Office of Public Sector Information
PART 3 continued CHAPTER 2 continued
(1) Section 93 of the Finance Act 1996 (c. 8) (relationships linked to the value of chargeable assets) is amended as follows.
(2) In subsection (1) (application of section and exclusion of cases where dealing in loan relationships is part of a trade)—
(a) for “unless it is one” substitute “unless—
(a) in a case where the loan relationship is a creditor relationship, the asset representing the loan relationship is one”; and
(b) at the end of that subsection insert—
“(b) in a case where the loan relationship is a debtor relationship, the liability representing the loan relationship is a liability entered into by the company in the course of activities forming an integral part of a trade carried on by the company; or
(c) the loan relationship is one to which section 93A below applies.”.
(3) In subsection (10) (meaning of chargeable asset) for the words from “if” to the end substitute— “the asset is—
(a) an estate or interest in land (wherever situated), or
(b) qualifying ordinary shares which are listed on a recognised stock exchange.”.
(4) Subsection (11) (assumptions applying to determine if disposal is chargeable gain for the purposes of subsection (10)) shall cease to have effect.
(5) After subsection (12) insert—
“(12A) In subsection (10)(b) above “qualifying ordinary shares”, in relation to a company, means shares representing some or all of the issued share capital (by whatever name called) of the company, other than—
(a) capital the holders of which have a right to a dividend at a fixed rate but have no other right to share in the profits of the company, or
(b) capital the holders of which have no right to a dividend of any description nor any other right to share in the profits of the company.”.
(6) Subsection (13) (which makes provision in respect of certain indices which, in consequence of the amendment made by subsection (3) above, cannot be indices of chargeable assets) shall cease to have effect.
(7) At the end of the section add—
“(14) This section is supplemented by section 93B below.”.
(8) The amendments made by this section do not have effect for the purpose of determining, in relation to such part of an accounting period as falls before 26th July 2001, whether a loan relationship is, or has ceased to be, a loan relationship to which section 93 of the Finance Act 1996 (c. 8) applies.
(9) Subject to subsection (8), the amendments made by this section have effect for accounting periods ending on or after 26th July 2001 in relation to any loan relationship of a company, unless the loan relationship in question is one to which the company ceased to be a party before that date.
(1) After section 93 of the Finance Act 1996 insert—
(1) This section applies to a loan relationship which is a creditor relationship of a company if—
(a) that loan relationship and one or more other transactions are associated transactions designed to produce a guaranteed return;
(b) any such other transaction is a disposal of futures or options; and
(c) the guaranteed return comprises the return consisting of the amount that must be paid to discharge the money debt arising in connection with that loan relationship taken together with the return from any one or more of the disposals of futures or options.
(2) For the purposes of this section a loan relationship of a company and one or more disposals of futures or options are transactions designed to produce a guaranteed return if, taking the transactions together, it would be reasonable to assume, from considering—
(a) the likely effect of the transactions,
(b) the circumstances in which the transactions are entered into, or in which any of them is entered into, or
(c) the matters in both of paragraphs (a) and (b),
that the main purpose of the transactions, or one of their main purposes, is or was the production of a guaranteed return from the loan relationship and any one or more of the disposals.
(3) For the purposes of this section a guaranteed return is produced from the loan relationship and any one or more of the disposals of futures or options wherever (taking all the transactions together) risks from fluctuations in the underlying subject matter are so eliminated or reduced as to produce a return from the transactions—
(a) the amount of which is not, to any significant extent, attributable (otherwise than incidentally) to any such fluctuations; and
(b) which equates, in substance, to the return on an investment of money at interest.
(4) For the purposes of subsection (3) above the cases where risks from fluctuations in the underlying subject matter are eliminated or reduced shall be deemed to include any case where the main reason, or one of the main reasons, for the choice of that subject matter is—
(a) that there appears to be no risk that that subject matter will fluctuate; or
(b) that the risk that it will fluctuate appears to be insignificant.
(5) In this section—
(a) the references, in relation to a loan relationship, to the underlying subject matter are references to the value of chargeable assets of a particular description to which that relationship is linked;
(b) the references, in relation to a disposal of futures or options, to the underlying subject matter are references to or to the value of the commodities, currencies, shares, stock or securities, interest rates, indices or other matters to which, or to the value of which, those futures or options are referable.
(6) Subsection (5)(a) above is to be construed in accordance with section 93 above.
(7) For the purposes of this section—
(a) references to the disposal of futures or options are to be construed in accordance with paragraphs 4 and 4A of Schedule 5AA to the Taxes Act 1988;
(b) references to the return from one or more disposals of futures or options are to be construed in accordance with paragraph 5 of that Schedule; and
(c) references to associated transactions are to be construed in accordance with paragraph 6 of that Schedule.”.
(2) The amendment made by this section has effect for accounting periods ending on or after 26th July 2001 in relation to any loan relationship of a company, unless the loan relationship in question is one to which the company ceased to be a party before that date.
(1) After section 93A of the Finance Act 1996 (c. 8) (which is inserted by section 76) insert—
(1) Where a loan relationship of a company—
(a) ceases at any time to be a loan relationship to which section 93 above applies, but
(b) does not cease at that time to be a loan relationship of that company,
subsection (2) below shall have effect in relation to the asset representing that relationship.
(2) Where this subsection has effect in relation to an asset representing a loan relationship of a company, the company shall be deemed for the purposes of the Taxation of Chargeable Gains Act 1992 and this Chapter—
(a) to have disposed of the asset for the relevant consideration immediately before the time when the loan relationship ceases to be one to which section 93 above applies, and
(b) to have re-acquired it for the relevant consideration immediately after that time.
(3) Any deemed disposal and re-acquisition of an asset under subsection (2) above shall be treated for the purposes of the Taxation of Chargeable Gains Act 1992 as a transaction in the case of which—
(a) sections 127 to 130 of that Act would apply, apart from the provisions of section 116 of that Act, by virtue of any provision of Chapter 2 of Part 4 of that Act;
(b) the asset in question represents both the original shares and the new holding for the purposes of those sections;
(c) the market value of the asset at the time of the transaction is an amount equal to the relevant consideration.
(4) Subject to subsection (5) below, in subsections (2) and (3) above “the relevant consideration”, in relation to an asset, means the amount that would have been taken, in accordance with the relevant accounting method, to be the value of the asset at the time of its deemed disposal if that method had been applied to the asset for tax purposes at all times until then.
(5) Section 93(5) above shall not apply in the case of a deemed disposal and re-acquisition under subsection (2) above; but the amount of the relevant consideration in such a case shall be treated for the purposes of the Taxation of Chargeable Gains Act 1992 as reduced by so much (if any) of the amount mentioned in subsection (4) above as is referable to interest which—
(a) is not paid or payable to the company before the time of the deemed disposal; but
(b) is interest falling to be brought into account under section 93(2) and (3) above as having accrued before that time.
(6) In subsection (4) above “the relevant accounting method”, in relation to an asset representing a loan relationship of a company, means the accounting method which, for the accounting period of that company in which the deemed re-acquisition takes place, is used as respects that asset and the part of that accounting period beginning with the deemed re-acquisition.
(7) This section shall be construed as one with section 93 above.”.
(2) The amendment made by this section does not have effect in relation to a loan relationship which, before 26th July 2001, ceased to be a loan relationship to which section 93 of the Finance Act 1996 (c. 8) (as it has effect by virtue of section 75(8) above) applies.
(3) Subject to subsection (2), the amendment made by this section has effect for accounting periods ending on or after 26th July 2001 in relation to any loan relationship of a company, unless the loan relationship in question is one to which the company ceased to be a party before that date.
(1) Schedule 5AA to the Taxes Act 1988 (guaranteed returns on transactions in futures and options) is amended as follows.
(2) In paragraph 2 (transactions to which Schedule applies) at the end insert—
“(3) This Schedule also applies to a transaction if it is one of the disposals of futures or options to which section 93A of the Finance Act 1996 (loan relationships linked to the value of chargeable assets designed to produce guaranteed returns when taken together with disposals of options and futures) refers.”.
(3) In paragraph 4 (meaning of disposals of futures or options) after sub-paragraph (4) insert—
“(4A) Where this paragraph has effect in relation to one of the associated transactions to which section 93A of the Finance Act 1996 refers, sub-paragraph (4) shall have effect as if for paragraph (a) of that sub-paragraph there were substituted—
“(a) any one of the associated transactions to which section 93A of the Finance Act 1996 refers is the grant of an option,”.”.
(4) In paragraph 4A (futures running to delivery and options exercised) after sub-paragraph (10) insert—
“(10A) Where this paragraph has effect in relation to one of the associated transactions to which section 93A of the Finance Act 1996 refers—
(a) sub-paragraph (1)(a) shall have effect as if for “two or more related transactions” there were substituted “two or more of the associated transactions to which section 93A of the Finance Act 1996 refers”, and
(b) sub-paragraph (1)(c) shall have effect as if for “the other transaction, or one of the other transactions,” there were substituted “one of the other transactions”.”.
(5) In paragraph 6 (meaning of related transactions) after sub-paragraph (3) insert—
“(3A) Where this paragraph has effect in relation to one of the associated transactions to which section 93A of the Finance Act 1996 refers—
(a) sub-paragraph (1) shall have effect as if for “two or more transactions are related” there were substituted “two or more transactions are associated transactions to which section 93A of the Finance Act 1996 refers”, and
(b) sub-paragraph (2) shall have effect as if for “related transactions” there were substituted “associated transactions to which that section refers”.”.
(6) This section has effect for accounting periods ending on or after 26th July 2001 in relation to profits and gains realised, and losses sustained, on or after that date.
(1) The following provisions shall cease to have effect—
(a) paragraph 4 of Schedule 9 to the Finance Act 1996 (c. 8) (which excludes foreign exchange gains and losses from the computation of credits and debits under the loan relationships legislation); and
(b) in consequence, sections 125 to 169 of the Finance Act 1993 (c. 34) (taxation of foreign exchange gains and losses).
(2) Schedule 23 to this Act (which makes provision in relation to exchange gains and losses from loan relationships etc) shall have effect.
(3) The amendments made by subsection (1) and by Parts 1 and 2 of Schedule 23 have effect in relation to accounting periods beginning on or after 1st October 2002.
(1) Schedule 24 to this Act (which makes provision in relation to corporation tax and currency) shall have effect.
(2) This section has effect in relation to accounting periods beginning on or after 1st October 2002.
(1) The Treasury may by regulations make such transitional or consequential provision, or such savings (with or without modifications), as they may from time to time consider appropriate in consequence of, or otherwise in connection with, any provision of section 79 or 80 or Schedule 23 or 24 (or any repeal consequential on any such provision).
(2) The power conferred by subsection (1) includes power—
(a) to make different provision for different cases or different purposes;
(b) to amend any statutory instrument; and
(c) to make incidental or supplementary provision.
(3) The provision that may be made by virtue of subsection (1) or (2) includes provision for or in connection with bringing amounts into account—
(a) for the purposes of the Taxation of Chargeable Gains Act 1992 (c. 12), as if they were chargeable gains or allowable losses; or
(b) for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 (c. 8), as if they were credits or debits in respect of a loan relationship or a related transaction of the company concerned.
(4) Nothing in any provision of Schedule 23 or 24 shall prejudice the operation of this section.
(5) Nothing in this section or in Schedule 23 or 24 limits the operation of section 16 or 17 of the Interpretation Act 1978 (c. 30) (effect of repeals).
(1) Schedule 25 to this Act (which makes provision in relation to loan relationships) shall have effect.
(2) The amendments made by Parts 1 and 2 of that Schedule have effect in relation to accounting periods beginning on or after 1st October 2002.
(1) The following shall have effect—
(a) Schedule 26 to this Act (which makes provision for the taxation of derivative contracts);
(b) Schedule 27 to this Act (which makes minor and consequential amendments relating to the taxation of derivative contracts); and
(c) Schedule 28 to this Act (which contains transitional provisions etc in connection with the coming into force of this section and Schedules 26 and 27).
(2) Sections 147 to 175 and 177 of the Finance Act 1994 (c. 9) (which make provision for the taxation of interest rate and currency contracts) shall cease to have effect.
(3) This section has effect in relation to accounting periods beginning on or after 1st October 2002.
(4) Subsection (3) is subject to any specific provision of Schedule 28.
(1) Schedule 29 to this Act has effect with respect to gains and losses from a company’s intangible fixed assets.
(2) Schedule 30 to this Act contains consequential amendments.
(1) In Chapter 3 of Part 6 of the Taxation of Chargeable Gains Act 1992 (c. 12) (insurance), after section 211 insert—
Schedule 7AD to this Act has effect with respect to the gains of an insurance company from a venture capital investment partnership.”.
(2) After Schedule 7AC to that Act (inserted by Part 1 of Schedule 8 to this Act) insert the Schedule 7AD set out in Schedule 31 to this Act.
(1) Schedule 32 to this Act (which makes provision about the taxation of Lloyd’s underwriters) has effect.
(2) The amendments in that Schedule have effect in relation to quota share contracts (within the meaning of section 178 of the Finance Act 1993 (c. 34) or section 225 of the Finance Act 1994) entered into on or after 17th April 2002.
(1) Chapter 2 of Part 13 of the Taxes Act 1988 (life policies, life annuities and capital redemption policies) is amended in accordance with the following provisions of this section.
(2) Section 541 (computation of gain in case of life policy or, as applied by section 545, capital redemption policy) is amended as follows.
(3) In subsection (1)(c) (amounts and values to be brought into account in computing gain on an assignment) before “of any previously assigned share in the rights conferred by the policy” insert “, subject to subsection (3A) below,”.
(4) After subsection (3) (assignments between connected persons) insert—
“(3A) he amount or value of such a previously assigned share as is mentioned in paragraph (c) of subsection (1) above falls to be brought into account for the purposes of that paragraph only where that share was so assigned—
(a) in a year (as defined in section 546(4)) beginning on or before 5th April 2001; or
(b) for money or money’s worth in a year (as so defined) beginning on or after 6th April 2001.”.
(5) Section 543 (life annuity contracts: computation of gain) is amended as follows.
(6) In subsection (1)(b) (amounts and values to be brought into account in computing gain on an assignment) before “of any previously assigned share in the rights conferred by the contract” insert “, subject to subsection (2A) below,”.
(7) After subsection (2) (which applies section 541(3): assignments between connected persons) insert—
“(2A) The amount or value of such a previously assigned share as is mentioned in paragraph (b) of subsection (1) above falls to be brought into account for the purposes of that paragraph only where that share was so assigned—
(a) in a year (as defined in section 546(4)) beginning on or before 5th April 2001; or
(b) for money or money’s worth in a year (as so defined) beginning on or after 6th April 2001.”.
(8) Section 546B (special provision in respect of certain section 546 excesses) is amended as follows.
(9) In subsection (1) (application of section) after paragraph (b) add—
“This subsection is subject to subsection (1A) below.”.
(10) After subsection (1) insert—
“(1A) In the case of a policy which is a qualifying policy (whether or not the premiums under the policy are eligible for relief under section 266) this section applies only if—
(a) the section 546 excess occurs within the time described in section 540(1)(b)(i); or
(b) the policy has been converted into a paid-up policy within that time.”.
(11) The amendments made by subsections (2) to (7) have effect in relation to any assignment on or after 6th April 2002 of the rights conferred by a policy or contract.
(12) The amendments made by subsections (8) to (10) have effect and shall be taken always to have had effect, in relation to any policy, in relation to any year (as defined in section 546(4) of the Taxes Act 1988) beginning on or after 6th April 2001.
(1) In section 788(1) of the Taxes Act 1988 (relief by agreement with other countries: power to give effect to arrangements), for “made with the government of any territory” substitute “made in relation to any territory”.
(2) The following amendments are consequential on that above—
(a) in sections 788(7)(a), 790(3), (5)(b), (10A)(d) and (10C), 792(1) and (3), 793A(1)(a) and (3), 795A(1)(b), 812(2), 815AA(1) and 815C(1) of the Taxes Act 1988, for “with the government of” substitute “in relation to”;
(b) in the headings (or sidenotes) to sections 788 and 815C of the Taxes Act 1988, for “countries” substitute “territories”;
(c) in section 816(1) of the Taxes Act 1988, for “government” substitute “authorities”;
(d) in section 816(2) of the Taxes Act 1988, for “government with” substitute “authorities of the territory in relation to”;
(e) in section 816(2ZA) of the Taxes Act 1988, for “government with” substitute “authorities of the territory in relation to”, for “is bound” substitute “are bound” and for “has undertaken” substitute “have undertaken”;
(f) in sections 277(1) (twice) and (3) and 278(1) of the Taxation of Chargeable Gains Act 1992 (c. 12), for “country” substitute “territory”.
(3) This section applies on and after the date on which this Act is passed in relation to arrangements made before that date (as well as in relation to arrangements made on or after that date).
(1) In section 748 of the Taxes Act 1988 (controlled foreign companies: cases where no apportionment falls to be made under section 747(3)) after subsection (5) insert—
“(6) This section is subject to section 748A.”.
(2) After section 748 of the Taxes Act 1988 insert—
Territorial exclusions from exemption under section 748
(1) Nothing in section 748 prevents an apportionment under section 747(3) falling to be made as regards an accounting period of a controlled foreign company if the company—
(a) is a company incorporated in a territory to which this section applies as respects that accounting period; or
(b) is at any time in that accounting period liable to tax in such a territory by reason of domicile, residence or place of management; or
(c) at any time in that accounting period carries on business through a branch or agency in such a territory.
(2) The condition in subsection (1)(c) above is not satisfied as regards an accounting period of a controlled foreign company if the business carried on by the company in that period through branches or agencies in territories to which this section applies, taken as a whole, is only a minimal part of the whole of the business carried on by the company in that period.
(3) The territories to which this section applies as respects an accounting period of a controlled foreign company are those specified as such in regulations made by the Treasury.
(4) Regulations under subsection (3) above—
(a) may make different provision for different cases or with respect to different territories; and
(b) may contain such incidental, supplemental, consequential or transitional provision as the Treasury may think fit.
(5) A statutory instrument containing regulations under subsection (3) above shall not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.”.
(3) This section has effect in relation to accounting periods of controlled foreign companies beginning on or after the day on which this Act is passed.
(4) In this section “accounting period” and “controlled foreign company” have the same meaning as in Chapter 4 of Part 17 of the Taxes Act 1988.
(1) In section 747 of the Taxes Act 1988 (imputation of chargeable profits and creditable tax of controlled foreign companies), after subsection (1A) insert—
“(1B) In determining, for the purposes of any provision of this Chapter except subsection (1)(a) above, whether a company is a person resident in the United Kingdom, section 249 of the Finance Act 1994 (under which a company is treated as non-resident if it is so treated for double taxation relief purposes) shall be disregarded.”.
(2) Subsection (1)—
(a) shall be deemed to have come into force on 1st April 2002, and
(b) does not apply to a company that—
(i) by virtue of section 249 of the Finance Act 1994 (c. 9) was treated as resident outside the United Kingdom, and not resident in the United Kingdom, immediately before that date, and
(ii) has not subsequently ceased to be so treated.
After section 501 of the Taxes Act 1988 insert—
(1) Where in any accounting period beginning on or after 17th April 2002 a company carries on a ring fence trade, a sum equal to 10 per cent of its adjusted ring fence profits for that period shall be charged on the company as if it were an amount of corporation tax chargeable on the company.
(2) A company’s adjusted ring fence profits for an accounting period are the amount which, on the assumption mentioned in subsection (3) below, would be determined for that period (in accordance with this Chapter) as the profits of the company’s ring fence trade chargeable to corporation tax.
(3) The assumption is that financing costs are left out of account in computing—
(a) the amount of the profits or loss of any ring fence trade of the company’s for each accounting period beginning on or after 17th April 2002; and
(b) where for any such period the whole or part of any loss relief is surrendered to the company in accordance with section 492(8), the amount of that relief or, as the case may be, that part.
(4) For the purposes of this section, “financing costs” means the costs of debt finance.
(5) In calculating the costs of debt finance for an accounting period the matters to be taken into account include—
(a) any costs giving rise to debits in respect of debtor relationships of the company under Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships);
(b) any exchange gain or loss, within the meaning of Chapter 2 of Part 2 of the Finance Act 1993, in relation to debt finance;
(c) any trading profit or loss, under Chapter 2 of Part 4 of the Finance Act 1994 (interest rate and currency contracts), in relation to debt finance;
(d) the financing cost implicit in a payment under a finance lease; and
(e) any other costs arising from what would be considered in accordance with generally accepted accounting practice to be a financing transaction.
(6) Where an amount representing the whole or part of a payment falling to be made by a company—
(a) falls (or would fall) to be treated as a finance charge under a finance lease for the purposes of accounts relating to that company and one or more other companies and prepared in accordance with generally accepted accounting practice, but
(b) is not so treated in the accounts of the company,
the amount shall be treated for the purposes of this section as financing costs falling within subsection (5)(d) above.
Finance Act 2002