Finance Act 1994 (c. 9)

(The document as of February, 2008)

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(b) in subsection (11), for the definition of "chargeable business assets" there is substituted--

" "chargeable business asset", in relation to any company, means a chargeable asset (including goodwill but not including shares or securities or other assets held as investments) which is, or is an interest in, an asset used for the purposes of a trade, profession, vocation, office or employment carried on by--

(a) the individual acquiring the shares,

(b) any personal company of that individual,

(d) a partnership of which that individual is a member " .

Miscellaneous

11 In section 164N, after subsection (1) there is inserted--

" (1A) Every asset of a company is for the purposes of this Chapter a chargeable asset of that company at any time, except one on the disposal of which by the company at that time no gain accruing to the company would be a chargeable gain " .

Section 93.

SCHEDULE 12 Indexation losses: transitional relief

Introductory

1 This Schedule applies in relation to chargeable gains and allowable losses accruing to--

(a) an individual, or

(b) the trustees of a settlement made before 30th November 1993;

(referred to in this Schedule as "the taxpayer").

2 (1) This paragraph applies for the purposes of this Schedule, and the determinations required by this paragraph to be made shall be made without regard to paragraphs 4 to 7 below.

(2) If an allowable loss accrues on a disposal made on or after 30th November 1993 and, under the old indexation rules, a greater allowable loss would have accrued, there is an indexation loss in respect of the disposal equal to the amount by which the allowable loss which would have accrued under the old indexation rules exceeds the allowable loss accruing on the disposal.

(3) If a disposal made on or after 30th November 1993 is one on which neither a gain nor a loss accrues and, under the old indexation rules, an allowable loss would have accrued, there is an indexation loss in respect of the disposal equal to the amount of the allowable loss that would have accrued under the old indexation rules.

(4) If the total amount of chargeable gains accruing to the taxpayer in any year of assessment for which this Schedule has effect exceeds the allowable losses accruing in that year, there is a relevant gain for that year equal to the amount of the excess.

3 (1) The cases in which the appropriation of an asset by the taxpayer is treated under section 161(1) of the 1992 Act (appropriations to and from stock) as a disposal of the asset include cases in which, if he had sold the asset for its market value, an allowable loss would have accrued to him under the old indexation rules.

(2) Where, but for an election under subsection (3) of section 161 of the 1992 Act--

(a) an asset appropriated by the taxpayer would have been treated as disposed of as mentioned in subsection (1) of that section, and

(b) paragraph 2(2) or (3) above would have applied on the disposal,

paragraphs 1 and 2 above and 6 and 7 below shall apply, as if the asset had been so treated, to determine for the purposes of subsection (3) of that section any increase to be made in the amount of any allowable loss; and the appropriation of the asset is referred to below as a "relevant appropriation".

(3) Sections 574 to 576 of the Taxes Act (relief for individual on disposal of shares in qualifying trading company) shall apply if an individual who has subscribed for shares as mentioned in section 574(1) disposes of them in circumstances where paragraph 2(3) above applies as they apply in other cases.

(4) Where a person makes a claim for relief under subsection (1) of section 574 in the case of a disposal in respect of which there is an indexation loss (referred to below as a "section 574 disposal")--

(a) paragraphs 6 and 7 below shall apply to determine any increase to be made, for the purposes of that subsection, in the amount of the allowable loss, and

(b) paragraphs 4 and 5 below shall apply to so much only of the indexation loss as is not relieved under that section.

(5) References in this paragraph and paragraphs 6 and 7 below to an increase in any loss include, in circumstances where paragraph 2(3) above applies, a reference to the creation of the loss.

Capital gains tax

4 (1) Where in the case of any taxpayer--

(a) there is a relevant gain for the year 1993-94,

(b) the relevant gain exceeds the exempt amount for that year, and

then, for the purposes of the 1992 Act, the amount by which the total amount of chargeable gains accruing to the taxpayer in that year exceeds the allowable losses accruing in the year shall be reduced by the amount mentioned in sub-paragraph (2) below, and shall be so reduced before the deduction of any allowable losses carried forward from any previous year or carried back under section 62 from any subsequent year.

(2) The amount referred to in sub-paragraph (1) above is so much of the total of indexation losses in respect of disposals made in that year as does not exceed--

(a) £10,000, or

(b) the amount by which the relevant gain exceeds the exempt amount for the year,

whichever is the smaller.

5 (1) Where in the case of any taxpayer--

(a) there is a relevant gain for the year 1994-95,

(b) the relevant gain exceeds the exempt amount for that year, and

(c) there are indexation losses in respect of any disposals made in that year or unused indexation losses for the previous year,

then, for the purposes of the 1992 Act, the amount by which the total amount of chargeable gains accruing to the taxpayer in the year 1994-95 exceeds the allowable losses accruing in that year shall be reduced by the amount mentioned in sub-paragraph (2) below, and shall be so reduced before the deduction of any allowable losses carried forward from any previous year or carried back under section 62 from any subsequent year.

(2) The amount referred to in sub-paragraph (1) above is so much of the total of indexation losses in respect of disposals made in the year 1994-95, plus any unused indexation losses for the previous year, as does not exceed--

(a) £10,000 less the aggregate of--

(i) the amount of any reduction made under paragraph 4(1) above for the previous year, and

(ii) any increase made under paragraph 6(2) below for the previous year, or

(b) the amount by which the relevant gain exceeds the exempt amount for the year 1994-95,

whichever is the smaller.

(3) For the purposes of this paragraph, if the total amount of indexation losses in respect of disposals made by the taxpayer in the year 1993-94 exceeds the aggregate of--

(a) the amount of any reduction made under paragraph 4(1) above for that year, and

(b) any increase made under paragraph 6(2) below for that year,

there are unused indexation losses for that year of an amount equal to the excess.

Income tax

6 (1) This paragraph applies where, at any time in the period beginning with 30th November 1993 and ending with 5th April 1994, the taxpayer makes any relevant appropriation or any section 574 disposal; and for the purposes of this paragraph there shall be determined--

(a) the amount of any reduction for the year 1993-94 which (disregarding relevant appropriations and section 574 disposals) would be made under paragraph 4(1) above, and

(b) the amounts of any indexation losses in respect of relevant appropriations or section 574 disposals made in that period.

(2) If the aggregate of the amounts referred to in sub-paragraph (1)(a) and (b) above does not exceed £10,000, the amount of any allowable loss referable to such an appropriation or disposal shall be increased by any indexation loss in respect of it.

(3) In any other case, notwithstanding anything in paragraphs 4 and 5 above--

(a) the aggregate of--

(i) the amount of any reduction for the year 1993-94 to be made under paragraph 4(1) above, and

(ii) the amount of any indexation losses in respect of relevant appropriations or section 574 disposals made in the period referred to in sub-paragraph (1) above,

shall be equal to £10,000 and shall be allocated as the taxpayer may determine between that reduction and increases in allowable losses referable to such appropriations or disposals, and

(b) no reduction shall be made under paragraph 5 above or 7 below for the year 1994-95.

7 (1) This paragraph applies where, at any time in the year 1994-95, the taxpayer makes any relevant appropriation or any section 574 disposal; and for the purposes of this paragraph there shall be determined--

(a) the amount of any reduction for that year which (disregarding relevant appropriations and section 574 disposals) would be made under paragraph 5(1) above, and

(b) the amounts of any indexation losses in respect of relevant appropriations or section 574 disposals made in that year.

(2) If the aggregate of the amounts referred to in sub-paragraph (1)(a) and (b) above does not exceed the limit for 1994-95, that is--

(a) £10,000, less

(b) the aggregate of the amount of any reduction made under paragraph 4(1) above for the year 1993-94 and of any increases made under paragraph 6(2) above for that year,

the amount of any allowable loss referable to such an appropriation or disposal shall be increased by any indexation loss in respect of it.

(3) In any other case, notwithstanding anything in paragraph 5 above, the aggregate of the amount of any reduction for the year 1994-95 to be made under paragraph 5(1) above and of the amount of any indexation losses in respect of relevant appropriations or section 574 disposals made in that year--

(a) shall be equal to the limit for 1994-95, and

(b) shall be allocated as the taxpayer may determine between that reduction and increases in allowable losses referable to such appropriations or disposals.

Supplementary

8 (1) In this Schedule--

"the 1992 Act" means the [1992 c. 12.] Taxation of Chargeable Gains Act 1992, and
"the old indexation rules" means the 1992 Act as it would have effect if--
(a)
the amendments made by subsections (1) to (5) of section 93 of this Act, and
(b)
the repeal of section 103 (collective investment schemes, etc.) and section 111 (building societies) of the 1992 Act by subsection (7) of section 93 of this Act,

had not come into force.

(2) Other expressions not defined in this Schedule but used both in it and in the 1992 Act have the same meaning as in that Act.

(3) References in this Schedule to the reduction of any amount include its reduction to nil.

Section 102.

SCHEDULE 13 Employee share ownership trusts

Introduction

1 The Finance Act 1989 shall be amended as provided in this Schedule.

Trustees

2 In Schedule 5, in paragraph 3 (trustees) the following sub-paragraph shall be inserted after sub-paragraph (4)--

" (5) This paragraph applies in relation to trusts established on or before the day on which the Finance Act 1994 was passed. "

3 In Schedule 5, the following paragraphs shall be inserted after paragraph 3--

" 3A Where a trust is established after the day on which the Finance Act 1994 was passed, the trust deed must make provision as mentioned in one of paragraphs (a) to (c) below--

(a) provision for the establishment of a body of trustees and complying with paragraph 3(2) to (4) above;

(b) provision for the establishment of a body of trustees and complying with paragraph 3B(2) to (9) below;

3B (1) The following are the provisions that must be complied with under paragraph 3A(b) above.

(2) The trust deed must--

(a) appoint the initial trustees;

(b) contain rules for the retirement and removal of trustees;

(3) The trust deed must be so framed that at any time while the trust subsists the conditions set out in sub-paragraph (4) below are fulfilled as regards the persons who are then trustees; and in that sub-paragraph "the relevant time" means that time.

(4) The conditions are that--

(a) the number of trustees is not less than three;

(b) all the trustees are resident in the United Kingdom;

(c) the trustees include at least one person who is a professional trustee and at least two persons who are non-professional trustees;

(d) at least half of the non-professional trustees were, before being appointed as trustees, selected in accordance with sub-paragraph (7) or (8) below;

(e) all the trustees so selected are persons who are employees of companies which fall within the founding company's group at the relevant time, and who do not have and have never had a material interest in any such company.

(5) For the purposes of this paragraph a trustee is a professional trustee at a particular time if--

(a) the trustee is then a trust corporation, a solicitor, or a member of such other professional body as the Board may at that time allow for the purposes of this sub-paragraph,

(b) the trustee is not then an employee or director of any company then falling within the founding company's group, and

and for the purposes of this paragraph a trustee is a non-professional trustee at a particular time if the trustee is not then a professional trustee for those purposes.

(6) A trustee meets the requirements of this sub-paragraph if--

(a) he was appointed as an initial trustee and, before being appointed as trustee, was selected by (and only by) the persons who later became the non-professional initial trustees, or

(b) he was appointed as a replacement or additional trustee and, before being appointed as trustee, was selected by (and only by) the persons who were the non-professional trustees at the time of the selection.

(7) Trustees are selected in accordance with this sub-paragraph if the process of selection is one under which--

(a) all the persons who are employees of the companies which fall within the founding company's group at the time of the selection, and who do not have and have never had a material interest in any such company, are (so far as is reasonably practicable) given the opportunity to stand for selection,

(b) all the employees of the companies falling within the founding company's group at the time of the selection are (so far as is reasonably practicable) given the opportunity to vote, and

(8) Trustees are selected in accordance with this sub-paragraph if they are selected by persons elected to represent the employees of the companies falling within the founding company's group at the time of the selection.

(9) For the purposes of this paragraph a company falls within the founding company's group at a particular time if--

(a) it is at that time resident in the United Kingdom, and

(b) it is the founding company or it is at that time controlled by the founding company.

3C (1) This paragraph applies where the trust deed provides that at any time while the trust subsists there must be a single trustee.

(2) The trust deed must--

(a) be so framed that at any time while the trust subsists the trustee is a company which at that time is resident in the United Kingdom and controlled by the founding company;

(b) appoint the initial trustee;

(3) The trust deed must be so framed that at any time while the trust subsists the company which is then the trustee is a company so constituted that the conditions set out in sub-paragraph (4) below are then fulfilled as regards the persons who are then directors of the company; and in that sub-paragraph "the relevant time" is that time and "the trust company" is that company.

(4) The conditions are that--

(a) the number of directors is not less than three;

(b) all the directors are resident in the United Kingdom;

(c) the directors include at least one person who is a professional director and at least two persons who are non-professional directors;

(d) at least half of the non-professional directors were, before being appointed as directors, selected in accordance with sub-paragraph (7) or (8) below;

(e) all the directors so selected are persons who are employees of companies which fall within the founding company's group at the relevant time, and who do not have and have never had a material interest in any such company.

(5) For the purposes of this paragraph a director is a professional director at a particular time if--

(a) the director is then a solicitor or a member of such other professional body as the Board may at that time allow for the purposes of this sub-paragraph,

(b) the director is not then an employee of any company then falling within the founding company's group,

(d) the director meets the requirements of sub-paragraph (6) below;

and for the purposes of this paragraph a director is a non-professional director at a particular time if the director is not then a professional director for those purposes.

(6) A director meets the requirements of this sub-paragraph if--

(a) he was appointed as an initial director and, before being appointed as director, was selected by (and only by) the persons who later became the non-professional initial directors, or

(b) he was appointed as a replacement or additional director and, before being appointed as director, was selected by (and only by) the persons who were the non-professional directors at the time of the selection.

(7) Directors are selected in accordance with this sub-paragraph if the process of selection is one under which--

(b) all the employees of the companies falling within the founding company's group at the time of the selection are (so far as is reasonably practicable) given the opportunity to vote, and

(8) Directors are selected in accordance with this sub-paragraph if they are selected by persons elected to represent the employees of the companies falling within the founding company's group at the time of the selection.

(9) For the purposes of this paragraph a company falls within the founding company's group at a particular time if--

(a) it is at that time resident in the United Kingdom, and

(b) it is the founding company or it is at that time controlled by the founding company. "

4 In Schedule 5, the following shall be inserted at the end of paragraph 12 (position after trust's establishment)--

" This paragraph applies in relation to trusts established on or before the day on which the Finance Act 1994 was passed. "

5 In Schedule 5, the following paragraph shall be inserted after paragraph 12--

" 12A (1) Subject to sub-paragraphs (2) and (3) below, a trust which was at the time it was established a qualifying employee share ownership trust shall continue to be one.

(2) If the trust deed makes provision under paragraph 3A(a) above, the trust shall not be a qualifying employee share ownership trust at any time when the requirements mentioned in paragraph 3(3)(a) to (f) above are not satisfied.

(3) If the trust deed makes provision under paragraph 3A(b) above, the trust shall not be a qualifying employee share ownership trust at any time when the conditions mentioned in paragraph 3B(4)(a) to (e) above are not satisfied.

(4) If the trust deed makes provision under paragraph 3A(c) above, the trust shall not be a qualifying employee share ownership trust at any time when--

(a) there is not a single trustee,

(b) the trustee is not a company which is resident in the United Kingdom and controlled by the founding company, or

(c) the conditions mentioned in paragraph 3C(4)(a) to (e) above are not satisfied as regards the directors of the trustee.

(5) This paragraph applies in relation to trusts established after the day on which the Finance Act 1994 was passed. "

Securities

6 (1) Section 69 (chargeable events) shall be amended as follows.

(2) In subsection (1)(c) (retention of securities at expiry of seven years from acquisition) for "period of seven years" there shall be substituted "qualifying period".

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

" (4A) For the purposes of subsection (1)(c) above the qualifying period is--

(a) seven years, in the case of trusts established on or before the day on which the Finance Act 1994 was passed;

(b) twenty years, in the case of other trusts;

and for this purpose a trust is established when the deed under which it is established is executed. "

7 (1) Paragraph 9 of Schedule 5 (transfer of securities) shall be amended as follows.

(2) In sub-paragraph (1)(b) for "period of seven years" there shall be substituted "qualifying period".

(3) After sub-paragraph (2) there shall be inserted--

" (2A) For the purposes of sub-paragraph (1) above the qualifying period is--

(a) seven years, in the case of trusts established on or before the day on which the Finance Act 1994 was passed;

(b) twenty years, in the case of other trusts. "

Interpretation

8 In Schedule 5, the following paragraph shall be inserted after paragraph 16--

" 17 For the purposes of this Schedule a trust is established when the deed under which it is established is executed. "

Section 112.

SCHEDULE 14 Distributions of authorised unit trusts

1 Chapter III of Part XII of the Taxes Act 1988 shall be amended in accordance with paragraphs 2 to 5 of this Schedule.

The new sections

2 The following sections shall be inserted immediately before section 469--

" Distributions of authorised unit trusts: general

468H Interpretation

(1) This section has effect for the interpretation of sections 468I to 468R.

(2) The making of a distribution by an authorised unit trust to a unit holder includes investing an amount on behalf of the unit holder in respect of his accumulation units.

(3) In relation to an authorised unit trust--

(a) "distribution period" means a period by reference to which the total amount available for distribution to unit holders is ascertained; and

(b) "distribution accounts" means accounts showing how that total amount is computed.

(4) The distribution date for a distribution period of an authorised unit trust is--

(a) the date specified by or in accordance with the terms of the trust for any distribution for that distribution period; or

(b) if no date is so specified, the last day of that distribution period.

(5) In this Chapter references to foreign income dividends shall be construed in accordance with Chapter VA of Part VI.

(6) Sections 468I to 468R do not apply to an authorised unit trust which is also an approved personal pension scheme (within the meaning of Chapter IV of Part XIV).

468I Distribution accounts

(1) The total amount shown in the distribution accounts as available for distribution to unit holders shall be shown as available for distribution in one of the ways set out below.

(2) It may be shown as available for distribution as dividends which are not foreign income dividends.

(3) It may be shown as available for distribution as foreign income dividends.

(4) It may be shown as available for distribution as yearly interest.

(5) It may be divided into--

(a) a part shown as available for distribution as dividends which are not foreign income dividends; and

(b) a part shown as available for distribution as foreign income dividends.

(6) Amounts deriving from income under Schedule A may not be included in any amount shown in the distribution accounts as available for distribution as yearly interest.

(7) Where distribution accounts show an amount as available for distribution to unit holders in the way set out in subsection (5) above there shall not be any discrimination between unit holders having accumulation units and other unit holders (or between unit holders on other grounds).

Dividend and foreign income distributions

468J Dividend distributions

(1) Subsection (2) below applies where the total amount or a part of the total amount shown in the distribution accounts as available for distribution to unit holders is shown as available for distribution as dividends which are not foreign income dividends.

(2) The Tax Acts shall have effect as if the total amount or, as the case may be, the part were dividends on shares paid on the distribution date by the company referred to in section 468(1) to the unit holders in proportion to their rights.

(3) The trustees of an authorised unit trust may not make an election under section 246A in respect of dividends paid by virtue of this section.

(4) In the following provisions of this Chapter "a dividend distribution" means a dividend treated as paid by virtue of subsection (2) above.

468K Foreign income distributions

(2) The Tax Acts shall have effect (subject to what follows) as if the total amount or, as the case may be, the part were foreign income dividends on shares paid on the distribution date by the company referred to in section 468(1) to the unit holders in proportion to their rights.

(3) In relation to the paying of foreign income dividends by authorised unit trusts Chapter VA of Part VI shall have effect as if the following provisions were omitted--

(a) sections 246A and 246B (provisions with respect to election to pay foreign income dividends);

(b) sections 246K to 246M (special provisions for subsidiaries); and

(4) In the following provisions of this Chapter "a foreign income distribution" means a foreign income dividend treated as paid by virtue of subsection (2) above.

Interest distributions

468L Interest distributions

(1) Subsection (2) below applies where the total amount shown in the distribution accounts as available for distribution to unit holders is shown as available for distribution as yearly interest.

(2) The Tax Acts shall have effect (subject to what follows) as if the total amount were payments of yearly interest made on the distribution date by the company referred to in section 468(1) to the unit holders in proportion to their rights.

(3) In the following provisions of this Chapter "an interest distribution" means a payment of yearly interest treated as made by virtue of subsection (2) above.

(4) The obligation under section 349(2) to deduct a sum in its application to an interest distribution is subject to sections 468M and 468N (and, in its application to an interest distribution to a unit holder in respect of his accumulation units, is an obligation to deduct a sum out of the amount being invested on the unit holder's behalf).

(5) Interest distributions shall not be a charge on income for the purposes of section 338(1) but any interest distributions for a distribution period which are interest distributions with respect to which the obligation under section 349(2) (if and to the extent that it applies) is complied with shall be allowed as a deduction against the profits of the authorised unit trust for the accounting period in which the last day of that distribution period falls.

(6) The deduction mentioned in subsection (5) above may be made--

(a) in computing the total profits for the accounting period, after the deduction of any expenses deductible in computing profits apart from section 75 and either before or after the deduction under that section of sums disbursed as expenses of management; or

(b) against total profits as reduced by any other relief from tax or against total profits not so reduced.

(7) Where in any accounting period the amount deductible by virtue of subsection (5) above exceeds the amount from which the deduction is made--

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