corporate strip, and
TMV is the total of the market values of all the separate assets resulting from the conversion.
(4) If the converted corporate security is a relevant discounted security—
(a) its conversion into corporate strips is deemed to be a transfer of the security, and
(b) the amount payable on the transfer is deemed to be an amount equal to the acquisition cost of the converted corporate security.
(5) Where corporate strips are consolidated into a single security—
(a) by being exchanged by any person for that security, or
(b) by being otherwise converted by any person into that security under any arrangements,
each of the corporate strips shall be deemed to have been redeemed, at the time of the exchange or other conversion, by the payment to that person of an amount equal to its market value.
(6) Sub-paragraphs (2) to (5) above have effect for the purposes of this Schedule.
(7) For the purposes of this paragraph, the acquisition cost of the converted corporate security is the amount paid in respect of his acquisition of the security by the person who has it immediately before the conversion (no account being taken of any costs incurred in connection with that acquisition).
(8) References in this paragraph to the market value of a security given or received in exchange for, or otherwise converted into, another are references to its market value at the time of the exchange or conversion.
13C (1) This paragraph applies in any case where, as a result of any scheme or arrangement,—
(a) the amount paid by a person in respect of his acquisition of a corporate strip is or was more than the market value of the corporate strip at the time of that acquisition,
(b) the amount payable to a person on a transfer of a corporate strip by him is less than the market value of the corporate strip at the time of the transfer, or
(c) on redemption of a corporate strip, the amount payable to a person, as the person holding the corporate strip, is less than the market value of the corporate strip on the day before redemption,
and the obtaining of a tax advantage by any person is the main benefit, or one of the main benefits, that might have been expected to accrue from, or from any provision of, the scheme or arrangement.
(2) In a case falling within sub-paragraph (1)(a) above, the person shall be treated for the purposes of paragraph 1(2)(b) above on a transfer of the corporate strip by him as if he had paid in respect of his acquisition of the corporate strip an amount equal to the market value of the corporate 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 paragraph 1(2)(b) above as if the amount payable to him on the transfer were an amount equal to the market value of the corporate 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 paragraph 1(2)(b) above as if the amount payable to him on redemption were an amount equal to the market value of the corporate strip on the day before redemption.
(5) The market value of a corporate strip at any time shall be determined for the purposes of this paragraph without regard to any increase or diminution in the value of the corporate strip as a result of the scheme or arrangement mentioned in sub-paragraph (1) above.
(6) For the purposes of this paragraph, no account shall be taken of any costs incurred in connection with any transfer or redemption of a corporate strip or its acquisition.
(7) In this paragraph “tax advantage” has the meaning given by section 709(1) of the Taxes Act 1988.
13D (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 13C(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 corporate 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 13C 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.”.
(6) In paragraph 15(1) (general interpretation) insert each of the following definitions at the appropriate place—
““corporate strip” has the meaning given by paragraph 13A above;”;
““interest-bearing corporate security” means any interest-bearing security other than—
(a) a security issued by the government of a territory;
(b) a share in a company;”;
““interest-bearing security” includes any loan stock or similar security;”.
(7) In paragraph 15(1)—
(a) in the definition of “relevant discounted security”, after “paragraphs 3” insert “, 13B(1)”;
(b) in the definition of “strip”, after ““strip”” insert “, except in the expression “corporate strip”,”.
(8) The amendments made by this paragraph have effect in any case where a person acquires a corporate strip on or after 2nd December 2004 otherwise than in pursuance of an agreement entered into before that date.
22 (1) In Schedule 26 to FA 2002 (derivative contracts) paragraph 28 (transactions within groups) is amended as follows.
(2) For sub-paragraph (3) (the credits and debits to be brought into account) substitute—
“(3) For the purpose of determining the credits and debits to be brought into account for the purposes of this Schedule in respect of the derivative contract—
(a) for the accounting period in which the transaction or, as the case may be, the first of the series of transactions takes place, the transferor company shall be treated as having entered into that transaction for a consideration equal to the notional carrying value of the contract; and
(b) for any accounting period in which it is a party to the contract, the transferee company shall be treated as if it had acquired the contract for a consideration equal to its notional carrying value.
For the purposes of this sub-paragraph the notional carrying value is the amount that would have been the carrying value of the derivative contract in the accounts of the transferor company if a period of account had ended immediately before the date when the company ceased to be party to the contract.”.
(3) In sub-paragraph (5), after “In this paragraph” insert the following definition—
““carrying value” has the same meaning as it has for the purposes of paragraph 50A;”.
(4) Where the period of account mentioned in the second sentence of the sub-paragraph (3) substituted by sub-paragraph (2) begins before 1st January 2005, “carrying value” shall be construed as if the period had begun on or after that date.
(5) The amendments made by this paragraph have effect in any case where the relevant transaction is on or after 16th March 2005.
(6) In this paragraph “the relevant transaction” means—
(a) the related transaction mentioned in sub-paragraph (2)(a) of paragraph 28 of Schedule 26 to FA 2002,
(b) the first of the series of transactions mentioned in sub-paragraph (2)(b) of that paragraph, or
(c) the transfer mentioned in sub-paragraph (2)(c) or (2)(d) of that paragraph,
by virtue of which that paragraph applies or would apply apart from paragraph 30 of that Schedule.
23 (1) In Schedule 26 to FA 2002 (derivative contracts) paragraph 30 (transactions within groups: fair value accounting) is amended as follows.
(2) In sub-paragraph (1), for paragraph (b) (treatment of transferee in respect of the transaction) substitute—
“(b) paragraph 28(3)(b) shall have effect in relation to the transferee company.”.
(3) The amendment made by this paragraph has effect in any case where the relevant transaction is on or after 16th March 2005.
(4) In this paragraph “the relevant transaction” has the same meaning as in paragraph 22.
24 (1) In Schedule 26 to FA 2002 (derivative contracts) after paragraph 30 insert—
30A (1) This paragraph applies in any case where—
(a) paragraph 28 applies—
(i) by virtue of sub-paragraph (2)(a) of that paragraph (“case A”), or
(ii) by virtue of sub-paragraph (2)(b) of that paragraph (“case B”), but
(b) before the end of the relevant 6 year period, the transferee company ceases to be a member of the relevant group.
(2) In any such case, this Schedule shall have effect as if the transferee company had—
(a) immediately before that cessation, assigned its rights and liabilities under the relevant derivative contract for a consideration of an amount equal to their fair value at that time, and
(b) immediately reacquired them for a consideration of the same amount,
but only if Condition 1 or 2 is satisfied and sub-paragraph (5) does not apply.
(3) Condition 1 is that if sub-paragraph (2) has effect, a credit would in consequence of paragraph (a) of that sub-paragraph fall to be brought into account for the purposes of this Schedule by the transferee company.
(4) Condition 2 is that—
(a) Condition 1 is not satisfied,
(b) the company has a hedging relationship between the relevant derivative contract and a creditor relationship, and
(c) in consequence of paragraph 12A(2)(a) of Schedule 9 to the Finance Act 1996, a credit falls to be brought into account by the transferee company for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 in respect of the creditor relationship.
(5) Where the transferee company ceases to be a member of the relevant group by reason only of an exempt distribution (see sub-paragraph (8))—
(a) sub-paragraph (2) does not have effect, but
(b) if there is chargeable payment within 5 years after the making of the exempt distribution, sub-paragraph (6) applies.
(6) Where this sub-paragraph applies, this Chapter shall have effect as if—
(a) the transferee company had, immediately before the making of the chargeable payment, assigned its rights and liabilities under the relevant derivative contract,
(b) the assignment had been for a consideration of an amount equal to the fair value of those rights and liabilities immediately before the transferee company ceased to be a member of the relevant group, and
(c) the transferee company had immediately reacquired those rights and liabilities for a consideration of the same amount,
but only if Condition 1 or 2, as modified by sub-paragraph (7), is satisfied.
(7) The modifications are that—
(a) in Condition 1, the references to sub-paragraph (2), and paragraph (a) of that sub-paragraph, are to be taken respectively as references to sub-paragraph (6) and paragraphs (a) and (b) of that sub-paragraph, and
(b) in Condition 2, the reference to paragraph 12A(2)(a) of Schedule 9 to the Finance Act 1996 is to be taken as a reference to paragraph 12A(6)(a) and (b) of that Schedule.
(8) In this paragraph—
“assignment”, in relation to Scotland, means an assignation;
“chargeable payment” has the meaning given by section 214(2) of the Taxes Act 1988;
“exempt distribution” means a distribution which is exempt by virtue of section 213(2) of the Taxes Act 1988;
“creditor relationship” has the same meaning as in Chapter 2 of Part 4 of the Finance Act 1996 (see section 103(1) of that Act);
“the relevant 6 year period” means the period of 6 years following—
in case A, the transaction mentioned in paragraph 28(2)(a), or
in case B, the last of the series of transactions mentioned in paragraph 28(2)(b);
“the relevant derivative contract” means the derivative contract mentioned in paragraph 28(1);
“the relevant group” means—
in case A, the group mentioned in paragraph 28(2)(a), or
in case B, the group mentioned in paragraph 28(2)(b);
“the transferee company” means the company referred to as such in paragraph 28(1).”.
(2) The amendment made by this paragraph has effect where a company ceases to be a member of a group on or after 16th March 2005.
25 (1) Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted securities) is amended as follows.
(2) In section 430 (meaning of “deeply discounted security”) in subsection (6) (subjections) omit “and” before the entry relating to section 443(1) and at the end of that entry add “, and
section 452A(1) (corporate strips).”.
(3) In section 437 (transactions which are disposals) after subsection (4) insert—
“(5) In the case of interest-bearing corporate securities, further provision about occasions counting as disposals is made by section 452F(2)(a).
(6) In the case of corporate strips, further provision about occasions counting as disposals is made by section 452F(2)(a) and (3)(a).”.
(4) In section 438 (timing of transfers and acquisitions) for subsection (4) substitute—
“(4) This section is subject to—
section 445(7) (exchanges for and consolidations of strips);
section 452F(4) (conversion into and consolidations of corporate strips).”.
(5) In section 440 (market value disposals) for subsection (5) substitute—
“(5) Subsection (4) is subject to—
section 445(8) (exchanges for and consolidations of strips);
section 452F(5) (conversion into and consolidations of corporate strips).”.
(6) In section 441 (market value acquisitions) for subsection (3) substitute—
“(3) Subsection (2) is subject to—
section 445(8) (exchanges for and consolidations of strips);
section 452F(5) (conversion into and consolidations of corporate strips).”.
(7) In section 444 (meaning of “strip” in Chapter 8) after subsection (5) insert—
“(6) Nothing in this section affects the meaning of the expression “corporate strip” in this Chapter (see section 452E).”.
(8) After section 452 insert—
(1) All corporate strips are treated as deeply discounted securities for the purposes of this Chapter, whether or not they would otherwise be so.
(2) This Chapter applies to corporate strips subject to the rules in—
(a) section 452F (corporate strips: acquisitions and disposals), and
(b) section 452G (corporate strips: manipulation of acquisition, transfer or redemption payments).
(1) In this Chapter “interest-bearing corporate security” means any interest-bearing security other than—
(a) a security issued by the government of a territory, or
(b) a share in a company.
(2) In this section “interest-bearing security” includes any loan stock or similar security.
(3) Section 452D(4)(a) gives an extended meaning to references to converting an interest-bearing corporate security into corporate strips (and related expressions).
(1) For the purposes of this Chapter a person converts an interest-bearing corporate security into corporate strips of the security if he has an interest-bearing corporate security (“the converted corporate security”) but—
(a) as a result of any scheme or arrangements, he acquires two or more separate assets in place of the converted corporate security,
(b) each of those separate assets satisfies condition A,
(c) those separate assets, taken together, satisfy condition B, and
(d) at least one of those separate assets is not prevented from being a corporate strip by section 452E(2) or (3),
and related expressions shall be construed accordingly.
(2) Condition A is that the asset—
(a) represents the right to, or
(b) secures,
one or more stripped payments.
(3) For the purposes of this section, a “stripped payment” is—
(a) the payment of, or
(b) a payment corresponding to,
the whole or a part of one or more payments (whether of interest or principal) remaining to be made under the converted corporate security.
(4) Condition B is that the assets, taken together,—
(a) represent the right to, or
(b) secure,
every payment (whether of interest or principal) remaining to be made under the converted corporate security (or payments corresponding to every such payment).
(5) Where a person—
(a) has an interest-bearing corporate security, but
(b) sells or transfers the right to one or more payments remaining to be made under it (so that, as a result, there are two or more separate assets which, taken together, satisfy condition B),
this Chapter has effect as if, as a result of a scheme or arrangements, the person had acquired the separate assets in place of the security immediately before the sale or transfer.
(6) After a balance has been struck for a dividend on an interest-bearing corporate security, any payment to be made in respect of that dividend shall, at times falling after that balance has been struck, be treated for the purposes of this paragraph as not being a payment remaining to be made under the security.
Finance (No. 2) Act 2005