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Finance Act 1989 (c. 26) Laws UK
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Finance Act 1989 (c. 26)

(The document as of February, 2008)

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(a) in a case falling within subsection (1)(a) above, the person mentioned in subsection (1)(a) shall be taken for the purposes of this section to acquire at the time of the change any relevant assets owned by the company;

(b) in a case falling within subsection (1)(b) above but not within subsection (1)(a) above, each of the persons mentioned in subsection (1)(b) shall be taken for the purposes of this section to acquire at the time of the change the appropriate proportion of any relevant assets owned by the company; and

(c) in any other case, each of the persons mentioned in paragraph (c) of subsection (1) above (other than any whose holding is disregarded under that paragraph) shall be taken for the purposes of this section to acquire at the time of the change the appropriate proportion of any relevant assets owned by the company.

(6A) In subsection (6) above--

  • "the appropriate proportion", in relation to one of two or more persons mentioned in subsection (1)(b) or (c) above, means a proportion corresponding to the proportion which the percentage of the ordinary share capital acquired by him bears to the percentage of that capital acquired by all those persons taken together; and

  • "relevant assets", in relation to a company, means--

    (a)

    any ordinary share capital of another company, and

    (b)

    any property or rights which under subsection (3) above may be taken into account instead of ordinary share capital of another company.

(6B) Notwithstanding that at any time a company ("the subsidiary company") is a 75 per cent. subsidiary of another company ("the parent company") it shall not be treated at that time as such a subsidiary for the purposes of this section unless, additionally, at that time--

(a) the parent company would be beneficially entitled to not less than 75 per cent. of any profits available for distribution to equity holders of the subsidiary company; and

(b) the parent company would be beneficially entitled to not less than 75 per cent. of any assets of the subsidiary company available for distribution to its equity holders on a winding-up.

(6C) Schedule 18 shall apply for the purposes of subsection (6B) above as it applies for the purposes of section 413(7). "

(3) Subsection (7)(b) and (c) shall cease to have effect.

(4) This section shall have effect where the change of ownership of a company would be treated as occurring on or after 14th March 1989.

101 Treatment of convertible shares or securities for purposes relating to group relief etc

(1) Paragraph 1 of Schedule 18 to the Taxes Act 1988 (which contains definitions relating to group relief) shall be amended in accordance with this section.

(2) For sub-paragraph (3)(b) there shall be substituted--

" (b) do not carry any right either to conversion into shares or securities of any other description except--

(i) shares to which sub-paragraph (5A) below applies,

(ii) securities to which sub-paragraph (5B) below applies, or

(iii) shares or securities in the company's quoted parent company,

or to the acquisition of any additional shares or securities; " .

(3) For sub-paragraph (5)(a) there shall be substituted--

" (a) which does not carry any right either to conversion into shares or securities of any other description except--

(i) shares to which sub-paragraph (5A) below applies,

(ii) securities to which sub-paragraph (5B) below applies, or

(iii) shares or securities in the company's quoted parent company,

or to the acquisition of any additional shares or securities; " .

(4) After sub-paragraph (5) there shall be inserted--

" (5A) This sub-paragraph applies to any shares which--

(a) satisfy the requirements of sub-paragraph (3)(a), (c) and (d) above, and

(b) do not carry any rights either to conversion into shares or securities of any other description, except shares or securities in the company's quoted parent company, or to the acquisition of any additional shares or securities.

(5B) This sub-paragraph applies to any securities representing a loan of or including new consideration and--

(a) which satisfies the requirements of sub-paragraph (5)(b) and (c) above, and

(b) which does not carry any such rights as are mentioned in sub-paragraph (5A)(b) above.

(5C) For the purposes of sub-paragraphs (3) and (5) to (5B) above a company ("the parent company") is another company's "quoted parent company" if and only if--

(a) the other company is a 75 per cent. subsidiary of the parent company,

(b) the parent company is not a 75 per cent. subsidiary of any company, and

(c) the parent company's ordinary shares (or, if its ordinary share capital is divided into two or more classes, its ordinary shares of each class) are quoted on a recognised stock exchange or dealt in on the Unlisted Securities Market;

and in this sub-paragraph "ordinary shares" means shares forming part of ordinary share capital.

(5D) In the application of sub-paragraphs (3) and (5) to (5B) above in determining for the purposes of sub-paragraph (5C)(a) above who are the equity holders of the other company (and, accordingly, whether section 413(7) prevents the other company from being treated as a 75 per cent. subsidiary of the parent company for the purposes of sub-paragraph (5C)(a)), it shall be assumed that the parent company is for the purposes of sub-paragraphs (3) and (5) to (5B) above the other company's quoted parent company. "

(5) In sub-paragraph (6) for the words "to (5)" there shall be substituted the words "to (5D)".

(6) This section, so far as relating to Schedule 18 of the Taxes Act 1988 in its application (by virtue of section 138 below) for the purposes of subsections (1D) and (1E) of section 272 of the Taxes Act 1970, shall be deemed to have come into force on 14th March 1989.

102 Surrender of company tax refund etc. within group

(1) Subsection (2) below applies where--

(a) there falls to be made to a company ("the surrendering company") which is a member of a group throughout the appropriate period a tax refund relating to an accounting period of the company ("the relevant accounting period"), and

(b) another company ("the recipient company") which is a member of the same group throughout the appropriate period also has the relevant accounting period as an accounting period.

(2) Where this subsection applies the two companies may, at any time before the refund is made to the surrendering company, jointly give notice to the inspector in such form as the Board may require that subsection (4) below is to have effect in relation to the refund or to any part of the refund specified in the notice.

(3) In subsection (1) above--

  • "appropriate period" means the period beginning with the relevant accounting period and ending on the day on which the notice under subsection (2) above is given, and

  • "tax refund relating to an accounting period" means, in relation to a company--

    (a)

    a repayment of corporation tax paid by the company for the period,

    (b)

    a repayment of income tax in respect of a payment received by the company in the period, or

    (c)

    a payment of the whole or part of the tax credit comprised in any franked investment income received by the company in the period.

(4) Subject to subsection (6) below, where this subsection has effect in relation to any refund or part of a refund--

(a) the recipient company shall be treated for all purposes of the Tax Acts as having paid on the relevant date an amount of corporation tax for the relevant accounting period equal to the amount of the refund or part, and

(b) there shall be treated for all those purposes as having been made to the surrendering company on the relevant date a repayment of corporation tax or income tax or a payment of tax credit (as the case may be) equal to the amount of the refund or part;

and where the refund is a repayment of corporation tax, any interest relating to it which has been paid by the surrendering company shall be treated as having been paid by the recipient company.

(5) In subsection (4) above "relevant date", in relation to a refund, means--

(a) in so far as it consists of a repayment of corporation tax paid by the surrendering company after the date on which it became due and payable under section 10 of the Taxes Act 1988, the day on which it was paid by that company, and

(b) otherwise, the date on which corporation tax for the relevant accounting period became due and payable.

(6) For the purpose of ascertaining the amount of any penalty to which the recipient company is liable under section 94(6) of the [1970 c. 9.] Taxes Management Act 1970, the corporation tax which the company is treated as having paid by subsection (4)(a) above shall be treated as paid on the day on which the notice under subsection (2) above is given (and not on the relevant date).

(7) A payment for a transferred tax refund--

(a) shall not be taken into account in computing profits or losses of either company for corporation tax purposes, and

(b) shall not for any of the purposes of the Corporation Tax Acts be regarded as a distribution or a charge on income;

and in this subsection "a payment for a transferred tax refund" means a payment made by the receiving company to the surrendering company in pursuance of an agreement between them as respects the giving of a notice under this section, being a payment not exceeding the amount of the refund in question.

(8) For the purposes of this section two companies are members of the same group if and only if they would be for the purposes of Chapter IV of Part X of the Taxes Act 1988.

(9) This section shall not apply unless the relevant accounting period ends after such day, not being earlier than 31st March 1992, as the Treasury may by order made by statutory instrument appoint.



Close companies

103 Repeal of apportionment provisions

(1) Except as provided by subsection (2) below, Chapter III of Part XI of the Taxes Act 1988 (apportionment of undistributed income etc. of close companies) shall not have effect in relation to accounting periods beginning after 31st March 1989.

(2) Section 427(4) of the Taxes Act 1988 (which gives relief to an individual where income apportioned to him in an earlier accounting period of a close company is included in a distribution received by him in a later accounting period), and section 427(5) of, and Part I of Schedule 19 to, that Act so far as they relate to section 427(4), shall continue to have effect in any case where the subsequent distribution referred to in section 427(4) is made before 1st April 1992.

104 Meaning of "close company"

(1) In section 414 of the Taxes Act 1988 for subsection (2) (further case in which a company is a close company for the purposes of the Tax Acts) there shall be substituted--

" (2) Subject to section 415 and subsection (5) below, a company resident in the United Kingdom (but not falling within subsection (1)(b) above) is also a close company if five or fewer participators, or participators who are directors, together possess or are entitled to acquire--

(a) such rights as would, in the event of the winding-up of the company ("the relevant company") on the basis set out in subsection (2A) below, entitle them to receive the greater part of the assets of the relevant company which would then be available for distribution among the participators, or

(b) such rights as would in that event so entitle them if any rights which any of them or any other person has as a loan creditor (in relation to the relevant company or any other company) were disregarded.

(2A) In the notional winding-up of the relevant company, the part of the assets available for distribution among the participators which any person is entitled to receive is the aggregate of--

(a) any part of those assets which he would be entitled to receive in the event of the winding-up of the company, and

(b) any part of those assets which he would be entitled to receive if--

(i) any other company which is a participator in the relevant company and is entitled to receive any assets in the notional winding-up were also wound up on the basis set out in this subsection, and

(ii) the part of the assets of the relevant company to which the other company is entitled were distributed among the participators in the other company in proportion to their respective entitlement to the assets of the other company available for distribution among the participators.

(2B) In the application of subsection (2A) above to the notional winding-up of the other company and to any further notional winding-up required by paragraph (b) of that subsection (or by any further application of that paragraph), references to "the relevant company" shall have effect as references to the company concerned.

(2C) In ascertaining under subsection (2) above whether five or fewer participators, or participators who are directors, together possess or are entitled to acquire rights such as are mentioned in paragraph (a) or (b) of that subsection--

(a) a person shall be treated as a participator in or director of the relevant company if he is a participator in or director of any other company which would be entitled to receive assets in the notional winding-up of the relevant company on the basis set out in subsection (2A) above, and

(b) except in the application of subsection (2A) above, no account shall be taken of a participator which is a company unless the company possesses or is entitled to acquire the rights in a fiduciary or representative capacity.

(2D) Subsections (4) to (6) of section 416 apply for the purposes of subsections (2) and (2A) above as they apply for the purposes of subsection (2) of that section. "

(2) Subsection (3) of that section shall cease to have effect.

(3) In subsection (5)(b) of that section for the words from "paragraph (c)" to "that paragraph" there shall be substituted the words "paragraph (a) of subsection (2) above or paragraph (c) of section 416(2) and it would not be a close company if the references in those paragraphs".

(4) This section shall be deemed to have come into force on 1st April 1989.

105 Small companies' rate not available to certain close companies

(1) In section 13 of the Taxes Act 1988 (small companies' relief) in subsection (1) for the words "a company resident in the United Kingdom" there shall be substituted the words " a company which--

(a) is resident in the United Kingdom, and

(b) is not a close investment-holding company (as defined in section 13A) at the end of that period, " .

(2) After that section there shall be inserted the following section--

" 13A Close investment-holding companies

(1) A close company is for the purposes of section 13(1) a "close investment-holding company" unless it complies with subsection (2) below.

(2) A company ("the relevant company") complies with this subsection in any accounting period if throughout that period it exists wholly or mainly for any one or more of the following purposes--

(a) the purpose of carrying on a trade or trades on a commercial basis,

(b) the purpose of making investments in land or estates or interests in land in cases where the land is, or is intended to be, let to persons other than--

(i) any person connected with the relevant company, or

(ii) any person who is the wife or husband of an individual connected with the relevant company, or is a relative, or the wife or husband of a relative, of such an individual or of the husband or wife of such an individual,

(c) the purpose of holding shares in and securities of, or making loans to, one or more companies each of which is a qualifying company or a company which--

(i) is under the control of the relevant company or of a company which has control of the relevant company, and

(ii) itself exists wholly or mainly for the purpose of holding shares in or securities of, or making loans to, one or more qualifying companies,

(d) the purpose of co-ordinating the administration of two or more qualifying companies,

(e) the purpose of a trade or trades carried on on a commercial basis by one or more qualifying companies or by a company which has control of the relevant company, and

(f) the purpose of the making, by one or more qualifying companies or by a company which has control of the relevant company, of investments as mentioned in paragraph (b) above.

(3) For the purposes of subsection (2) above, a company is a "qualifying company", in relation to the relevant company, if it--

(a) is under the control of the relevant company or of a company which has control of the relevant company, and

(b) exists wholly or mainly for either or both of the purposes mentioned in subsection (2)(a) or (b) above.

(4) Where a company is wound up, it shall not be treated as failing to comply with subsection (2) above in the accounting period that (by virtue of subsection (7) of section 12) begins with the time which is for the purposes of that subsection the commencement of the winding up, if it complied with subsection (2) above in the accounting period that ends with that time.

(5) In this section--

  • "control" shall be construed in accordance with section 416, and

  • "relative" has the meaning given by section 839(8).

(6) Section 839 shall apply for the purposes of this section. "

(3) This section shall have effect in relation to accounting periods beginning after 31st March 1989.

106 Restriction on payment of tax credits.

(1) In section 231 of the Taxes Act 1988 (tax credits for certain recipients of qualifying distributions) in subsection (3) after the words "made and" there shall be inserted the words "subject to subsections (3A) to (3D) below" and after that subsection there shall be inserted--

" (3A) Subject to subsection (3B) below, where it appears to the inspector that, in any accounting period of a company at the end of which it is a close investment-holding company--

(a) arrangements relating to the distribution of the profits of the company exist or have existed the main purpose of which or one of the main purposes of which is to enable payments, or payments of a greater amount, to be made to any one or more individuals under subsection (3) above in respect of such an excess as is mentioned in that subsection, and

(b) by virtue of those arrangements, any eligible person--

(i) receives a qualifying distribution consisting of a payment made by the company on the redemption, repayment or purchase of its own shares, or

(ii) receives any other qualifying distribution in respect of shares in or securities of the company, where the amount or value of the distribution is greater than might in all the circumstances have been expected but for the arrangements,

the entitlement of the eligible person to have paid to him under subsection (3) above all or part of a tax credit in respect of any distribution made by the company in the period shall be restricted to such extent as appears to the inspector to be just and reasonable.

(3B) Subsection (3A) above does not apply in relation to a tax credit in respect of a dividend paid by a company in any accounting period in respect of its ordinary share capital if--

(a) throughout the period, the company's ordinary share capital consisted of only one class of shares, and

(b) no person waived his entitlement to any dividend which would have become payable by the company in the period or failed to receive any dividend which had become due and payable to him by the company in the period.

(3C) In subsection (3A) above--

  • "arrangements" means arrangements of any kind whether in writing or not,

  • "close investment-holding company" has the meaning given by section 13A, and

  • "eligible person", in relation to a qualifying distribution, means an individual resident in the United Kingdom who would (apart from subsection (3A) above) be entitled to have paid to him under subsection (3) above all or part of a tax credit in respect of the distribution.

(3D) In determining under subsection (3) above whether a person is entitled to have any excess of tax credit paid to him in a case where subsection (3A) above applies, tax credits shall be set against income tax in the order that results in the greatest payment in respect of the excess. "

(2) This section shall have effect in relation to distributions made by companies in accounting periods beginning after 31st March 1989.

107 Close companies: consequential amendments

Schedule 12 to this Act (in which Part I contains administrative provisions relating to close companies and Part II makes amendments connected with section 103 above) shall have effect.



Settlements etc.

108 Outright gifts etc. between husband and wife

(1) Section 685 of the Taxes Act 1988 (provisions supplementary to sections charging settlor to tax in excess of basic rate on certain settlement income) shall be amended as follows.

(2) In subsection (3), after the word "above" there shall be inserted the words "and subsection (4B) below".

(3) At the end of subsection (4) there shall be added the words ", but subject to subsections (4A) and (4C) below".

(4) After subsection (4) there shall be inserted--

" (4A) References in section 683 to a settlement do not include references to an outright gift by one spouse to the other of property from which income arises unless--

(a) the gift does not carry a right to the whole of that income, or

(b) the property given is wholly or substantially a right to income.

(4B) For the purposes of subsection (4A) above a gift is not an outright gift if it is subject to conditions, or if the property given or any derived property is or will or may become, in any circumstances whatsoever, payable to or applicable for the benefit of the donor.

(4C) References in section 683 to a settlement do not include references to the irrevocable allocation of pension rights by one spouse to the other in accordance with the terms of a relevant statutory scheme (within the meaning of Chapter I of Part XIV). "

(5) This section shall have effect for the year 1990-91 and subsequent years of assessment.

109 Settlements where settlor retains interest in settled property

(1) After section 674 of the Taxes Act 1988 there shall be inserted--

" 674A Other settlements where settlor retains interest in settled property

(1) Where, during the life of the settlor, income arising under a settlement is, under the settlement and in the events that occur, payable to or applicable for the benefit of any person other than the settlor, then, unless, under the settlement and in those events, the income--(a) consists of annual payments made under a partnership agreement to or for the benefit of a former member, or the widow or dependants of a deceased former member, of the partnership, being payments made under a liability incurred for full consideration; or

(b) is of a kind excluded from subsection (1) of section 683 by subsection (6) or (9) of that section; or

(c) is income arising under a settlement made by one party to a marriage by way of provision for the other after the dissolution or annulment of the marriage, or while they are separated under an order of a court or under a separation agreement or in such circumstances that the separation is likely to be permanent, being income payable to or applicable for the benefit of that other party; or

(d) is income from property of which the settlor has divested himself absolutely by the settlement; or

(e) consists of covenanted payments to charity (as defined by section 660(3)); or

(f) is income which, by virtue of any provision of the Income Tax Acts other than this section, is to be treated for all the purposes of those Acts as income of the settlor;

the income shall be treated for all the purposes of the Income Tax Acts as the income of the settlor and not as the income of any other person.

(2) Subsections (6) to (10) of section 683 shall apply in relation to subsection (1) above as they apply in relation to subsection (1) of that section.

(3) Subsections (1), (2), (3) and (for the year 1990-91 and subsequent years of assessment) (4A) to (4C) of section 685 shall have effect for the purposes of this section as they have effect for the purposes of section 683, but with the omission from subsections (1) and (2) of the words "in the case of a settlement made after 6th April 1965".

(4) For the year 1990-91 and subsequent years of assessment subsection (1)(a) above shall have effect with the insertion after the word "widow" of the word "widower".

(5) This section applies in relation to income--

(a) which arises on or after 14th March 1989 under a settlement made on or after that day, or

(b) which arises on or after 6th April 1990 under a settlement made before 14th March 1989, so far as it is payable to or applicable for the benefit of the settlor's husband or wife,

except income consisting of annual payments made under an obligation which is an existing obligation for the purposes of section 36(3) of the [1988 c. 39.] Finance Act 1988. "

(2) In section 125(3) of the Taxes Act 1988, in paragraph (a), for the words "section 683(1)(a) or (c) or (6)" there shall be substituted the words "subsection (1)(a) or (c) of section 674A or 683 or subsection (6) of section 683 (including that subsection as it applies in relation to section 674A(1))".

(3) In sections 675(1), (4) and (5) and 676(1)(a) of that Act, for the words "or 674" there shall be substituted the words "674 or 674A".

(4) In section 677(2)(c) of that Act, after "674" there shall be inserted "674A".

(1) Where the trustees of a settlement include at least one who is not resident in the United Kingdom as well as at least one who is, then for all the purposes of the Income Tax Acts--

(a) if the condition in subsection (2) below is satisfied, the trustee or trustees not resident in the United Kingdom shall be treated as resident there, and

(b) otherwise, the trustee or trustees resident in the United Kingdom shall be treated as not resident there (but as resident outside the United Kingdom).

(2) The condition referred to in subsection (1) above is that the settlor or, where there is more than one, any of them is at any relevant time--

(a) resident in the United Kingdom,

(b) ordinarily resident there, or

(c) domiciled there.

(3) For the purposes of subsection (2) above the following are relevant times in relation to a settlor--

(a) in the case of a settlement arising under a testamentary disposition of the settlor or on his intestacy, the time of his death, and

(b) in the case of any other settlement, the time or, where there is more than one, each of the times when he has provided funds directly or indirectly for the purposes of the settlement.

(4) For the purposes of this section "settlor", in relation to a settlement, includes any person who has provided or undertaken to provide funds directly or indirectly for the purposes of the settlement.

(5) In section 824(9) of the Taxes Act 1988 (repayment supplements), for the words "or a United Kingdom trust (as defined in section 231)," there shall be substituted the words "the trustees of a settlement".

(6) Subject to subsections (7) to (9) below, this section shall apply for the year 1989-90 and subsequent years of assessment.

(7) For the purpose of determining the residence of trustees at any time during the year 1989-90, the condition in subsection (2) above shall be regarded as not having been satisfied if none of the trustees of the settlement is resident in the United Kingdom at any time during the period beginning with 1st October 1989 and ending with 5th April 1990.

(8) This section shall not apply for any of the purposes of section 739 of the Taxes Act 1988 in relation to income payable before 15th June 1989, or for the purposes of subsection (3) of that section in relation to income payable on or after that date if--

(a) the capital sum there referred to is received, or the right to receive it is acquired, before that date, and

(b) that sum is wholly repaid, or the right to it waived, before 1st October 1989.

(9) This section shall not apply for any of the purposes of section 740 of the Taxes Act 1988 in relation to benefits received before 15th June 1989; and, in relation to benefits received on or after that date, "relevant income" for those purposes shall include income arising to trustees before 6th April 1989 notwithstanding that one or more of them was not resident outside the United Kingdom, unless they have been charged to tax in respect of it.

(1) Where the personal representatives of a deceased person include at least one who is not resident in the United Kingdom as well as at least one who is, then for all the purposes of the Income Tax Acts--

(a) if the condition in subsection (2) below is satisfied, the personal representative or representatives not resident in the United Kingdom shall be treated as resident there, and

(b) otherwise, the personal representative or representatives resident in the United Kingdom shall be treated as not resident there (but as resident outside the United Kingdom).

(2) The condition referred to in subsection (1) above is that the deceased person is at his death--

(a) resident in the United Kingdom,

(b) ordinarily resident there, or

(c) domiciled there.

(3) In this section "personal representatives" means--

(a) in relation to England and Wales, the deceased person's personal representatives as defined by section 55 of the [1925 c. 23.] Administration of Estates Act 1925;

(b) in relation to Scotland, his executor or the judicial factor on his estate;

(c) in relation to Northern Ireland, his personal representatives as defined by section 45(1) of the [1955 c. 24 (N.I.).] Administration of Estates Act (Northern Ireland) 1955; and

(d) in relation to another country or territory, the persons having in relation to him under its law any functions corresponding to the functions for administration purposes of personal representatives under the law of England and Wales.

(4) In section 824(9) of the Taxes Act 1988 (repayment supplements), for the words from "or, in" to "section 701)" there shall be substituted the words "or personal representatives (within the meaning of section 111 of the Finance Act 1989)".

(5) Subject to subsections (6) to (8) below, this section shall apply for the year 1989-90 and subsequent years of assessment.

(6) For the purpose of determining the residence of personal representatives at any time during the year 1989-90, the condition in subsection (2) above shall be regarded as not having been satisfied if none of the personal representatives is resident in the United Kingdom at any time during the period beginning with 1st October 1989 and ending with 5th April 1990.

(7) This section shall not apply for any of the purposes of section 739 of the Taxes Act 1988 in relation to income payable before 15th June 1989, or for the purposes of subsection (3) of that section in relation to income payable on or after that date if--

(a) the capital sum there referred to is received, or the right to receive it is acquired, before that date, and

(b) that sum is wholly repaid, or the right to it waived, before 1st October 1989.

(8) This section shall not apply for any of the purposes of section 740 of the Taxes Act 1988 in relation to benefits received before 15th June 1989 and, in relation to benefits received on or after that date, "relevant income" for those purposes shall include income arising to personal representatives before 6th April 1989 notwithstanding that one or more of them was not resident outside the United Kingdom, unless they have been charged to tax in respect of it.



Miscellaneous

112 Security: trades etc

(1) This section applies in computing, for the purposes of Case I or Case II of Schedule D, the profits or gains of a trade, profession or vocation carried on by an individual or by a partnership of individuals.

(2) In a case where this section applies, nothing in section 74(a) or (b) of the Taxes Act 1988 (deductions limited by reference to purposes of trade etc.) shall prevent the deduction of a sum in respect of expenditure incurred in connection with the provision for or use by the individual, or any of the individuals, of a security asset or security service.

(3) Subsection (2) above shall not apply unless the asset or service is provided or used to meet a threat which--

(a) is a special threat to the individual's personal physical security, and

(b) arises wholly or mainly by virtue of the particular trade, profession or vocation concerned.

(4) Subsection (2) above shall not apply unless the person incurring the expenditure has as his sole object in doing so the meeting of that threat.

(5) Subsection (2) above shall not apply in the case of a service unless the benefit resulting to the individual consists wholly or mainly of an improvement of his personal physical security.

(6) Subsection (2) above shall not apply in the case of an asset unless the person incurring the expenditure intends the asset to be used solely to improve personal physical security.

(7) But in a case where--

(a) apart from subsection (6) above, subsection (2) above would apply in the case of an asset, and

(b) the person incurring the expenditure intends the asset to be used partly to improve personal physical security,

subsection (2) shall nevertheless apply, but only as regards the appropriate proportion of the expenditure there mentioned.

(8) For the purposes of subsection (7) above the appropriate proportion of the expenditure mentioned in subsection (2) above is such proportion of that expenditure as is attributable to the intention of the person incurring it that the asset be used to improve personal physical security.

113 Security: trades etc. (supplementary)

(1) For the purposes of section 112 above--

(a) a security asset is an asset which improves personal security,

(b) a security service is a service which improves personal security,

(c) references to an asset do not include references to a car, a ship or an aircraft,

(d) references to an asset or service do not include references to a dwelling or grounds appurtenant to a dwelling, and

(e) references to an asset include references to equipment and a structure (such as a wall).

(2) If the person incurring the expenditure intends the asset to be used solely to improve personal physical security, but there is another use for the asset which is incidental to improving personal physical security, that other use shall be ignored in construing section 112(6) above.

(3) The fact that an asset or service improves the personal physical security of any member of the family or household of the individual concerned, as well as that of the individual, shall not prevent section 112(2) above from applying.

(4) For the purposes of section 112 above in its application to an asset, it is immaterial whether or not the asset becomes affixed to land (whether constituting a dwelling or otherwise).

(5) For the purposes of section 112 above in its application to an asset, it is immaterial whether or not the individual concerned is or becomes entitled to the property in the asset or (in the case of a fixture) an estate or interest in the land concerned.

(6) Section 112 above applies where expenditure is incurred on or after 6th April 1989.

114 Relief for pre-trading expenditure

(1) In section 401(1) of the Taxes Act 1988 (which gives relief for expenditure incurred by a person within three years before he begins to carry on a trade, profession or vocation), for the word "three" there shall be substituted the word "five".

(2) This section shall have effect where the time when the person begins to carry on the trade, profession or vocation falls after the end of March 1989.

115 Double taxation: tax credits

(1) Where any arrangements having effect by virtue of section 788 of the Taxes Act 1988 provide --

(a) for persons who are resident outside the United Kingdom and who receive distributions from companies resident in the United Kingdom to be entitled to tax credits, and

(b) for the amount paid to such a person by way of tax credit to be determined by reference to the amount to which an individual resident in the United Kingdom would have been entitled, subject to a deduction calculated by reference to the aggregate of the amount or value of the distribution and the amount of the tax credit paid,

the arrangements shall be construed as providing for that deduction to be calculated by reference to the gross amount or value of the distribution and tax credit, without any allowance for the deduction itself.

(2) This section shall have effect in relation to payments made before the passing of this Act as well as those made after that time, except that it shall not affect--

(a) the judgment of any court given before 25th October 1988, or

(b) the law to be applied in proceedings on appeal to the Court of Appeal or the House of Lords where the judgment of the High Court or the Court of Session which is in issue was given before that date.

116 Interest payments to Netherlands Antilles subsidiaries

(1) A payment to which this section applies shall be treated for the purposes of--

(a) section 338 of the Taxes Act 1988 (payment of interest within section 124 of that Act to be a charge on income), and

(b) section 349 of that Act (such a payment to be made gross),

as if it were a payment of interest within section 124 of that Act (quoted Eurobonds).

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