Office of Public Sector Information
PART 4 continued
(3) Subsection (1) shall not apply in relation to a shareholder if and in so far as he—
(a) is a dealer in respect of distributions (within the meaning of section 95 of ICTA),
(b) is a dealer in securities who is charged to tax under Part 2 of ITTOIA 2005 (trading income) in respect of distributions made by companies,
(c) is an individual member of Lloyd’s (within the meaning given by section 184(1) of FA 1993) and the distribution is made in respect of assets forming part of—
(i) a premium trust fund of his (within the meaning given by section 174 of FA 1993), or
(ii) an ancillary trust fund of his (within the meaning given by section 176 of FA 1993), or
(d) is a corporate member of Lloyd’s (within the meaning given by section 230(1) of FA 1994) and the distribution is made in respect of assets forming part of—
(i) a premiums trust fund belonging to it (within the meaning given by section 222 of FA 1994), or
(ii) an ancillary trust fund belonging to it (within the meaning given by section 223 of FA 1994).
(4) Section 114(1)(a) of ICTA (partnerships with companies as members) does not disapply subsection (1) above.
(5) Sections 231 of ICTA and 397 of ITTOIA 2005 (tax credits in respect of qualifying distributions) shall not apply to distributions made by a company to which this Part applies in respect of profits of C (tax-exempt).
(6) Distributions from companies to which this Part applies and distributions from principal companies of groups to which this Part applies shall be treated, for the purposes of subsection (1), as the profits of a single business (irrespective of whether the shareholder receives different distributions in different capacities) which is separate from—
(a) any other Schedule A business carried on by the shareholder,
(b) any other UK property business (within the meaning of section 264 of ITTOIA 2005) carried on by the shareholder,
(c) any overseas property business (within the meaning of section 70A(4) of ICTA) carried on by the shareholder, and
(d) any overseas property business (within the meaning of section 265 of ITTOIA 2005) carried on by the shareholder.
(7) In the case of a shareholder which is a partnership, subsection (6) applies to receipts by a partner of a share of any distribution as it applies to receipts by a shareholder.
(8) In subsection (1)—
(a) the reference to a company to which this Part applies includes a reference to C (post-cessation), and
(b) “profits” includes gains.
(1) The Treasury may make regulations providing for the assessment, collection and recovery of tax where—
(a) a company to which this Part applies makes a distribution of profits of C (tax-exempt), and
(b) tax is or may become chargeable in respect of the distribution (whether by virtue of section 121(1) or otherwise).
(2) Regulations under this section may, in particular—
(a) require a company to deduct tax at the basic rate before payment of distributions;
(b) specify classes of shareholder to whom distributions may be made without deduction of tax;
(c) make provision about the calculation of payments of tax to be made by a company;
(d) require a company to account for tax deducted;
(e) apply an enactment (with or without modification) in respect of cases where tax is deducted or treated as deducted from income;
(f) specify the time at which a distribution is to be treated as made by a company;
(g) specify periods in respect of which payments of tax are to be made;
(h) specify times at which payments of tax are to be made;
(i) make provision about the making of claims and determinations in respect of over-payment or under-payment (which may include provision for appeals);
(j) include provision requiring the payment of interest in respect of late payments of tax (which may—
(i) provide for payment without deduction of tax;
(ii) allow interest paid as a deduction from profits of the company’s tax-exempt business);
(k) require a company to provide a shareholder with a certificate containing specified information;
(l) make provision about the repayment to a shareholder of sums deducted and paid to the Commissioners in respect of tax;
(m) make provision for the payment of interest in respect of repayments under paragraph (l);
(n) require notices to be given by or to a company;
(o) require a company to make returns;
(p) require a company to make records available to the Commissioners for inspection.
(3) A reference in subsection (2) to a distribution in respect of profits of tax-exempt business includes a distribution made after this Part has ceased to apply to a company.
(4) A distribution which is treated as having been made by virtue of section 107(9)(b) shall also be treated as having been made for the purposes of regulations under this section.
(5) In this section “profits” includes gains.
Distributions made by a company to which this Part applies shall be attributed—
(a) first, to payments in satisfaction of Condition 4 of section 107,
(b) secondly, if or in so far as the company determines, to distribution of amounts which derive from activities of a kind in respect of which corporation tax is chargeable in relation to income,
(c) thirdly, to distribution of profits of the property rental business,
(d) fourthly, to distribution of gains accruing to C (tax-exempt) which by virtue of section 124 are not chargeable gains, and
(e) fifthly, to other distributions.
(1) A gain accruing to a company to which this Part applies on the disposal of an asset shall not be a chargeable gain if—
(a) the asset was used wholly and exclusively for the purposes of the business of C (tax-exempt), or
(b) the asset was used partly for the purposes of the business of C (tax-exempt) and partly for the purposes of the business of C (residual) during one or more periods of (in aggregate) less than a year, but was otherwise used wholly and exclusively for the purposes of the business of C (tax-exempt).
(2) Where a gain accrues to a company to which this Part applies on the disposal of an asset which for one or more periods of (in aggregate) at least a year has been used partly for the purposes of the business of C (tax-exempt) and partly for the purposes of the business of C (residual), such part of the gain as may reasonably be attributed to the business of C (tax-exempt) (having regard to the extent to which, and the length of the periods during which, the asset was used for the different purposes) shall not be a chargeable gain.
(3) Corporation tax shall be charged in respect of gains accruing to C (residual) at a rate determined without reference to section 13 of ICTA (small companies rate).
(1) Subsection (2) applies when an asset which has been used wholly and exclusively for the purposes of the business of C (tax-exempt) begins to be used (otherwise than by being disposed of in the course of trade) wholly and exclusively for the purposes of the business of C (residual).
(2) The asset shall be treated as having been at that time—
(a) disposed of by C (tax-exempt), and
(b) immediately re-acquired by C (residual).
(3) The sale and re-acquisition deemed under subsection (2) shall be treated as being for a consideration equal to the market value of the asset.
(4) For the purposes of CAA 2001—
(a) the sale and re-acquisition deemed under subsection (2)—
(i) shall not give rise to allowances or charges, and
(ii) shall not make it possible to make an election under section 198 or 199 of that Act (apportionment),
(b) subsection (3) above shall not apply, and
(c) anything done by or to C (tax-exempt) before the deemed sale and re-acquisition shall be treated after the deemed sale and re-acquisition as having been done by or to C (residual).
(5) Subsection (6) applies when an asset which has been used wholly and exclusively for the purposes of the business of C (tax-exempt) is disposed of in the course of trade for the purposes of the business of C (residual).
(6) Where this subsection applies—
(a) the deemed sale and re-acquisition under section 111(2) shall be disregarded, and
(b) the asset shall be treated as having been disposed of in the course of the business of C (residual).
(7) Subsection (6) shall be taken to apply, in particular, where—
(a) a property acquired by a company to which this Part applies has been developed since acquisition,
(b) the cost of the development exceeds 30% of the fair value of the property (determined in accordance with international accounting standards) at entry or at acquisition, whichever is the later, and
(c) the company disposes of the property within the period of three years beginning with the completion of the development.
(8) Where subsection (6) applies in relation to an asset held at entry, the company may make a claim for repayment of a proportion of the tax paid under section 112 calculated as follows—
where—
(a) Asset Market Value means market value of the asset at entry,
(b) Aggregate Market Value means the aggregate market value of assets treated as sold and re-acquired under section 111(2) (ignoring any asset of negative market value), and
(c) Tax Paid means tax paid under section 112.
(1) This section applies where an asset which has been used wholly and exclusively for the purposes of the business of C (residual) begins to be used wholly and exclusively for the purposes of the business of C (tax-exempt).
(2) The asset shall be treated as having been—
(a) disposed of by C (residual), and
(b) immediately re-acquired by C (tax-exempt).
(3) The sale and re-acquisition deemed under subsection (2) shall be treated as being for a consideration equal to the market value of the asset.
(4) For the purposes of CAA 2001—
(a) the sale and re-acquisition deemed under subsection (2)—
(i) shall not give rise to allowances or charges, and
(ii) shall not make it possible to make an election under section 198 or 199 of that Act (apportionment),
(b) subsection (3) above shall not apply, and
(c) anything done by or to C (residual) before the deemed sale and re-acquisition shall be treated after the deemed sale and re-acquisition as having been done by or to C (tax-exempt).
Sections 124 to 126 shall be construed as one with TCGA 1992.
(1) If a company to which this Part applies gives a notice under this section specifying a date at the end of which this Part is to cease to apply to the company, this Part shall cease to apply to the company at the end of that date.
(2) A notice must be given in writing to the Commissioners for Her Majesty’s Revenue and Customs.
(3) The date specified under subsection (1) must be after the date on which the Commissioners receive the notice.
(1) If the Commissioners for Her Majesty’s Revenue and Customs give a company to which this Part applies a notice in writing under this subsection, this Part shall cease to apply to the company.
(2) The Commissioners may give a company a notice only if—
(a) the company has relied on a provision of regulations under section 116 on a specified number of occasions in a specified period,
(b) the company has been given a specified number of notices under section 117 in a specified period, or
(c) the Commissioners think that a breach of a requirement in section 107 or 108, or an attempt by the company to obtain a tax advantage, is so serious that this Part should cease to apply to it.
(3) In subsection (2) “specified” means specified in regulations made by the Treasury.
(4) A notice under subsection (1) must state the reason for it.
(5) Where a notice is given to a company, this Part shall be taken to have ceased to apply to the company at the end of the accounting period before the accounting period during which the event occurs (or the last event occurs) which caused the Commissioners to give the notice.
(6) Where a notice is given to a company, the company may appeal to the Special Commissioners.
(7) An appeal must be instituted by notice given in writing to the Commissioners for Her Majesty’s Revenue and Customs during the period of 30 days beginning with the date on which the notice is given to the company.
(1) Where Condition 1, 2, 5 or 6 of section 106 is not satisfied in respect of an accounting period of a company to which this Part applies, this Part shall be taken to have ceased to apply to the company at the end of the previous accounting period.
(2) A company which gave a notice under section 109 shall notify the Commissioners for Her Majesty’s Revenue and Customs as soon as is reasonably practicable if Condition 1, 2, 5 or 6 of section 106 ceases to be satisfied in relation to the company.
(1) The business of C (tax-exempt) shall be treated for the purposes of corporation tax as ceasing immediately before cessation.
(2) Assets which immediately before cessation are involved in the business of C (tax-exempt) shall be treated for the purposes of corporation tax as being sold by C (tax-exempt) immediately before cessation and re-acquired immediately after cessation by C (post-cessation).
(3) The sale and re-acquisition deemed under subsection (2) shall be treated as being for a consideration equal to the market value of the asset.
(4) For the purposes of CAA 2001—
(a) the sale and re-acquisition deemed under subsection (2)—
(i) shall not give rise to allowances or charges, and
(ii) shall not make it possible to make an election under section 198 or 199 of that Act (apportionment),
(b) subsection (3) above shall not apply, and
(c) anything done by or to C (tax-exempt) before cessation in relation to an asset which is deemed to be sold and re-acquired shall be treated after cessation as having been done by or to C (post-cessation).
(5) For the purposes of corporation tax, on cessation an accounting period of C (residual) shall end and an accounting period of C (post-cessation) shall begin.
(6) For the purposes of subsection (2) an asset is involved in the business of C (tax-exempt) if it is property involved in the business within the meaning given by section 107(6)(a).
(1) This section applies where this Part—
(a) ceases to apply to a company by reason of section 128, and
(b) had applied to the company for a continuous period immediately before cessation of less than ten years.
(2) If the company disposes of a tax-exempt asset during the post-cessation period, liability to corporation tax shall be determined without regard to—
(a) any deemed disposal under section 111(2) that resulted in a gain,
(b) any deemed disposal under section 131(3), or
(c) any deemed disposal under section 125(2).
(3) In subsection (2)—
(a) “tax-exempt asset” means an asset that was involved (within the meaning of section 107(6)(a)) in the business of C (tax-exempt), and
(b) “the post-cessation period” means the period of two years beginning with the date of cessation.
(1) This section applies where this Part—
(a) ceases to apply to a company by reason of section 129 or 130, and
(b) had applied to the company for a continuous period immediately before cessation of less than ten years.
(2) The Commissioners for Her Majesty’s Revenue and Customs may direct—
(a) that a provision of this Part shall have effect in relation to the company with a specified modification, or
(b) that a provision of an enactment relating to corporation tax shall apply, not apply or apply with modifications in relation to the company.
(3) A direction under subsection (2)(a) may, in particular—
(a) alter the time at which this Part is taken to cease to apply to the company in accordance with section 129 or 130;
(b) disapply or alter the effect of section 119(1) or 124(1)).
(4) A direction under subsection (2)(b) may, in particular, prevent all or a specified part of a loss, deficit or expense from being set off or otherwise used at all or in a specified manner.
(5) A company in respect of which a direction is given under this section may appeal to the Special Commissioners.
(1) A group of companies may become a group to which this Part applies; and for that purpose the provisions of this Part apply to a group of companies in the same way as to a company, subject to the modifications set out in Schedule 17.
(2) For the purposes of this Part a company (“the principal company”) and all its 75% subsidiaries form a group; and if any of those subsidiaries have 75% subsidiaries the group includes them and their 75% subsidiaries, and so on.
(3) But a group does not include—
(a) a company (other than the principal company) which is not an effective 51% subsidiary of the principal company,
(b) an insurance company,
(c) an insurance subsidiary, or
(d) an open-ended investment company.
(4) In this section—
(a) “effective 51% subsidiary” has the meaning given by section 170 of TCGA 1992 (groups of companies),
(b) “75% subsidiary” has the meaning given by section 838 of ICTA (subsidiaries),
(c) “insurance company” has the meaning given by section 431(2) of ICTA, and
(d) “insurance subsidiary” means a company in which 75% or more of the ordinary shares are held by one or more insurance companies.
(5) A company cannot be a member of more than one group; and if a company would be a member of more than one group, section 170(6) of TCGA 1992 (capital gains tax: groups) shall apply to determine the group of which it is a member.
(6) Subsection (5) is subject to section 138.
After section 171(2)(d) of TCGA 1992 (transfer within a group: exclusions) insert— “; or
(da) a disposal by or to a company to which Part 4 of the Finance Act 2006 applies (Real Estate Investment Trusts);”.
(1) In the application of a provision specified in subsection (2) to a group to which this Part applies G (property rental business) shall be treated as a separate group (distinct from—
(a) G (pre-entry),
(b) G (residual), and
(c) G (post-cessation)).
(2) The provisions mentioned in subsection (1) are—
(a) sections 171 and 171A of TCGA 1992 (actual or notional transfer of assets within group),
(b) sections 179A and 179B of TCGA 1992 (reallocation or roll-over of gain within a group),
(c) Chapter 4 of Part X of ICTA (corporation tax: group relief),
(d) Schedule 9 to FA 1996 (loan relationships),
(e) Schedule 26 to FA 2002 (derivative contracts), and
(f) Schedule 29 to FA 2002 (intangible assets).
In section 212(1) of TCGA 1992 (annual deemed disposal of holdings of certain assets) after paragraph (b) insert— “, or
(c) shares in a company to which Part 4 of the Finance Act 2006 applies (Real Estate Investment Trusts),”.
(1) The Treasury may by regulations provide for this Part to apply in relation to property rental business (“the joint venture”) carried on—
(a) jointly by a company to which this Part applies and another person, or
(b) by a person in which a company to which this Part applies has an interest.
(2) The regulations may, in particular, modify or disapply a provision of this Part in its application—
(a) by virtue of this section, or
(b) in relation to a company to which this Part applies where the company also carries on business in relation to which this Part applies by virtue of this section.
(3) The regulations may, in particular, make application of this Part conditional on—
(a) a company to which this Part applies having a minimum percentage interest of a specified kind in the joint venture;
(b) an election by a company to which this Part applies.
(1) This section applies to a manufactured dividend if and to the extent that it is representative of a dividend paid by a company to which this Part applies in respect of profits of C (tax-exempt).
(2) Schedule 23A to ICTA shall have effect with the substitution of the following for paragraph 2(2)—
“(2) Sub-paragraphs (2A) to (2C) apply if and to the extent that a manufactured dividend is representative of a dividend in respect of profits of the tax-exempt business of a company to which Part 4 of the Finance Act 2006 applies.
(2A) The Tax Acts shall have effect in relation to the recipient, and persons claiming title through or under him, as if the manufactured dividend were a dividend to which section 121 of that Act applied.
(2B) In relation to the dividend manufacturer—
(a) if the dividend manufacturer is a company and the manufactured dividend is paid in the course of a trade carried on in the United Kingdom, it shall be treated as an expense of the trade;
(b) if the manufactured dividend is paid in connection with investment business, it shall be treated for the purposes of section 75 of this Act as expenses of management;
(c) in the case of a company carrying on life assurance business, in so far as the manufactured dividend is referable to basic life assurance and general annuity business (or is or would be, if received by the company, be treated as referable to business of that kind by virtue of section 432A) it shall be treated for the purposes of section 76 as if it were an expense payable falling to be brought into account at Step 3 of section 76(7);
(d) regulations under section 122 of FA 2006 shall apply (with any necessary modifications) to the dividend manufacturer (whether or not a company) as if he were a company to which Part 4 of the Finance Act 2006 applied, unless—
(i) the dividend manufacturer is not resident in the United Kingdom, and
(ii) the manufactured dividend is paid otherwise than in the course of a trade carried on through a branch or agency in the United Kingdom.
(2C) The Treasury may by regulations provide, in a case where sub-paragraph (2B)(d)(i) and (ii) above apply, for a United Kingdom recipient of the manufactured dividend (within the meaning of paragraph 4(3A) below) to be liable to account for tax which the dividend manufacturer would have been required to deduct in accordance with regulations under section 122 of the Finance Act 2006.
(2D) Sub-paragraph (2E) shall apply for the purposes of—
(a) this paragraph, and
(b) regulations under section 122 of the Finance Act 2006.
(2E) The gross amount of a manufactured dividend to which sub-paragraphs (2A) and (2B) apply shall be taken to be equal to the gross amount of the dividend of which it is representative and which is paid by the company to which Part 4 of the Finance Act 2006 applies.”
(3) For the purposes of sections 736B of ICTA (deemed manufactured payments: stock lending), regulations under section 122 shall be treated, in so far as they apply to a dividend manufacturer, as if they were regulations made under Schedule 23A.
(4) For the purposes of section 737A of ICTA (deemed manufactured payments: sale and repurchase of securities) regulations under section 122 shall be treated, in so far as they apply to a dividend manufacturer, as dividend manufacturing regulations (within the meaning of section 737A(6)).
(5) After section 737C(3) of ICTA (amount of deemed manufactured dividend) insert—
“(3A) But if and to the extent that the dividend mentioned in section 737A(2)(a) or (2A)(a) is a dividend paid by a company to which Part 4 of the Finance Act 2006 applies in respect of profits of its tax-exempt business—
(a) the amount of the deemed manufactured dividend shall be taken to be an amount equal to the gross amount of the dividend mentioned in section 737A(2)(a) or (2A)(a);
(b) any deduction which, by virtue of paragraph 2 of Schedule 23A (as amended by section 139 of the Finance Act 2006), is required to be made out of the gross amount of the manufactured dividend shall be deemed to have been made;
(c) the repurchase price of the securities shall be treated, for the purposes of section 730A, as increased by the gross amount of the deemed manufactured dividend.”
(6) In section 737D(2) of ICTA (manufactured payments: relief) after “any” insert “manufactured dividend,”.
(7) In this section “dividend manufacturer” and “manufactured dividend” have the meaning given by Schedule 23A to ICTA.
At the end of the second column of the Table in section 98(5) of TMA 1970 (penalties) add—
“Section 106 of FA 2006 as modified by Schedule 17 to that Act.
Section 116 of FA 2006.
Regulations under section 116 of FA 2006.
Regulations under section 122 of FA 2006.
Section 130 of FA 2006.”
A deemed disposal and re-acquisition of an asset under this Part shall have effect for the purposes of any subsequent disposal of the asset (whether actual or deemed).
In this Part—
(a) a reference to an asset includes a reference to—
(i) part of an asset, and
(ii) an interest in, or right in relation to, an asset,
(b) a reference to assets used in business of a company includes a reference to assets—
(i) which were acquired for the purpose of that business and which are not being used in another business,
(ii) which are available for use in that business, or
(iii) which are in any other way held in respect of, or associated or connected with, that business,
(c) “company” has the meaning given by section 170(9) of TCGA 1992,
(d) “international accounting standards” has the meaning given by section 50(2) of FA 2004,
(e) “market value” has the same meaning as in TCGA 1992 (see sections 272 and 273 and Schedule 11), and
(f) “profits” means income (except where the context otherwise requires).
Finance Act 2006