Finance Act 1988

Chapter IGeneral

Tax rates and personal reliefs

23Charge and basic rate of income tax for 1988-89

Income tax shall be charged for the year 1988-89, and the basic rate of tax shall be 25 per cent.

24Higher and additional rates of income tax

(1)The rate at which income tax is charged for the year 1988-89 in respect of so much of an individual’s total income as exceeds £19,300 shall be 40 per cent.

(2)In accordance with subsection (1) above, section 1 of the Taxes Act 1988 shall be amended as follows—

(a)for paragraph (b) of subsection (2) there shall be substituted—

“(b)in respect of so much of an individual’s total income as exceeds £19,300, at such higher rate as Parliament may determine”;

(b)in subsection (3) the words “and the” onwards shall cease to have effect;

(c)in subsection (4) for the words “each of the amounts” there shall be substituted the words “the amount”;

(d)in subsection (6) for the word “amounts” there shall be substituted the word “amount”;

and section 1(4) (indexation) shall not apply for the year 1988-89.

(3)In section 694 of the Taxes Act 1988 (which imposes a charge on trustees of maintenance funds for historic buildings in certain circumstances), in subsection (2), the words “at the rate of 30 per cent.” shall cease to have effect; and after that subsection there shall be inserted—

“(2A)The rate at which tax is charged under this section shall be equivalent to the higher rate of income tax for the year of assessment during which the charge arises, reduced by the sum of the basic and additional rates for that year.”

(4)In section 832(1) of the Taxes Act 1988, in the definition of “additional rate”, for the words “income tax for” onwards there shall be substituted the words “any year of assessment for which income tax is charged, means 10 per cent. or such other rate as Parliament may determine”.

25Personal reliefs

(1)In section 257 of the Taxes Act 1988 (personal reliefs)—

(a)in subsection (1)(a) (married allowance) for “£3,795” there shall be substituted “£4,095”;

(b)in subsections (1)(b) (single allowance) and (6) (wife’s earned income relief) for “£2,425” there shall be substituted “£2,605”;

(c)in subsection (2)(a) (married allowance: age 65 to 79) for “£4,675” there shall be substituted “£5,035”;

(d)in subsection (2)(b) (single allowance: age 65 to 79) for “£2,960” there shall be substituted “£3,180”;

(e)in subsection (3)(a) (married allowance: age 80 and over) for “£4,845” there shall be substituted “£5,205”;

(f)in subsection (3)(b) (single allowance: age 80 and over) for “£3,070” there shall be substituted “£3,310”;

(g)in subsection (5) (income limit for age allowance) for “£9,800” there shall be substituted “£10,600”.

(2)Section 257(9) of that Act (indexation) shall not apply for the year 1988-89.

(3)Sections 258, 263 and 264 of that Act (housekeeper allowance, dependent relative allowance and son’s or daughter’s services allowance) shall not have effect for the year 1988-89 or any subsequent year of assessment.

26Charge and rate of corporation tax for financial year 1988

Corporation tax shall be charged for the financial year 1988 at the rate of 35 per cent.

27Corporation tax: small companies

(1)For the financial year 1988 the small companies rate shall be 25 per cent.

(2)For the financial year 1988 the fraction mentioned in section 13(2) of the Taxes Act 1988, and in section 95(2) of the [1972 c. 41.] Finance Act 1972, (marginal relief for small companies) shall be one fortieth.

28Deduction rate for sub-contractors in construction industry

Section 559(4) of the Taxes Act 1988 (which requires deductions to be made from payments to certain sub-contractors in the construction industry) shall have effect in relation to payments made on or after 31st October 1988 with the substitution for the words “27 per cent.” of the words “25 per cent.”.

29Life assurance premium relief

(1)In sections 266(5)(a) and 274(3)(a) of the Taxes Act 1988, and in paragraph 3(3)(a) of Schedule 14 to that Act, (rate of relief on premiums on life policies etc.) for the words “15 per cent.” wherever they occur there shall be substituted the words “12.5 per cent.”.

(2)This section shall have effect on and after 6th April 1989.

30Additional relief in respect of children

(1)In section 259 of the Taxes Act 1988 (additional relief in respect of children), in subsection (2), for the words “and (4)” there shall be substituted the words “to (4A)”; and after subsection (4) there shall be inserted—

“(4A)Where—

(a)a man and a woman who are not married to each other live together as husband and wife for the whole or any part of a year of assessment, and

(b)apart from this subsection each of them would on making a claim be entitled to a deduction under subsection (2) above,

neither of them shall be entitled to such a deduction except in respect of the youngest of the children concerned (that is to say, the children in respect of whom either would otherwise be entitled to a deduction).”

(2)This section shall apply for the year 1989-90 and subsequent years of assessment.

31Non-residents' personal reliefs

(1)For the year 1990-91 and subsequent years of assessment section 278 of the Taxes Act 1988 (which with certain exceptions denies relief under Chapter I of Part VII to non-residents) shall have effect with the following amendments.

(2)In subsection (2)(e) (exception for widows of Crown servants) after the word “husband” there shall be inserted the words “, or a widower whose late wife,”.

(3)After subsection (2) there shall be inserted—

“(2A)Notwithstanding subsection (2) above, no relief shall be given under section 257D in a case where the husband is not resident in the United Kingdom.”

(4)Subsections (3) to (7) shall be omitted.

Married couples

32Abolition of aggregation of income

Section 279 of the Taxes Act 1988 (which treats the income of a woman living with her husband as his income for income tax purposes) shall not have effect for the year 1990-91 or any subsequent year of assessment.

33Personal allowance and married couple’s allowance

The Taxes Act 1988 shall have effect for the year 1990-91 and subsequent years of assessment with the substitution of the following sections for section 257—

“257Personal allowance

(1)The claimant shall be entitled to a deduction from his total income of £2,605.

(2)If the claimant proves that he is at any time within the year of assessment of the age of 65 or upwards, he shall be entitled to a deduction from his total income of £3,180 (instead of the deduction provided for by subsection (1) above).

(3)If the claimant proves that he is at any time within the year of assessment of the age of 80 or upwards, he shall be entitled to a deduction from his total income of £3,310 (instead of the deduction provided for by subsection (1) or (2) above).

(4)For the purposes of subsections (2) and (3) above a person who would have been of or over a specified age within the year of assessment if he had not died in the course of it shall be treated as having been of that age within that year.

(5)In relation to a claimant whose total income for the year of assessment exceeds £10,600, subsections (2) and (3) above shall apply as if the amounts specified in them were reduced by two-thirds of the excess (but not so as to reduce those amounts below that specified in subsection (1) above).

257AMarried couple’s allowance

(1)If the claimant proves that for the whole or any part of the year of assessment he is a married man whose wife is living with him, he shall be entitled to a deduction from his total income of £1,490.

(2)If the claimant proves that for the whole or any part of the year of assessment he is a married man whose wife is living with him, and that either of them is at any time within that year of the age of 65 or upwards, he shall be entitled to a deduction from his total income of £1,855 (instead of the deduction provided for by subsection (1) above).

(3)If the claimant proves that for the whole or any part of the year of assessment he is a married man whose wife is living with him, and that either of them is at any time within that year of the age of 80 or upwards, he shall be entitled to a deduction from his total income of £1,895 (instead of the deduction provided for by subsection (1) or (2) above).

(4)For the purposes of subsections (2) and (3) above a person who would have been of or over a specified age within the year of assessment if he had not died in the course of it shall be treated as having been of that age within that year.

(5)In relation to a claimant whose total income for the year of assessment exceeds £10,600, subsections (2) and (3) above shall apply as if the amounts specified in them were reduced by—

(a)two-thirds of the excess, less

(b)any reduction made in his allowance under section 257 by virtue of subsection (5) of that section,

(but not so as to reduce the amounts so specified below the amount specified in subsection (1) above).

(6)A man shall not be entitled by virtue of this section to more than one deduction for any year of assessment; and in relation to a claim by a man who becomes married in the year of assessment and has not previously in the year been entitled to relief under this section, this section shall have effect as if the amounts specified in subsections (1) to (3) above were reduced by one twelfth for each month of the year ending before the date of the marriage.

In this subsection “month” means a month beginning with the 6th day of a month of the calendar year.

257BTransfer of relief under section 257A

(1)Where —

(a)a man is entitled to relief under section 257A, but

(b)the amount which he is entitled to deduct from his total income by virtue of that section exceeds what is left of his total income after all other deductions have been made from it,

his wife shall be entitled to a deduction from her total income of an amount equal to the excess.

(2)In determining for the purposes of subsection (1)(b) above the amount that is left of a person’s total income for a year of assessment after other deductions have been made from it, there shall be disregarded any deduction made—

(a)on account of any payments of relevant loan interest which become due in that year and to which section 369 applies, or

(b)under section 289.

(3)This section shall not apply for a year of assessment unless the claimant’s husband has given to the inspector written notice that it is to apply; and any such notice—

(a)shall be given not later than six years after the end of the year of assessment to which it relates,

(b)shall be in such form as the Board may determine, and

(c)shall be irrevocable.

257CIndexation of amounts in sections 257 and 257A

(1)If the retail prices index for the month of December preceding a year of assessment is higher than it was for the previous December, then, unless Parliament otherwise determines, sections 257 and 257A shall apply for that year as if for each amount specified in them as they applied for the previous year (whether by virtue of this section or otherwise) there were substituted an amount arrived at by increasing the amount for the previous year by the same percentage as the percentage increase in the retail prices index, and—

(a)if in the case of an amount specified in sections 257(5) and 257A(5) the result is not a multiple of £100, rounding it up to the nearest amount which is such a multiple;

(b)if in the case of any other amount the increase is not a multiple of £10, rounding the increase up to the nearest amount which is such a multiple.

(2)Subsection (1) above shall not require any change to be made in the amounts deductible or repayable under section 203 between the beginning of a year of assessment and 5th May in that year.

(3)The Treasury shall in each year of assessment make an order specifying the amounts which by virtue of subsection (1) above will be treated as specified for the following year of assessment in sections 257 and 257A.

(4)This section shall have effect in relation to reliefs for the year 1990-91 (as well as for later years); and for that purpose it shall be assumed that sections 257 and 257A applied for the year 1989-90 as they apply, apart from this section, for the year 1990-91.

257DTransitional relief: husband with excess allowances

(1)Where—

(a)a husband and wife are living together for the whole or any part of the year 1990-91 and section 279 (but not section 287) applied in relation to them for the whole or any part of the year 1989-90, and

(b)the deductions which the husband was entitled to make from his total income for the year 1989-90 under this Chapter exceed the aggregate mentioned in subsection (2) below,

the wife shall be entitled to a deduction from her total income for the year 1990-91 of an amount equal to the excess.

(2)The aggregate referred to in subsection (1) above is the aggregate of—

(a)the husband’s total income for the year 1990-91, and

(b)the deductions which the wife is entitled to make from her total income for that year under this Chapter (apart from this section).

(3)Where—

(a)a husband and wife are living together for the whole or any part of the year 1990-91 and for part of the year 1989-90 but section 279 did not apply in relation to them for any part of the year 1989-90, and

(b)the deductions which the husband was entitled to make from his total income for the year 1989-90 under this Chapter, apart from section 257(6), exceed his total income for the year 1990-91,

then, subject to subsection (4) below, the wife shall be entitled to a deduction from her total income for the year 1990-91 of an amount equal to the excess.

(4)If the deductions which the wife is entitled to make from her total income for the year 1990-91 under this Chapter (apart from this section) exceed the lesser of—

(a)her total income for the year 1989-90, and

(b)the deductions which she was entitled to make from her total income for that year under this Chapter, apart from section 259, section 262 and section 280,

the deduction provided for by subsection (3) above shall be reduced by an amount equal to the excess.

(5)Where—

(a)a husband and wife are living together for the whole or any part of the year 1991-92 or any subsequent year of assessment (“the year in question”), and

(b)they were also living together throughout the immediately preceding year of assessment and the wife made a deduction from her total income for that year under this section, and

(c)the deductions which the wife is entitled to make from her total income under this Chapter (apart from this section) are either no greater for the year in question than for the immediately preceding year, or greater by a margin which does not exceed the deduction referred to in paragraph (b) above, and

(d)the deductions which the husband is entitled to make from his total income for the year in question under this Chapter, apart from section 257A and section 265, exceed his total income for that year,

the wife shall be entitled to a deduction from her total income for that year.

(6)The amount of that deduction shall be equal to—

(a)the deduction referred to in subsection (5)(b) above, reduced where applicable by an amount equal to the margin referred to in subsection (5)(c), or

(b)the excess referred to in subsection (5)(d),

whichever is less.

(7)In determining for the purposes of subsection (5)(b) above whether the wife made a deduction from her total income for the immediately preceding year of assessment under this section, and the amount of any such deduction, it shall be assumed that a deduction under this section is made after all other deductions (except any deduction under section 289).

(8)In determining for the purposes of this section a person’s total income for a year of assessment there shall be disregarded any deduction made—

(a)on account of any payments of relevant loan interest which become due in that year and to which section 369 applies, or

(b)under this Chapter or under section 289;

and in determining for the purposes of subsection (1)(b) above the deductions which a man was entitled to make under this Chapter for the year 1989-90, any application under section 283 shall be disregarded.

(9)This section shall not apply for a year of assessment unless the claimant’s husband has given to the inspector written notice that it is to apply; and any such notice—

(a)shall be given not later than six years after the end of the year of assessment to which it relates,

(b)shall be in such form as the Board may determine, and

(c)shall be irrevocable.

(10)A notice given under subsection (9) above in relation to a year of assessment shall have effect also as a notice under section 257B(3) (and, where it is relevant, under section 265(5)).

257ETransitional relief: the elderly

(1)This section shall apply in relation to a claimant for any year of assessment for the whole or any part of which he has his wife living with him if he proves—

(a)that for the year 1989-90 he was entitled to relief by virtue of section 257(2)(a) of this Act (as it had effect for that year) and that his entitlement was due to her age and not to his (he being under the age of 65 throughout that year), or

(b)that for the year 1989-90 he was entitled to relief by virtue of section 257(3)(a) of this Act (as it had effect for that year) and that his entitlement was due to her age and not to his (he being under the age of 80 throughout that year),

and, in either case, that the amount of that relief exceeded the aggregate amount of any relief to which he would be entitled for the year 1990-91 under sections 257 and 257A (apart from this section).

(2)Where this section applies, section 257 shall have effect—

(a)in a case within subsection (1)(a) above, as if for the amount specified in subsection (1) of that section there were substituted £3,180, and

(b)in a case within subsection (1)(b) above, as if for the amounts specified in subsections (1) and (2) of that section there were substituted £3,310.

(3)Section 257(5) shall have effect in relation to section 257(1) as modified by this section as it has effect in relation to section 257(2) and (3); and in all cases the reference in section 257(5) to the amount specified in section 257(1) is a reference to the amount specified apart from this section.

(4)The references in section 257C to the amounts specified in section 257 are references to the amounts specified apart from this section.

(5)In determining for the purposes of this section the amount of any reliefs to which a person was entitled for the year 1989-90, any application under section 283 shall be disregarded.

257FTransitional relief: separated couples

If the claimant proves—

(a)that he and his wife ceased to live together before 6th April 1990 but that ever since they ceased to live together they have continued to be married to one another and she has been wholly maintained by him, and

(b)that he is not entitled to make any deduction in respect of the sums paid for her maintenance in computing for income tax purposes the amount of his income for the year to which the claim relates, and

(c)that he was entitled to a deduction for the year 1989-90 by virtue of section 257(1)(a) of this Act (as it had effect for that year) and, if the claim relates to a year later than 1990-91, that he has been entitled by virtue of this section to a deduction under section 257A for each intervening year,

sections 257A and 257E (but not section 257B or section 257D) shall have effect for the year to which the claim relates as if his wife were living with him.”

34Jointly held property

The Taxes Act 1988 shall have effect for the year 1990-91 and subsequent years of assessment with the insertion of the following sections after section 282—

“282AJointly held property

(1)Subject to the following provisions of this section, income arising from property held in the names of a husband and his wife shall for the purposes of income tax be regarded as income to which they are beneficially entitled in equal shares.

(2)Subsection (1) above shall not apply to income to which neither the husband nor the wife is beneficially entitled.

(3)Subsection (1) above shall not apply to income—

(a)to which either the husband or the wife is beneficially entitled to the exclusion of the other, or

(b)to which they are beneficially entitled in unequal shares,

if a declaration relating to it has effect under section 282B.

(4)Subsection (1) above shall not apply to—

(a)earned income, or

(b)income which is not earned income but to which section 111 applies.

(5)Subsection (1) above shall not apply to income to which the husband or the wife is beneficially entitled if or to the extent that it is treated by virtue of any other provision of the Income Tax Acts as the income of the other of them or of a third party.

(6)References in this section to a husband and his wife are references to a husband and wife living together.

282BJointly held property: declarations

(1)The declaration referred to in section 282A (3) is a declaration by both the husband and the wife of their beneficial interests in—

(a)the income to which the declaration relates, and

(b)the property from which that income arises.

(2)Subject to the following subsections, a declaration shall have effect under this section in relation to income arising on or after the date of the declaration; but a declaration made before 6th June 1990 shall also have effect in relation to income arising before that date.

(3)A declaration shall not have effect under this section unless notice of it is given to the inspector, in such form and manner as the Board may prescribe, within the period of 60 days beginning with the date of the declaration.

(4)A declaration shall not have effect under this section in relation to income from property if the beneficial interests of the husband and the wife in the property itself do not correspond to their beneficial interests in the income.

(5)A declaration having effect under this section shall continue to have effect unless and until the beneficial interests of the husband and wife in either the income to which it relates, or the property from which the income arises, cease to accord with the declaration.”

35Minor and consequential provisions

Schedule 3 to this Act (which makes provision consequential on sections 32 and 33 above and other minor amendments relating to the treatment for income tax purposes of husbands, wives, widowers and widows) shall have effect.

Annual payments

36Annual payments

(1)The following sections shall be inserted at the beginning of Part IX of the Taxes Act 1988—

“347AGeneral rule

(1)A payment to which this section applies shall not be a charge on the income of the person liable to make it, and accordingly—

(a)his income shall be computed without any deduction being made on account of the payment, and

(b)the payment shall not form part of the income of the person to whom it is made or of any other person.

(2)This section applies to any annual payment made by an individual which would otherwise be within the charge to tax under Case III of Schedule D except—

(a)a payment of interest;

(b)a covenanted payment to charity (within the meaning given by section 660(3));

(c)a payment made for bona fide commercial reasons in connection with the individual’s trade, profession or vocation; and

(d)a payment to which section 125(1) applies.

(3)This section applies to a payment made by personal representatives (within the meaning given in section 701(4)) where—

(a)the deceased would have been liable to make the payment if he had not died, and

(b)this section would have applied to the payment if he had made it.

(4)A maintenance payment arising outside the United Kingdom shall not be within the charge to tax under Case V of Schedule D if, because of this section, it would not have been within the charge to tax under Case III had it arisen in the United Kingdom; and for this purpose “maintenance payment” means a periodical payment (not being an instalment of a lump sum) which satisfies the conditions set out in paragraphs (a) and (b) of section 347B(5).

(5)No deduction shall be made under section 65(1)(b) on account of an annuity or other annual payment which would not have been within the charge to tax under Case III of Schedule D if it had arisen in the United Kingdom.

(6)References in subsection (2) above to an individual include references to a Scottish partnership in which at least one partner is an individual.

347BQualifying maintenance payments

(1)In this section “qualifying maintenance payment” means a periodical payment which—

(a)is made under an order made by a court in the United Kingdom, or under a written agreement the proper law of which is the law of a part of the United Kingdom,

(b)is made by one of the parties to a marriage (including a marriage which has been dissolved or annulled) either—

(i)to or for the benefit of the other party and for the maintenance of the other party, or

(ii)to the other party for the maintenance by the other party of any child of the family,

(c)is due at a time when—

(i)the two parties are not a married couple living together, and

(ii)the party to whom or for whose benefit the payment is made has not remarried, and

(d)is not a payment in respect of which relief from tax is available to the person making the payment under any provision of the Income Tax Acts other than this section.

(2)Notwithstanding section 347A(1)(a) but subject to subsections (3) and (4) below, a person making a claim for the purpose shall be entitled, in computing his total income for a year of assessment, to deduct an amount equal to the aggregate amount of any qualifying maintenance payments made by him which fall due in that year.

(3)The amount which may be deducted under this section by a person in computing his total income for a year of assessment shall not exceed the amount of the difference between the higher (married person's) relief and the lower (single person's) relief under subsection (1) of section 257 as it applies for the year to a person not falling within subsection (2) or (3) of that section.

(4)Where qualifying maintenance payments falling due in a year of assessment are made by a person who also makes other maintenance payments attracting relief for that year, subsection (3) above shall apply as if the limit imposed by it were reduced by an amount equal to the aggregate amount of those other payments.

(5)The reference in subsection (4) above to other maintenance payments attracting relief for a year is a reference to periodical payments which—

(a)are made under an order made by a court (whether in the United Kingdom or elsewhere) or under a written or oral agreement, and

(b)are made by a person—

(i)as one of the parties to a marriage (including a marriage which has been dissolved or annulled) to or for the benefit of the other party to the marriage and for the maintenance of the other party, or

(ii)to any person under 21 years of age for his own benefit, maintenance or education, or

(iii)to any person for the benefit, maintenance or education of a person under 21 years of age,

and in respect of which the person making them is entitled otherwise than under this section to make a deduction in computing his income for the year.

(6)The reference in subsection (1) above to a married couple living together shall be construed in accordance with section 282(1), but section 282(2) shall not apply for the purposes of this section.

(7)In this section—

• “child of the family”, in relation to the parties to a marriage, means a person under 21 years of age—

  (a)

  who is a child of both those parties, or

  (b)

  who (not being a person who has been boarded out with them by a public authority or voluntary organisation) has been treated by both of them as a child of their family;

• “periodical payment” does not include an instalment of a lump sum.”

(2)The following sections shall be inserted at the beginning of Part II of the Taxes Act 1970—

“51AGeneral rule

(1)A payment to which this section applies shall not be a charge on the income of the person liable to make it, and accordingly—

(a)his income shall be computed without any deduction being made on account of the payment, and

(b)the payment shall not form part of the income of the person to whom it is made or of any other person.

(2)This section applies to any annual payment made by an individual which would otherwise be within the charge to tax under Case III of Schedule D except—

(a)a payment of interest;

(b)a covenanted payment to charity (within the meaning given by section 434(2) below);

(c)a payment made for bona fide commercial reasons in connection with the individual’s trade, profession or vocation; and

(d)a payment to which section 48(1) of the [1977 c. 36.] Finance Act 1977 applies.

(3)This section applies to a payment made by personal representatives (within the meaning given in section 432(4) below) where—

(a)the deceased would have been liable to make the payment if he had not died, and

(b)this section would have applied to the payment if he had made it.

(4)A maintenance payment arising outside the United Kingdom shall not be within the charge to tax under Case V of Schedule D if, because of this section, it would not have been within the charge to tax under Case III had it arisen in the United Kingdom; and for this purpose “maintenance payment” means a periodical payment (not being an instalment of a lump sum) which satisfies the conditions set out in paragraphs (a) and (b) of section 51B(5) below.

(5)No deduction shall be made under section 122(1)(b) below on account of an annuity or other annual payment which would not have been within the charge to tax under Case III of Schedule D if it had arisen in the United Kingdom.

(6)References in subsection (2) above to an individual include references to a Scottish partnership in which at least one partner is an individual.

51BQualifying maintenance payments

(1)In this section “qualifying maintenance payment” means a periodical payment which—

(a)is made under an order made by a court in the United Kingdom, or under a written agreement the proper law of which is the law of a part of the United Kingdom,

(b)is made by one of the parties to a marriage (including a marriage which has been dissolved or annulled) either—

(i)to or for the benefit of the other party and for the maintenance of the other party, or

(ii)to the other party for the maintenance by the other party of any child of the family,

(c)is due at a time when—

(i)the two parties are not a married couple living together, and

(ii)the party to whom or for whose benefit the payment is made has not remarried, and

(d)is not a payment in respect of which relief from tax is available to the person making the payment under any provision of the Income Tax Acts other than this section.

(2)Notwithstanding section 51A(1)(a) above but subject to subsections (3) and (4) below, a person making a claim for the purpose shall be entitled, in computing his total income for the year 1987-88, to deduct an amount equal to the aggregate amount of any qualifying maintenance payments made by him which fall due in that year.

(3)The amount which may be deducted under this section by a person in computing his total income for the year 1987-88 shall not exceed £1,370.

(4)Where qualifying maintenance payments falling due in the year 1987-88 are made by a person who also makes other maintenance payments attracting relief for that year, subsection (3) above shall apply as if the limit imposed by it were reduced by an amount equal to the aggregate amount of those other payments.

(5)The reference in subsection (4) above to other maintenance payments attracting relief for the year 1987-88 is a reference to periodical payments which—

(a)are made under an order made by a court (whether in the United Kingdom or elsewhere) or under a written or oral agreement, and

(b)are made by a person—

(i)as one of the parties to a marriage (including a marriage which has been dissolved or annulled) to or for the benefit of the other party to the marriage and for the maintenance of the other party, or

(ii)to any person under 21 years of age for his own benefit, maintenance or education, or

(iii)to any person for the benefit, maintenance or education of a person under 21 years of age,

and in respect of which the person making them is entitled otherwise than under this section to make a deduction in computing his income for the year.

(6)The reference in subsection (1) above to a married couple living together shall be construed in accordance with section 42(1) above, but section 42(2) above shall not apply for the purposes of this section.

(7)In this section—

• “child of the family”, in relation to the parties to a marriage, means a person under 21 years of age—

  (a)

  who is a child of both those parties, or

  (b)

  who (not being a person who has been boarded out with them by a public authority or voluntary organisation) has been treated by both of them as a child of their family;

• “periodical payment” does not include an instalment of a lump sum.”

(3)This section shall have effect in relation to any payment falling due on or after 15th March 1988 unless it is made in pursuance of an existing obligation.

(4)In subsection (3) above “existing obligation” means a binding obligation—

(a)under an order made by a court (whether in the United Kingdom or elsewhere) before 15th March 1988, or before the end of June 1988 on an application made on or before 15th March 1988;

(b)under a deed executed or written agreement made before 15th March 1988 and received by an inspector before the end of June 1988;

(c)under an oral agreement made before 15th March 1988, written particulars of which have been received by an inspector before the end of June 1988; or

(d)under an order made by a court (whether in the United Kingdom or elsewhere) on or after 15th March 1988, or under a written agreement made on or after that date, where the order or agreement replaces, varies or supplements an order or agreement within this subsection;

but subject to subsection (5) below.

(5)An obligation within subsection (4)(d) above is an existing obligation only if—

(a)it is an obligation to make periodical payments (not being instalments of a lump sum) which are made by a person—

(i)as one of the parties to a marriage (including a marriage which has been dissolved or annulled) to or for the benefit of the other party to the marriage and for the maintenance of the other party, or

(ii)to any person under 21 years of age for his own benefit, maintenance or education, or

(iii)to any person for the benefit, maintenance or education of a person under 21 years of age, and

(b)the order or agreement replaced, varied or supplemented provided for such payments to be made for the benefit, maintenance or, as the case may be, education of the same person.

(6)Section 351 of the Taxes Act 1988 and section 65 of the Taxes Act 1970 shall not apply to any payment in relation to which this section has effect.

37Maintenance payments under existing obligations: 1988-89

(1)This section applies to any annual payment due in the year 1988-89 which—

(a)is made in pursuance of an existing obligation under an order made by a court (whether in the United Kingdom or elsewhere) or under a written or oral agreement,

(b)is made by one of the parties to a marriage (including a marriage which has been dissolved or annulled) either—

(i)to or for the benefit of the other party and for the maintenance of the other party, or

(ii)to the other party for the maintenance by the other party of any child of the family,

(c)is due at a time when—

(i)the two parties are not a married couple living together, and

(ii)the party to whom or for whose benefit the payments are made has not remarried, and

(d)is within the charge to tax under Case III or Case V of Schedule D, and is not by virtue of Part XV of the Taxes Act 1988 treated for any purpose as the income of the person making it.

(2)On making a claim for the purpose a person chargeable to tax in respect of payments to which this section applies shall be entitled, in computing his total income for the year 1988-89, to deduct an amount equal to the aggregate amount of the payments, or £1,490, whichever is less.

38Maintenance payments under existing obligations: 1989-90 onwards

(1)This section applies to any annual payment due in the year 1989-90 or any subsequent year of assessment which—

(a)is made in pursuance of an existing obligation under an order made by a court (whether in the United Kingdom or elsewhere) or under a written or oral agreement,

(b)is made by an individual—

(i)as one of the parties to a marriage (including a marriage which has been dissolved or annulled) to or for the benefit of the other party to the marriage and for the maintenance of the other party, or

(ii)to any person under 21 years of age for his own benefit, maintenance or education, or

(iii)to any person for the benefit, maintenance or education of a person under 21 years of age, and

(c)is (apart from this section) within the charge to tax under Case III or Case V of Schedule D, and is not by virtue of Part XV of the Taxes Act 1988 treated for any purpose as the income of the person making it.

(2)A payment to which this section applies shall not be a charge on the income of the person liable to make it, but—

(a)that person shall be entitled, on making a claim for the purpose, to make a deduction of an amount determined in accordance with subsection (3) below in computing his total income for the year of assessment in which the payment falls due, and

(b)the payment shall form part of the income of the recipient, but subject to subsections (4) and (5) below.

(3)The amount which a person may deduct under subsection (2)(a) above in computing his total income for a year of assessment shall be equal to the aggregate amount of the payments made by him which fall due in that year and to which this section applies, except that it shall not in any event exceed the aggregate amount of any payments due in the year 1988-89—

(a)which satisfy the conditions in paragraphs (a), (b) and (c) of subsection (1) above, and

(b)in respect of which he was entitled to make a deduction in computing his income for that year.

(4)The amount which, by virtue of subsection (2)(b) above, is treated as forming part of a person’s income for a year of assessment by reason of payments made by another person (“the payer”) shall not exceed the aggregate amount of any payments made by the payer which—

(a)formed part of the same recipient’s income for the year 1988-89, and

(b)satisfy the conditions in paragraphs (a), (b) and (c) of subsection (1) above.

(5)The amount which, by virtue of subsection (2)(b) above, would apart from this subsection be treated as forming part of a person’s income for a year of assessment by reason of payments within subsection (6) below shall, if he makes a claim for the purpose, be reduced by the amount of the difference between the higher (married person's) relief and the lower (single person's) relief under subsection (1) of section 257 of the Taxes Act 1988 as it applies for that year to a person not falling within subsection (2) or (3) of that section.

(6)The payments referred to in subsection (5) above are payments which—

(a)are made by one of the parties to a marriage (including a marriage which has been dissolved or annulled) either—

(i)to or for the benefit of the other party and for the maintenance of the other party, or

(ii)to the other party for the maintenance by the other party of any child of the family, and

(b)are due at a time when—

(i)the two parties are not a married couple living together, and

(ii)the party to whom or for whose benefit the payments are made has not remarried.

(7)A payment to which this section applies shall be made without deduction of income tax.

(8)A payment to which this section applies shall be within the charge to tax under Case III or (if it arises outside the United Kingdom) Case V of Schedule D; and tax chargeable under Case III shall, notwithstanding anything in sections 64 to 67 of the Taxes Act 1988, be computed on the payments falling due in the year of assessment, so far as paid in that or any other year.

(9)No deduction shall be made under section 65(1)(b) of the Taxes Act 1988 on account of a payment to which this section applies.

39Maintenance payments under existing obligations: election for new rules

(1)If an election is duly made for the purpose by any person, section 36 above shall have effect in relation to all payments made by him—

(a)to which section 37 or section 38 above would apply apart from the election, and

(b)which fall due in a year of assessment for which the election has effect;

and accordingly sections 37 and 38 shall not apply to the payments.

(2)An election under subsection (1) above—

(a)shall be made in such form and manner as the Board may prescribe,

(b)shall be made not later than twelve months after the end of the first year of assessment for which it is to have effect,

(c)shall have effect for any subsequent year of assessment, and

(d)shall be irrevocable.

(3)A person making an election under subsection (1) above shall, before the end of the period of 30 days beginning with the day on which it is made, give notice of it to every recipient of a payment affected by the election.

40Provisions supplementary to sections 37 to 39

(1)In sections 37 to 39 above—

• “child of the family”, in relation to the parties to a marriage, means a person under 21 years of age—

  (a)

  who is a child of both those parties, or

  (b)

  who (not being a person who has been boarded out with them by a public authority or voluntary organisation) has been treated by both of them as a child of their family;

• “existing obligation” has the same meaning as in section 36(3) above.

(2)The references in sections 38(2)(b) and (4) and 39(3) above to the recipient of a payment are, in a case of the kind described in sections 37(1)(b)(i) and 38(1)(b)(i), references to the other party there mentioned.

(3)The references in sections 37 and 38 above to a married couple living together shall be construed in accordance with section 282(1) of the Taxes Act 1988, but section 282(2) shall not apply for the purposes of those sections.

Relief for interest

41Qualifying maximum for loans

For the year 1988-89 the qualifying maximum defined in section 367(5) of the Taxes Act 1988 (limit on relief for interest on certain loans) shall be £30,000.

42Home loans: restriction of relief

(1)The following sections shall be inserted after section 356 of the Taxes Act 1988—

“356ALimit on relief for home loans: residence basis

(1)Where all the qualifying interest payable for any period in relation to a residence is payable by one person, it shall be eligible for relief only to the extent that the amount on which it is payable does not exceed the qualifying maximum during the period.

(2)Where qualifying interest is payable for any period in relation to a residence by more than one person, the interest paid by each of them shall be eligible for relief only to the extent that the amount on which it is payable by him does not exceed the sharer’s limit for the period in his case.

(3)Subject to the following provisions of this section and section 356B, in this section and section 356B “the sharer’s limit”, in relation to a person by whom qualifying interest is payable for a period in relation to a residence, means the amount arrived at by dividing the amount of the qualifying maximum during the period by the number of persons by whom qualifying interest is payable for the period in relation to the residence.

(4)Subsection (5) below applies where—

(a)in the case of any person by whom qualifying interest is payable for any period in relation to a residence the sharer’s limit for the period exceeds the amount on which the interest is payable by him, and

(b)the amount which (apart from that subsection) would be the sharer’s limit for the period in the case of any other person by whom qualifying interest is payable for the period in relation to the residence falls short of the amount on which qualifying interest is so payable by him.

(5)Where this subsection applies—

(a)the sharer’s limit for the period in the case of the person mentioned in subsection (4)(a) above shall be reduced by the amount of the excess, and

(b)the sharer’s limit for the period in the case of any person such as is mentioned in subsection (4)(b) above shall be increased in accordance with subsections (6) to (8) below.

(6)Where there is only one other person by whom qualifying interest is payable for the period in relation to the residence, the sharer’s limit in his case shall be increased by the amount of the excess.

(7)Where there is more than one other person by whom qualifying interest is payable for the period in relation to the residence, the sharer’s limit in the case of each of them shall be increased by such part of the excess as bears to the whole of it the same proportion as any shortfall in his case bears to the aggregate of any shortfalls in the case of each of them.

(8)In subsection (7) above “shortfall” means the amount by which what would be the sharer’s limit in the case of a person (apart from subsection (5) above) falls short of the amount on which qualifying interest is payable by him.

356BResidence basis: married couples

(1)Subject to subsections (2) and (4) below, qualifying interest payable or paid by a married woman who is not separated from her husband shall be treated for the purposes of sections 353 to 356A and 369 to 379 as payable or paid by her husband (and not by her).

(2)Where—

(a)qualifying interest is payable, or treated by subsection (1) above as payable, for a period in relation to a residence by a married man who is not separated from his wife, and

(b)qualifying interest is also payable for the period in relation to the residence by one or more persons other than the man and his wife,

then for the purposes of section 356A(2) and (3) qualifying interest shall be treated as payable by the wife for the period in relation to the residence (whether or not it actually is).

(3)The application of subsection (2) above in the case of a husband and wife shall not give rise to a separate sharer’s limit for the period in question in the case of the wife; but the limit arrived at under subsection (3) of section 356A for the period in the case of the husband shall be increased by the amount which (apart from this subsection) would be the limit arrived at under that subsection in the case of the wife.

(4)Where an application under section 283 or an election under section 287 is in force in relation to a husband and wife for a year of assessment, subsections (1) to (3) above shall not apply in relation to them for the year but they may jointly elect—

(a)that qualifying interest payable or paid by one of them for the year (or a period within the year), or such part of that interest as may be specified in the election, shall be treated for the purposes of sections 353 to 356A and 369 to 379 (and section 287(7)) as payable or paid by the other, and

(b)that the sharer’s limit under section 356A for the year (or period) in the case of one of them shall be reduced by such amount as may be specified in the election and the sharer’s limit under that section for the year (or period) in the case of the other shall be correspondingly increased.

(5)An election under subsection (4) above—

(a)shall be made before the end of the period of twelve months beginning with the end of the first year of assessment for which it is made or such longer period as the Board may in any particular case allow,

(b)shall, subject to subsection (6) below, have effect if made for the year 1988-89 not only for that year but also for the year 1989-90, and

(c)shall be in such form, and be made in such manner, as the Board may prescribe.

(6)Where a husband and wife have made an election under subsection (4) above for the year 1988-89 they may give, for the year 1989-90, a notice to withdraw that election; and, if they do so, the election shall not have effect for the year 1989-90.

(7)A notice of withdrawal under subsection (6) above—

(a)shall be in such form, and be given in such manner, as the Board may prescribe,

(b)shall not be given after 5th April 1991 or such later date as the Board may in any particular case allow, and

(c)shall not prejudice the making of a fresh election for 1989-90.

(8)Where—

(a)a husband and wife are not separated,

(b)the husband pays interest in relation to a residence used or to be used as his only or main residence, and

(c)his wife pays interest in relation to some other residence used or to be used as her only or main residence,

the residence which was purchased first shall be treated for the purposes of sections 355(1)(a) and 356 as used or to be used as the only or main residence of both of them and the other residence shall be treated as used or to be used as the only or main residence of neither.

356CPayments to which sections 356A and 356B apply

(1)Subject to subsection (2) below, sections 356A and 356B shall have effect with respect to payments of qualifying interest made on or after 1st August 1988.

(2)Subject to subsection (5) below, those sections shall not have effect with respect to a payment of qualifying interest made by a person in relation to a residence if—

(a)the payment is made under a loan made before 1st August 1988,

(b)qualifying interest was payable in relation to the residence for 1st August 1988 by someone other than the person making the payment or his spouse,

(c)qualifying interest has been payable in relation to the residence by the person making the payment or his spouse throughout the time beginning with 1st August 1988 and ending with the date of the payment, and

(d)someone other than the person making the payment or his spouse owns an estate or interest or property in the residence at each point during that time and at each such point at least one such person is a person by whom qualifying interest is payable in relation to the residence at some point during that time.

(3)For the purposes of subsection (2) above a loan made on or after 1st August 1988 shall be treated as made before that date if it is proved by written evidence—

(a)that the loan was made in pursuance of an offer made before that date and that the offer either was in writing or was evidenced by a note or memorandum made by the lender before that date, and

(b)that the loan was used to defray money applied in pursuance of a binding contract entered into before that date;

and where a payment is made under such a loan the references in subsection (2) above to 1st August 1988 shall be treated as references to the first day for which qualifying interest is payable in relation to the residence under the loan (or where there is more than one such loan the latest such day).

(4)Subject to subsection (5) below, where by virtue of subsection (2) above sections 356A and 356B do not have effect with respect to payments of qualifying interest made by a person for any period in relation to a residence under one loan those sections shall not have effect with respect to payments of qualifying interest for that period in relation to the residence made by that person or his spouse under any other loan.

(5)Where all the persons by whom qualifying interest is payable in relation to a residence have made a joint election for the purpose, sections 356A and 356B shall have effect with respect to all payments of qualifying interest made by any person in relation to the residence notwithstanding that they would otherwise be payments with respect to which those sections would not have effect.

(6)An election under subsection (5) above—

(a)shall have effect for the period in which it is made and subsequent periods,

(b)shall be irrevocable, and

(c)shall be in such form, and be made in such manner, as the Board may prescribe.

(7)Sections 356A and 356B shall not have effect with respect to payments of qualifying interest if the interest is qualifying interest only by reason of its being paid in relation to a residence used or to be used as the only or main residence of a dependent relative or former or separated spouse of the person by whom the payment is made.

(8)In this section references to a spouse do not include references to a separated spouse.

356DProvisions supplementary to sections 356A to 356C

(1)In sections 356A to 356C and this section “qualifying interest” means interest which (apart from those sections or section 357) is eligible for relief under section 353 by virtue of section 355(1)(a) or 356(1).

(2)In sections 356A to 356C and this section “residence” means a building, or part of a building, occupied or intended to be occupied as a separate residence, or a caravan or house-boat; but a building, or part of a building, which is designed for permanent use as a single residence shall be treated as a single residence notwithstanding that it is temporarily divided into two or more parts which are occupied or intended to be occupied as separate residences.

(3)In sections 356A to 356C and this section “period”, with respect to qualifying interest payable by a person in relation to a residence, means a period commencing with—

(a)any day which is the first day for which qualifying interest is payable in relation to the residence by that or any other person (whether or not qualifying interest was payable by any person in relation to the residence for any earlier day),

(b)any day immediately following a day which is the last day for which qualifying interest is payable in relation to the residence by any other person (whether or not qualifying interest is payable by any person in relation to the residence for any later day), or

(c)the first day of a year of assessment,

and ending with either the day immediately preceding the next day such as is mentioned in paragraph (a), (b) or (c) above or (if sooner) the day which is the last day for which qualifying interest is payable in relation to the residence by that person.

(4)In section 356A references to the qualifying maximum during a period are references to the qualifying maximum for the year of assessment in which the period falls.

(5)Where because of section 356A the full amount of qualifying interest paid by a person for a period is not eligible for relief, the part of that interest that is eligible for relief shall be such as bears to the whole of it the same proportion as the part of the amount on which qualifying interest is payable by him for the period that does not exceed the limit under that section in his case bears to the whole of that amount.

(6)Where a person pays qualifying interest on more than one loan, the limit under section 356A in his case shall have effect in relation to qualifying interest paid on a later loan as if that loan were reduced by the amount of any earlier loan; and if that amount is equal to or exceeds the limit, none of the interest paid on the later loan is eligible for relief.

(7)For the purposes of subsection (6) above, where interest is paid on more than one loan made simultaneously to one person it shall be treated as paid on one loan.

(8)Subject to section 356B, where a loan is made jointly to more than one person by whom qualifying interest is payable in relation to a residence under the loan, the amount on which qualifying interest is payable in relation to the residence under the loan by each of the persons shall be treated for the purposes of section 356A as being such amount as is produced by dividing the whole of the amount on which qualifying interest is payable in relation to the residence under the loan by the number of persons by whom qualifying interest is so payable.

(9)Where section 354 continues to apply to a loan by virtue of section 354(5)(a), then sections 356A to 356C and this section shall also continue to have effect as if section 354 applied to it by virtue of section 355(1)(a).

(10)In determining whether the amount on which interest is payable exceeds any limit under section 356A, no account shall be taken of so much (if any) of that amount as consists of interest which has been added to capital and which does not exceed £1,000.”

(2)In section 357 of the Taxes Act 1988 (limit on interest relief for home loans where residence basis does not apply)—

(a)in subsection (1)—

(i)for the word “Interest” there shall be substituted the words “Subject to subsection (1A) below, where section 356A does not have effect with respect to a payment of interest because of section 356C(2) or (7) and the payment is of interest”, and

(ii)after “356(1)” there shall be inserted the words “the payment of interest”, and

(b)the following subsections shall be inserted after that subsection—

“(1A)Where section 356A does not have effect with respect to a payment of interest made by a person in relation to land, or a caravan or house-boat, used or to be used as his only or main residence because of section 356C(2), subsection (1) above shall have effect with respect to the payment of interest as if the reference to the qualifying maximum for the year of assessment were a reference to the amount specified in subsection (1B) below.

(1B)The amount referred to in subsection (1A) above is the lesser of £30,000 and the amount on which interest was payable by the person in relation to the land, caravan or house-boat immediately before 1st August 1988.

(1C)Where subsection (2) of section 356C applies in the case of a person by virtue of subsection (3) of that section, for the purposes of subsection (1B) above the amount on which interest is payable by him under the loan referred to in section 356C(3) for the first day for which interest is so payable shall be treated as the amount on which interest is payable by him under the loan immediately before 1st August 1988.”

(3)In the Taxes Act 1988—

(a)in section 355(1) (requirement that interest be payable in relation to only or main residence of payer), before “357” there shall be inserted the words “356A or”,

(b)in section 367(5) (meaning of “qualifying maximum”), for “357(1)” there shall be substituted “356A to 357”,

(c)in section 370(2)(b) (MIRAS: meaning of “relevant loan interest”), before “357” there shall be inserted “356A,”, and

(d)in section 373 (MIRAS: large loans and joint borrowers)—

(i)in subsection (1), before “357(1)” there shall be inserted “356A, section”,

(ii)in subsection (3), after the word “applies” there shall be inserted the words “section 356D(6) or”, and

(iii)in subsection (4), after the words “by virtue of” there shall be inserted the words “section 356D(7) or”.

(4)This section shall come into force on 1st August 1988.

43Home improvement loans

(1)In relation to payments of interest made on or after 6th April 1988 section 355 of the Taxes Act 1988 (limitations on relief for loans for purchase or improvement of land etc.) shall have effect with the insertion of the following subsections after subsection (2)—

“(2A)Section 354 shall not apply by virtue of subsection (1)(a) above where the interest is paid on a home improvement loan unless the loan was made before 6th April 1988.

(2B)In subsection (2A) above “home improvement loan” means—

(a)a loan to defray money applied in improving or developing land or buildings on land, otherwise than by the erection of a new building (which is not part of an existing residence) on land which immediately before the improvement or development began had no building on it, or

(b)a loan replacing (whether directly or indirectly) a loan within paragraph (a) above.

(2C)Where it is proved by written evidence that a loan made on or after 6th April 1988 was made in pursuance of an offer made by the lender before that date and that the offer either was in writing or was evidenced by a note or memorandum made by the lender before that date, the loan shall be deemed for the purposes of subsection (2A) above to have been made before that date.”

(2)In relation to payments of interest made on or after 6th April 1988 section 356 of the Taxes Act 1988 (job-related accommodation) shall have effect with the insertion of the following subsection after subsection (1)—

“(1A)Subsection (1) above shall not apply where the interest is paid on a home improvement loan (as defined in section 355(2B)) unless the loan was made before 6th April 1988; and section 355(2C) shall have effect for the purposes of this subsection as for those of section 355(2A).”

(3)Interest paid by a housing association on a home improvement loan made on or after 6th April 1988 shall not be relevant loan interest for the purposes of Part IX of the Taxes Act 1988; and for the purposes of this subsection—

(a)“housing association” means a housing association for the time being approved for the purposes of section 488 of that Act or a self-build society for the time being approved for the purposes of section 489,

(b)“home improvement loan” has the same meaning as in subsection (2B) of section 355 of that Act, and

(c)subsection (2C) of that section shall have effect as it does for the purposes of subsection (2A) of that section.

44Loans for residence of dependent relative etc

(1)In sections 355(1)(a) and 357(2)(a) of the Taxes Act 1988 the words “or of a dependent relative or former or separated spouse of his,” shall not have effect in relation to payments of interest made on or after 6th April 1988.

(2)Subsection (1) above shall not apply where the interest is paid on a loan made before 6th April 1988 if interest paid on it at a relevant time was eligible for relief under section 353 of the Taxes Act 1988 only because the land, caravan or house-boat concerned was used as the only or main residence of the same dependent relative or former or separated spouse.

(3)In subsection (2) above “relevant time” means—

(a)the last time when interest was paid on the loan before 6th April 1988, or

(b)if no interest was paid on it before that date, any time within the period of 12 months (or any longer period substituted in relation to the case under section 355(2) of the Taxes Act 1988) after the date on which the loan was made;

but paragraph (b) above shall not apply if at any time after the date on which the loan was made and before the date on which the land, caravan or house-boat was first used as mentioned in subsection (2) above, the land, caravan or house-boat was used for any other purpose.

(4)In section 358(4)(a) of the Taxes Act 1988 (relief where borrower deceased) the words “or of any dependent relative of the deceased” shall not have effect in relation to payments of interest made on or after 6th April 1988 unless—

(a)the deceased died before that date, and

(b)the land, caravan or house-boat was used as the only or main residence of the dependent relative before that date.

(5)Where it is proved by written evidence that a loan made on or after 6th April 1988 was made in pursuance of an offer made by the lender before that date and that the offer either was in writing or was evidenced by a note or memorandum made by the lender before that date, the loan shall be deemed for the purposes of this section to have been made before that date.

(6)Interest paid by a housing association shall not be relevant loan interest for the purposes of Part IX of the Taxes Act 1988 where by virtue of this section it would not be relevant loan interest if paid by a member of the association; and in this subsection “housing association” means a housing association for the time being approved for the purposes of section 488 of that Act or a self-build society for the time being approved for the purposes of section 489.

Benefits in kind

45Car benefits

(1)In Schedule 6 to the Taxes Act 1988 (taxation of directors and others in respect of cars) for Part I (tables of flat rate cash equivalents) there shall be substituted—

“Part ITables of Flat Rate Cash Equivalents

(2)This section shall have effect for the year 1988-89 and subsequent years of assessment.

46Car parking facilities

(1)In section 141 of the Taxes Act 1988 (non-cash vouchers), in subsection (6), for the words “Subsections (1) and (2)” there shall be substituted the words “Subsection (1)” and after that subsection there shall be inserted—

“(6A)Subsection (1) above shall not apply in relation to a non-cash voucher to the extent that it is used by the employee to obtain the use of a car parking space at or near his place of work.”

(2)In section 142 of that Act (credit-tokens), after subsection (3) there shall be inserted—

“(3A)Subsection (1) above shall not apply in relation to a credit-token to the extent that it is used by the employee to obtain the use of a car parking space at or near his place of work.”

(3)In section 155 of that Act (benefits in kind for persons in director’s or higher-paid employment: exceptions from the general charge), after subsection (1) there shall be inserted—

“(1A)Section 154 does not apply to a benefit consisting in the provision for the employee of a car parking space at or near his place of work.”

(4)After section 197 of that Act there shall be inserted—

“197ACar parking facilities

Any expenditure incurred in paying or reimbursing expenses in connection with the provision for, or use by, a person holding an office or employment of a car parking space at or near his place of work shall not be regarded as an emolument of the office or employment for any purpose of Schedule E.”

(5)This section shall have effect for the year 1988-89 and subsequent years of assessment.

47Entertainment: non-cash vouchers

(1)In section 141 of the Taxes Act 1988 (non-cash vouchers), after subsection (6A) there shall be inserted—

“(6B)Subsection (1) above shall not apply in relation to any non-cash voucher to the extent that it is used to obtain entertainment (including hospitality of any kind) for the employee or a relation of his, if—

(a)the person providing the non-cash voucher is neither his employer nor a person connected with his employer;

(b)neither his employer nor a person connected with his employer has directly or indirectly procured the provision of the entertainment; and

(c)the entertainment is not provided either in recognition of particular services which have been performed by him in the course of his employment or in anticipation of particular services which are to be so performed by him;

and section 839 shall apply for determining whether persons are connected for the purposes of this subsection.”

(2)In subsection (1) of section 36 of the [1975 c. 45.] Finance (No. 2) Act 1975 (vouchers other than cash vouchers), for the words “Subject to subsection (2) below” there shall be substituted the words “Subject to the provisions of this section”.

(3)The provision set out in subsection (1) above shall be inserted after subsection (3A) of that section as subsection (3B) with the substitution—

(a)for the reference to section 839 of the Taxes Act 1988 of a reference to section 533 of the Taxes Act 1970; and

(b)for any reference to a non-cash voucher of a reference to a voucher.

(4)The amendment made by subsection (1) above shall have effect for the year 1988-89 and subsequent years of assessment; and the amendments made by subsections (2) and (3) above shall have effect for the year 1987-88.

48Entertainment: credit-tokens

(1)In section 142 of the Taxes Act 1988 (credit-tokens), after subsection (3A) there shall be inserted—

“(3B)Subsection (1) above shall not apply in relation to any credit-token to the extent that it is used to obtain entertainment (including hospitality of any kind) for the employee or a relation of his, if—

(a)the person providing the credit-token is neither his employer nor a person connected with his employer;

(b)neither his employer nor a person connected with his employer has directly or indirectly procured the provision of the entertainment; and

(c)the entertainment is not provided either in recognition of particular services which have been performed by him in the course of his employment or in anticipation of particular services which are to be so performed by him;

and section 839 shall apply for determining whether persons are connected for the purposes of this subsection.”

(2)The provision set out in subsection (1) above shall be inserted after subsection (3) of section 36A of the [1975 c. 45.] Finance (No. 2) Act 1975 (credit-tokens) as subsection (3A) with the substitution for the reference to section 839 of the Taxes Act 1988 of a reference to section 533 of the Taxes Act 1970.

(3)The amendment made by subsection (1) above shall have effect for the year 1988-89 and subsequent years of assessment; and the amendment made by subsection (2) above shall have effect for the year 1987-88.

49Entertainment of directors and higher-paid employees

(1)At the end of section 155 of the Taxes Act 1988 (benefits in kind for persons in director’s or higher-paid employment: exceptions from the general charge) there shall be added—

“(7)Section 154 does not apply to a benefit consisting in the provision of entertainment (including hospitality of any kind) for the employee, or for members of his family or household, if—

(a)the person providing the benefit is neither his employer nor a person connected with his employer;

(b)neither his employer nor a person connected with his employer has directly or indirectly procured its provision; and

(c)it is not provided either in recognition of particular services which have been performed by the employee in the course of his employment or in anticipation of particular services which are to be so performed by him;

and section 839 shall apply for determining whether persons are connected for the purposes of this subsection.”

(2)The provision set out in subsection (1) above shall be added at the end of section 62 of the [1976 c. 40.] Finance Act 1976 as subsection (9) with the substitution—

(a)for the reference to section 154 of the Taxes Act 1988 of a reference to section 61 of the 1976 Act; and

(b)for the reference to section 839 of the Taxes Act 1988 of a reference to section 533 of the Taxes Act 1970.

(3)The amendment made by subsection (1) above shall have effect for the year 1988-89 and subsequent years of assessment; and the amendment made by subsection (2) above shall have effect for the year 1987-88.

Business expansion scheme

50Private rented housing

(1)Where eligible shares in a company are issued for the purpose of raising money for qualifying activities—

(a)which are being carried on by the company or any of its subsidiaries; or

(b)which the company or any of its subsidiaries intends to carry on,

Chapter III of Part VII of the Taxes Act 1988 (relief for investment in new corporate trades: the business expansion scheme) shall apply in relation to the company with the modifications set out in Part I of Schedule 4 to this Act.

(2)In this section and Chapter III (as so modified) “qualifying activities”, in relation to a company by which eligible shares are issued or any subsidiary of such a company, means activities which—

(a)consist of or are connected with the provision and maintenance of dwelling-houses to which this section applies which the company or subsidiary lets, or intends to let, on qualifying tenancies; and

(b)are, during the period beginning with the date on which the shares are issued and ending four years after that date, conducted on a commercial basis and with a view to the realisation of profits.

(3)This section applies to any dwelling-house which is not precluded from being a dwelling-house to which this section applies by Part II of Schedule 4 to this Act; and in this section and that Part of that Schedule—

(a)references to a company or subsidiary do not include references to a company or subsidiary which is a registered housing association within the meaning of the [1985 c. 69.] Housing Associations Act 1985 or Part VII of the [S.I. 1981/156 (N.I.3).] Housing (Northern Ireland) Order 1981;

(b)“qualifying tenancy” means any tenancy which is—

(i)for the purposes of the Housing Act 1988, an assured tenancy other than an assured shorthold tenancy;

(ii)for the purposes of the Housing (Scotland) Act 1988, an assured tenancy other than a short assured tenancy; or

(iii)in Northern Ireland, a tenancy which complies with such requirements or conditions as may be prescribed by regulations made by the Department of the Environment for Northern Ireland,

and is not a tenancy which falls within subsection (4) below; and

(c)expressions which are also used in Chapter III have the same meanings as in that Chapter.

(4)A tenancy falls within this subsection if—

(a)it is a tenancy granted in consideration of a premium within the meaning of Schedule 3 to the [1979 c. 14.] Capital Gains Tax Act 1979; or

(b)any option to purchase in relation to the dwelling-house has been granted to the tenant or an associate of his;

and in this subsection any reference to the tenant includes, in the case of a joint tenancy, a reference to either or any of the joint tenants.

(5)Regulations under subsection (3) above shall be made by statutory rule for the purposes of the [S.I. 1979/1573 (N.I.12).] Statutory Rules (Northern Ireland) Order 1979 and shall be subject to negative resolution within the meaning of section 41(6) of the [1954 c. 33 (N.I.).] Interpretation Act (Northern Ireland) 1954.

(6)This section and Schedule 4 to this Act shall have effect in relation to shares issued after the passing of this Act and before the end of 1993.

51Restriction of relief

(1)The Taxes Act 1988 shall have effect, and be deemed always to have had effect, with the following amendments, namely—

(a)in section 289(12)(b), the substitution of the words “sections 290A, 293” for the words “sections 293”; and

(b)the insertion after section 290 of the following section—

“290ARestriction of relief where amounts raised exceed permitted maximum

(1)Where—

(a)a company raises any amount through the issue of eligible shares after 15th March 1988; and

(b)the aggregate of that amount and of all other amounts (if any) so raised within the period mentioned in subsection (2) below exceeds £500,000,

the relief shall not be given in respect of the excess.

(2)The period referred to in subsection (1) above is—

(a)the period of 6 months ending with the date of the issue of the shares; or

(b)the period beginning with the preceding 6th April and ending with the date of that issue,

whichever is the longer.

(3)In determining the aggregate mentioned in subsection (1) above, no account shall be taken of any amount—

(a)which is subscribed by a person other than an individual who qualifies for relief; or

(b)as respects which relief is precluded by section 290 or this section.

(4)Where—

(a)at any time within the relevant period, the company in question or any of its subsidiaries carries on any trade or part of a trade in partnership, or as a party to a joint venture, with one or more other persons; and

(b)that other person, or at least one of those other persons, is a company,

the reference to £500,000 in subsection (1) above shall have effect as if it were a reference to—

(5)Where this section precludes the giving of relief on claims in respect of shares issued to two or more individuals, the available relief shall be divided between them in proportion to the amounts which have been respectively subscribed by them for the shares to which their claims relate and which would, apart from this section, be eligible for relief.

(6)Where—

(a)in the case of a company falling within subsection (2)(a) of section 293, the qualifying trade or each of the qualifying trades is a trade to which subsection (7) below applies;

(b)in the case of a company falling within subsection (2)(b)(i) of that section, the subsidiary or each of the subsidiaries is a dormant subsidiary or exists wholly, or substantially wholly, for the purpose of carrying on one or more qualifying trades which or each of which is a trade to which subsection (7) below applies; or

(c)in the case of a company falling within subsection (2)(b)(ii) of that section, the requirements mentioned in each of paragraphs (a) and (b) above are satisfied,

subsections (1) and (4) above shall have effect as if for the amount there specified there were substituted £5 million.

(7)This subsection applies to a trade if it consists, wholly or substantially wholly, of operating or letting ships, other than oil rigs or pleasure craft, and—

(a)every ship operated or let by the company carrying on the trade is beneficially owned by the company;

(b)every ship beneficially owned by the company is registered in the United Kingdom;

(c)throughout the relevant period the company is solely responsible for arranging the marketing of the services of its ships; and

(d)the conditions mentioned in section 297(7) are satisfied in relation to every letting by the company.

(8)Where—

(a)any of the requirements mentioned in paragraphs (a) to (c) of subsection (7) above are not satisfied in relation to any ships; or

(b)any of the conditions referred to in paragraph (d) of that subsection are not satisfied in relation to any lettings,

the trade shall not thereby be precluded from being a trade to which that subsection applies if the operation or letting of those ships, or, as the case may be, those lettings do not amount to a substantial part of the trade.

(9)The Treasury may by order amend any of the foregoing provisions of this section by substituting a different amount for the amount for the time being specified there.

(10)Where—

(a)the issue of the eligible shares is made in pursuance of a prospectus published, or an offer in writing made, before 15th March 1988;

(b)the shares are issued after that date and before 6th April 1988; and

(c)subsection (6) above does not apply,

subsections (1) and (4) above shall have effect as if for the amount there specified there were substituted £1 million.

(11)In this section—

• “let” means let on charter and “letting” shall be construed accordingly;

• “oil rig” and “pleasure craft” have the same meanings as in section 297;

• “prospectus” has the meaning given by section 744 of the [1985 c. 6.] Companies Act 1985 or Article 2(3) of the [S.I. 1986/1032 (N.I.6).] Companies (Northern Ireland) Order 1986.”

(2)Schedule 5 to the [1983 c. 28.] Finance Act 1983 shall be deemed always to have had effect as if—

(a)in paragraph 2(7), for the words “paragraphs 5” there had been substituted the words “paragraphs 3A, 5”; and

(b)the provisions set out in subsection (1)(b) above had been inserted, with any necessary modifications, after paragraph 3 as paragraph 3A.

52Valuation of interests in land

(1)In section 294 of the Taxes Act 1988 (companies with interests in land), after subsection (5) there shall be inserted—

“(5A)For the purposes of this section, the value of an interest in any building or other land shall be adjusted by deducting the market value of any machinery or plant which is so installed or otherwise fixed in or to the building or other land as to become, in law, part of it.”

(2)This section shall have effect in relation to valuations which fall to be made after the passing of this Act.

53Approved investment funds

(1)For subsection (3) of section 311 of the Taxes Act 1988 there shall be substituted—

“(2A)Subsection (2B) below applies where an individual claims relief in respect of eligible shares in a company and—

(a)the shares have been issued to the managers of an approved fund as nominee for the individual;

(b)the fund has closed, that is to say, no further investments in the fund are to be accepted; and

(c)the amounts which the managers have, as nominee for the individual, subscribed for eligible shares issued within six months after the closing of the fund represent not less than 90 per cent. of his investment in the fund;

and in this section “the managers of an approved fund” means the person or persons having the management of an investment fund approved for the purposes of this section by the Board.

(2B)In any case where this subsection applies, subsections (5) to (7) of section 289 and subsections (1) to (3) and (6) of section 304 shall have effect as if—

(a)any reference to the year of assessment or other period in which the shares are issued were a reference to the year of assessment or other period in which the fund closes; and

(b)any reference to the time of the issue of the shares, or the time of the subscription for the shares, were a reference to the time of the closing of the fund.

(3)Section 290(1) shall not apply where the amount is subscribed as nominee for an individual by the managers of an approved fund.”

(2)This section shall have effect in relation to approved funds closing after 15th March 1988.

Pensions etc.

54Personal pension schemes: commencement

(1)In section 56(1) of the [1987 c. 51.] Finance (No. 2) Act 1987 and section 655(4) of the Taxes Act 1988 (personal pension schemes not to be approved with effect from date earlier than 4th January 1988) for “4th January” there shall be substituted “1st July”.

(2)In consequence of the amendment made by subsection (1) above—

(a)the same amendment shall be made in—

(i)section 54(1) of the Act of 1987 and section 618(1) of the Act of 1988 (no retirement annuity relief for contracts made or trust schemes established on or after 4th January 1988);

(ii)section 54(3) of the Act of 1987 and section 618(2) of the Act of 1988 (limit on lump sums under contracts made or schemes established before 4th January 1988); and

(iii)section 20(3) of the Act of 1987 and section 632(3) of the Act of 1988 (removal of restriction from certain schemes established before 4th January 1988);

(b)in section 55 of the Act of 1987 and section 655 of the Act of 1988 (transitional provisions: carry back and carry forward)—

(i)in subsection (2), for “1984-85, 1985-86 or 1986-87” there shall be substituted “1985-86, 1986-87 or 1987-88”; and

(ii)in subsection (3), for “1987-88” there shall be substituted “1988-89”; and

(c)in section 56(2) of the Act of 1987 and section 655(5) of the Act of 1988 (provisional approval where application made before 1st August 1989) for “August 1989” there shall be substituted “February 1990”.

(3)The amendments made by this section shall be deemed always to have had effect.

55Personal pension schemes: other amendments

(1)At the end of section 630 of the Taxes Act 1988 (interpretation of Chapter IV of Part XIV) there shall be inserted—

“and references to an employee or to an employer include references to the holder of an office or to the person under whom an office is held.”

(2)In section 638 of that Act, for subsection (7) (personal pension schemes which permit acceptance of certain contributions not to be approved) there shall be substituted—

“(7)The Board shall not approve a personal pension scheme which permits the acceptance of minimum contributions paid as mentioned in subsection (6)(c) above in respect of an individual’s service as director of a company, if his emoluments as such are within section 644(5).

(8)A personal pension scheme which permits the acceptance of minimum contributions paid as mentioned in subsection (6)(c) above in respect of an individual’s service in an office or employment to which section 645 applies may be approved by the Board only if—

(a)the scheme does not permit the acceptance of contributions from the individual or from the person who is his employer in relation to that office or employment; or

(b)at the time when the minimum contributions are paid the individual is not serving in an office or employment to which section 645 applies.”

(3)In section 686(2) of that Act (income arising to trustees which is chargeable to income tax at the additional rate), for paragraph (c) there shall be substituted—

“(c)is not income arising under a trust established for charitable purposes only or income from investments, deposits or other property held—

(i)for the purposes of a fund or scheme established for the sole purpose of providing relevant benefits within the meaning of section 612; or

(ii)for the purposes of a personal pension scheme (within the meaning of section 630) which makes provision only for benefits such as are mentioned in section 633; and”.

(4)The amendments made by this section shall be deemed to have come into force on 1st July 1988.

56Occupational pension schemes

In Schedule 23 to the Taxes Act 1988 (which alters the rules of schemes approved before 23rd July 1987) the following sub-paragraphs shall be substituted for sub-paragraph (2) of paragraph 1—

“(2)The Board may by regulations provide that, in circumstances prescribed in the regulations, this Schedule or any provision of it shall not apply or shall apply with such modifications as may be so prescribed.

(2A)Regulations under sub-paragraph (2) above—

(a)may include provision authorising the Board to direct that this Schedule or any provision of it shall not apply in any particular case where in the opinion of the Board the facts are such that its application would not be appropriate;

(b)may take effect (and may authorise any direction given under them to take effect) as from 17th March 1987 or any later date;

(c)may make such supplementary provision as appears to the Board to be necessary or expedient.”

57Lump sum benefits paid otherwise than on retirement

(1)In section 14 of the [1973 c. 51.] Finance Act 1973 and section 189 of the Taxes Act 1988 (lump sum benefits paid on retirement not chargeable to income tax under Schedule E), for the words “on his retirement from an office or employment” there shall be substituted the words “(whether on his retirement from an office or employment or otherwise)”.

(2)The amendments made by this section shall be deemed always to have had effect.

Underwriters

58Assessment and collection

(1)For subsection (2) of section 450 of the Taxes Act 1988 (underwriters) there shall be substituted—

“(2)The aggregate for any year of assessment of—

(a)the profits or gains arising to a member from his underwriting business; and

(b)the profits or gains arising to him from assets forming part of a premiums trust fund,

shall be chargeable to tax under Case I of Schedule D; but nothing in this subsection shall affect the manner in which the amount of those profits or gains is to be computed.

(2A)Schedule 19A shall have effect with respect to the assessment and collection of tax charged under Case I of Schedule D in accordance with this section.”

(2)Section 39 of the [1973 c. 51.] Finance Act 1973 shall be renumbered as subsection (1) of that section and after that provision as so renumbered there shall be inserted—

“(2)Schedule 16A to this Act shall have effect with respect to the assessment and collection of tax charged under Case I of Schedule D in accordance with Schedule 16 to this Act.”

(3)In Schedule 16 to that Act (underwriters)—

(a)the subsection (2) set out in subsection (1) above shall be inserted after paragraph 2 as paragraph 2A; and

(b)paragraph 16 (assessment on agent) shall cease to have effect.

(4)The provisions set out in Schedule 5 to this Act shall be inserted—

(a)after Schedule 19 to the Taxes Act 1988 as Schedule 19A; and

(b)after Schedule 16 to the Finance Act 1973 as Schedule 16A.

(5)Subsections (1) and (4)(a) above shall have effect for the year 1988-89 and subsequent years of assessment; and subsections (2), (3) and (4)(b) above shall have effect for the years 1986-87 and 1987-88.

59Reinsurance: general

(1)In subsection (4) of section 450 of the Taxes Act 1988 (underwriters), for paragraph (b) there shall be substituted—

“(b)any insurance money payable to him under that insurance in respect of a loss shall be taken into account as a trading receipt in computing those profits or gains for the year of assessment which corresponds to the underwriting year in which the loss arose;”.

(2)The amendment set out in subsection (1) above shall also be made in paragraph 4 of Schedule 16 to the Finance Act 1973 (underwriters).

(3)Subsection (1) above shall have effect for the year 1988-89 and subsequent years of assessment; and subsection (2) above shall have effect for the years 1985-86, 1986-87 and 1987-88.

60Reinsurance to close

(1)For subsection (5) of section 450 of the Taxes Act 1988 (underwriters) there shall be substituted—

“(5)Subsection (5A) below applies where—

(a)in accordance with the rules or practice of Lloyd’s and in consideration of the payment of a premium, one member agrees with another to meet liabilities arising from the latter’s business for an underwriting year so that the accounts of the business for that year may be closed; and

(b)the member by whom the premium is payable is a continuing member, that is, a member not only of the syndicate as a member of which he is liable to pay the premium (“the reinsured syndicate”) but also of the syndicate as a member of which the other member is entitled to receive it (“the reinsurer syndicate”).

(5A)In any case where this subsection applies—

(a)in computing for the purposes of income tax the profits or gains of the continuing member’s business as a member of the reinsured syndicate, the amount of the premium shall be deductible as an expense of his only to the extent that it is shown not to exceed a fair and reasonable assessment of the value of the liabilities in respect of which it is payable; and

(b)in computing for those purposes the profits or gains of his business as a member of the reinsurer syndicate, those profits or gains shall be reduced by an amount equal to any part of a premium which, by virtue of paragraph (a) above, is not deductible as an expense of his as a member of the reinsured syndicate;

and the assessment referred to above shall be taken to be fair and reasonable only if it is arrived at with a view to producing the result that a profit does not accrue to the member to whom the premium is payable but that he does not suffer a loss.”

(2)The provisions set out in subsection (1) above, but renumbered as subsections (1) and (2) and with the substitution, in the provision renumbered as subsection (1), of the words “subsection (2)” for the words “subsection (5A)”, shall also be substituted for subsections (1) to (4) of section 70 of the [1987 c. 51.] Finance (No. 2) Act 1987 (underwriters); and in subsection (5) of that section, for the word “underwriter” there shall be substituted the word “member”.

(3)In this section—

(a)subsection (1) shall have effect in relation to premiums payable in connection with the closing of accounts of a member’s business for an underwriting year ending in the year 1988-89 or any subsequent year of assessment; and

(b)subsection (2) shall have effect in relation to premiums payable in connection with the closing of accounts of a member’s business for an underwriting year ending in the year 1985-86, 1986-87 or 1987-88.

61Minor and consequential amendments

(1)In the Taxes Act 1988—

(a)in section 20, at the beginning of subsection (2) there shall be inserted the words “Except as provided by section 450 (underwriters)”;

(b)in section 451, in subsection (1), for paragraph (a) there shall be substituted—

“(a)for the assessment and collection of tax charged in accordance with section 450 (so far as not provided for by Schedule 19A);

(aa)for making, in the event of any changes in the rules or practice of Lloyd's, such amendments of that Schedule as appear to the Board to be expedient having regard to those changes;”;

(c)after that subsection there shall be inserted—

“(1A)Regulations under subsection (1) above may make provision with respect to the year of assessment next but one preceding the year of assessment in which they are made.”; and

(d)in section 452(8), for the words “Case I of Schedule D” there shall be substituted the words “in accordance with section 450” and the words “the investments forming part of the premiums trust fund of the underwriter” shall cease to have effect.

(2)In Schedule 10 to the Taxes Act 1970, in paragraph 7(3), for the words “Case I of Schedule D” there shall be substituted the words “in accordance with Schedule 16 to [1973 c. 51.] Finance Act 1973” and the words “the investments forming part of the premiums trust fund of the underwriter” shall cease to have effect.

(3)In section 87 of the [1972 c. 41.] Finance Act 1972, at the beginning of subsection (3) there shall be inserted the words “Except as provided by Schedule 16 to Finance Act 1973 (underwriters)”.

(4)In Schedule 16 to the Finance Act 1973—

(a)in sub-paragraph (1) of paragraph 17, for paragraph (a) there shall be substituted—

“(a)for the assessment and collection of tax charged in accordance with the preceding provisions of this Schedule (so far as not provided for by Schedule 16A to this Act);

(aa)for making, in the event of any changes in the rules or practice of Lloyd's, such amendments of that Schedule as appear to the Board to be expedient having regard to those changes;”;

(b)after that sub-paragraph, there shall be inserted—

“(1A)Regulations under this paragraph may make provision with respect to the year of assessment next but one preceding the year of assessment in which they are made.”

(5)Subsection (1) above shall have effect for the year 1988-89 and subsequent years of assessment; and subsections (2) to (4) above shall have effect for the years 1986-87 and 1987-88.

Oil licences

62Disposals of oil licences relating to undeveloped areas

(1)If, at the time of the material disposal of a licence, the licence relates to an undeveloped area, then, to the extent that the consideration for the disposal consists of—

(a)another licence which at that time relates to an undeveloped area or an interest in another such licence, or

(b)an obligation to undertake exploration work or appraisal work in an area which is or forms part of the licensed area in relation to the licence disposed of,

the value of that consideration shall be treated as nil for the purposes of the [1979 c. 14.] Capital Gains Tax Act 1979 (in this section referred to as “the 1979 Act”) and the appropriate legislation relating to capital allowances.

(2)For the purposes of this section a “material disposal” is a disposal (which includes a part disposal) which occurred or occurs before or after the passing of this Act, other than,—

(a)so far as concerns the 1979 Act, a disposal which is made otherwise than by way of a bargain at arm’s length; and

(b)so far as concerns the appropriate legislation relating to capital allowances, a disposal in relation to which Schedule 7 to the [1968 c. 3.] Capital Allowances Act 1968 (sales between connected persons etc.) has effect.

(3)If a material disposal of a licence which, at the time of the disposal, relates to an undeveloped area is part of a larger transaction under which one party makes to another material disposals of two or more licences, each of which at the time of the disposal relates to an undeveloped area, the reference in subsection (1)(b) above to the licensed area in relation to the licence disposed of shall be construed as a reference to the totality of the licensed areas in relation to those two or more licences.

(4)Where a claim is made under section 68(5)(b) of the [1985 c. 54.] Finance Act 1985 (claims to substitute, for indexation purposes, a 1982 market value for cost on certain disposals between 1st April 1985 and 5th April 1988) for the purpose of computing the indexation allowance on a material disposal of a licence which, at the time of the disposal, relates to an undeveloped area and, accordingly, it is assumed for that purpose that, on 31st March 1982, the licence concerned was sold and immediately reacquired, then, for that purpose, section 34 of the 1979 Act (effect of capital allowances on allowable expenditure) shall apply in relation to any capital allowance—

(a)made in respect of the expenditure actually incurred in providing the licence, and

(b)so made for an accounting period ending on or after 1st April 1982,

as if the allowance (or, if the accounting period begins before that date, a time-apportioned part of the allowance) were made in respect of expenditure which, on that assumption, was incurred in reacquiring the asset on 31st March 1982.

(5)In relation to a material disposal of a licence which at the time of the disposal relates to an undeveloped area, being a disposal—

(a)which is a part disposal of the licence in question, and

(b)part but not the whole of the consideration for which falls within paragraph (a) or paragraph (b) of subsection (1) above,

section 35 of the 1979 Act (apportionment of expenditure etc. on part disposals) shall not apply unless the amount or value of the part of the consideration which does not fall within one of those paragraphs is less than the aggregate of the amounts which, if the material disposal were a disposal of the whole of the licence rather than a part disposal, would be—

(i)the relevant allowable expenditure, as defined in section 86 of the [1982 c. 39.] Finance Act 1982 (indexation allowance on certain disposals); and

(ii)the indexation allowance on the disposal.

(6)Where section 35 of the 1979 Act has effect in relation to such a disposal as is referred to in subsection (5) above, it shall have effect as if, for subsection (2) thereof, there were substituted the following subsection—

“(2)The apportionment shall be made by reference to—

(a)the amount or value of the consideration for the disposal on the one hand (call that amount or value A), and

(b)the aggregate referred to in subsection (5) of section 62 of the Finance Act 1988 on the other hand (call that aggregate C),

and the fraction of the said sums allowable as a deduction in computing the amount of the gain (if any) accruing on the disposal shall be—

and the remainder shall be attributed to the part of the property which remains undisposed of.”

(7)In the case of a material disposal—

(a)which falls within subsection (5) above, and

(b)in respect of which a claim is made under section 68(5)(b) of the [1985 c. 54.] Finance Act 1985,

the claim shall be treated also as having effect for the purpose of determining the indexation allowance referred to in sub-paragraph (ii) of subsection (5) above on the notional material disposal of the whole of the licence referred to in that subsection.

63Allowance of certain drilling expenditure etc. in determining chargeable gains

(1)On the disposal of a licence, whether occurring before or after the passing of this Act, relevant qualifying expenditure incurred by the person making the disposal—

(a)in searching for oil anywhere in the licensed area, or

(b)in ascertaining the extent or characteristics of any oil-bearing area the whole or part of which lies in the licensed area or what the reserves of oil of any such oil-bearing area are,

shall be treated as expenditure falling within section 32(1)(b) of the [1979 c. 14.] Capital Gains Tax Act 1979 (enhancement expenditure reflected in the state or nature of the asset at the time of disposal).

(2)Expenditure incurred as mentioned in subsection (1) above is relevant expenditure if, and only if,—

(a)it is expenditure of a capital nature on scientific research; and

(b)either it was allowed or allowable under section 91 of the [1968 c. 3.] Capital Allowances Act 1968 (capital expenditure on scientific research) for a chargeable period which, or the basis year for which, began before the date of the disposal or it would have been so allowable if the trading condition had been fulfilled; and

(c)the disposal is an occasion by virtue of which section 92 of that Act (termination of user of assets representing scientific research expenditure of a capital nature) applies in relation to the expenditure or would apply if the trading condition had been fulfilled and the expenditure had been allowed accordingly.

(3)In subsection (2) above and subsection (4) below, the expression “if the trading condition had been fulfilled” means, in relation to expenditure of a capital nature on scientific research, if, after the expenditure was incurred but before the disposal concerned was made, the person incurring the expenditure had set up and commenced a trade connected with that research; and in subsection (2)(b) above—

(a)“chargeable period” has the same meaning as in section 91 of the [1968 c. 3.] Capital Allowances Act 1968; and

(b)“basis year” has the same meaning as in subsection (3)(c) of that section.

(4)Relevant expenditure is qualifying expenditure only to the extent that it does not exceed the trading receipt which, by reason of the disposal,—

(a)is treated as accruing under section 92(2) of the Capital Allowances Act 1968; or

(b)would be treated as so accruing if the trading condition had been fulfilled and the expenditure had been allowed accordingly.

(5)On the disposal of a licence, sections 31 and 34 of the [1979 c. 14.] Capital Gains Tax Act 1979 (which include provisions under which set off is given for balancing charges) shall apply in relation to any such trading receipt as is mentioned in subsection (4)(a) above as if it were a balancing charge falling to be made by reference to the disposal.

(6)Where, on the disposal of a licence, subsection (1) above has effect in relation to any relevant qualifying expenditure which had not in fact been allowed or become allowable as mentioned in subsection (2)(b) above,—

(a)no allowance shall be made in respect of that expenditure under section 91 of the Capital Allowances Act 1968; and

(b)no deduction shall be allowed in respect of it under section 92(3) of that Act.

(7)Where, on the disposal of a licence which is a part disposal, subsection (1) above has effect in relation to any relevant qualifying expenditure, then, for the purposes of section 35 of the Capital Gains Tax Act 1979 (part disposals), that expenditure shall be treated as wholly attributable to what is disposed of (and, accordingly, shall not be apportioned as mentioned in that section).

64Interpretation of sections 62 and 63

(1)For the purposes of section 62 above, a licence relates to an undeveloped area at any time if—

(a)for no part of the licensed area has consent for development been granted to the licensee by the Secretary of State on or before that time; and

(b)for no part of the licensed area has a programme of development been served on the licensee or approved by the Secretary of State on or before that time.

(2)Subsections (4) and (5) of section 36 of the [1983 c. 28.] Finance Act 1983 (meaning of “development”) shall have effect in relation to subsection (1) above as they have effect in relation to subsection (2) of that section.

(3)In relation to a licence under the [1964 c. 28 (N.I.).] Petroleum (Production) Act (Northern Ireland) 1964 any reference in subsection (1) above to the Secretary of State shall be construed as a reference to the Department of Economic Development.

(4)In relation to a material disposal, within the meaning of section 62 above, of a licence under which the buyer acquires an interest in the licence only so far as it relates to part of the licensed area, any reference in subsection (1) or subsection (3) of that section or subsection (1) above to the licensed area shall be construed as a reference only to that part of the licensed area to which the buyer’s acquisition relates.

(5)In sections 62 and 63 above and the preceding provisions of this section “oil”, “licence”, “licensee” and, subject to subsection (4) above, “licensed area” have the meaning assigned by section 12(1) of the [1975 c. 22.] Oil Taxation Act 1975.

(6)In section 62 above—

(a)“exploration work”, in relation to any area, means work carried out for the purpose of searching for oil anywhere in that area;

(b)“appraisal work”, in relation to any area, means work carried out for the purpose of ascertaining the extent or characteristics of any oil-bearing area the whole or part of which lies in the area concerned or what the reserves of oil of any such oil-bearing area are;

(c)“the appropriate legislation relating to capital allowances” means—

(i)Chapter III of Part I and Part II of the [1968 c. 3.] Capital Allowances Act 1968; and

(ii)section 55 of and Schedules 13 and 14 to the [1986 c. 41.] Finance Act 1986 (new code of allowances for capital expenditure on mineral extraction); and

(d)any reference to section 68(5)(b) of the [1985 c. 54.] Finance Act 1985 is a reference to that section as it had effect before the amendment made by Schedule 8 to this Act.

Miscellaneous

65Commercial woodlands

Schedule 6 to this Act (which abolishes the charge to tax under Schedule B and makes other provision with respect to the occupation of commercial woodlands) shall have effect.

66Company residence

(1)Subject to the provisions of Schedule 7 to this Act, a company which is incorporated in the United Kingdom shall be regarded for the purposes of the Taxes Acts as resident there; and accordingly, if a different place of residence is given by any rule of law, that place shall no longer be taken into account for those purposes.

(2)For the purposes of the Taxes Acts, a company which—

(a)is no longer carrying on any business; or

(b)is being wound up outside the United Kingdom,

shall be regarded as continuing to be resident in the United Kingdom if it was so regarded for those purposes immediately before it ceased to carry on business or, as the case may be, before any of its activities came under the control of a person exercising functions which, in the United Kingdom, would be exercisable by a liquidator.

(3)In this section “the Taxes Acts” has the same meaning as in the [1970 c. 9.] Taxes Management Act 1970.

(4)This section and Schedule 7 to this Act shall be deemed to have come into force on 15th March 1988.

67Seafarers: foreign earnings

(1)In paragraph 3 of Schedule 12 to the Taxes Act 1988 (qualifying period for relief for foreign earnings) after sub-paragraph (2) there shall be inserted—

“(2A)In relation to emoluments from employment as a seafarer, sub-paragraph (2) above shall have effect—

(a)as if the number of days specified in paragraph (a) were 90 instead of 62, and

(b)as if the fraction specified in paragraph (b) were one quarter instead of one sixth;

and for the purposes of this sub-paragraph “employment as a seafarer” means employment consisting of the performance of duties on a ship (or of such duties and of others incidental to them).”

(2)This section shall have effect for the year 1988-89 and subsequent years of assessment; but the relevant period and the earlier qualifying period referred to in paragraph 3(2) of Schedule 12 to the Taxes Act 1988 shall not be treated as a single period by virtue of this section if none of the intervening days falls after 5th April 1988.

68Priority share allocations for employees etc

(1)Where—

(a)there is an offer to the public of shares in a company at a fixed price or by tender, and

(b)a director or employee (whether of that company or of any other company or person) is entitled by reason of his office or employment to an allocation of the shares, in priority to members of the public, at the fixed price or at the lowest price successfully tendered, and

(c)the conditions set out in subsection (2) below are satisfied,

any benefit derived by the director or employee from his entitlement shall not be treated as an emolument of his office or employment.

(2)The conditions referred to in subsection (1) above are—

(a)that the aggregate number of shares that may be allocated as mentioned in subsection (1)(b) above does not exceed 10 per cent. of the shares subject to the offer (including the shares that may be so allocated);

(b)that all the persons entitled to such an allocation are entitled to it on similar terms;

(c)that those persons are not restricted wholly or mainly to persons who are directors or whose remuneration exceeds a particular level.

(3)For the purposes of subsection (2)(b) above the fact that different provision is made for persons according to the levels of their remuneration, the length of their service or similar factors shall not be regarded as meaning that they are not entitled to an allocation on similar terms.

(4)Section 29A(1) of the [1979 c. 14.] Capital Gains Tax Act 1979 (assets deemed to be acquired at market value) shall not apply to any acquisition in relation to which subsection (1) above applies.

(5)In this section “director” includes a person who is to be, or has ceased to be, a director and “employee” includes a person who is to be, or has ceased to be, an employee.

(6)This section shall apply to offers made on or after 23rd September 1987.

69Share options: loans

(1)Paragraph 13 of Schedule 9 to the Taxes Act 1988 (approved share option schemes: cases where scheme shares are subject to restrictions) shall have effect, and shall be deemed always to have had effect, with the addition of the following sub-paragraph after sub-paragraph (2)—

“(3)In the case of schemes other than savings-related share option schemes, sub-paragraph (1) above does not apply in relation to any terms of a loan making provision about how it is to be repaid or the security to be given for it.”

(2)Paragraph 10 of Schedule 10 to the [1984 c. 43.] Finance Act 1984 (approved share option schemes: cases where scheme shares are subject to restrictions) shall be deemed always to have had effect with the addition of the following sub-paragraph after sub-paragraph (2)—

“(3)Sub-paragraph (1) above does not apply in relation to any terms of a loan making provision about how it is to be repaid or the security to be given for it.”

70Charities: payroll deduction scheme

(1)In section 202(7) of the Taxes Act 1988 (which limits to £120 the deductions attracting relief) for “£120” there shall be substituted “£240”.

(2)This section shall have effect for the year 1988-89 and subsequent years of assessment.

71Unit trusts: relief on certain payments

Section 469 of the Taxes Act 1988 (taxation of unauthorised and certain other unit trusts) shall have effect, and shall be deemed always to have had effect, with the insertion of the following subsections after subsection (5)—

“(5A)Subsection (5B) below applies where for any year of assessment—

(a)the trustees are (or, apart from this subsection, would be) chargeable under section 350 with tax on payments treated as made by them under subsection (3) above, and

(b)there is an uncredited surplus in the case of the scheme.

(5B)Where this subsection applies, the amount on which the trustees would otherwise be so chargeable shall be reduced—

(a)if the surplus is greater than that amount, to nil, or

(b)if it is not, by an amount equal to the surplus.

(5C)For the purposes of subsections (5A) and (5B) above whether there is an uncredited surplus for a year of assessment in the case of a scheme (and, if so, its amount) shall be ascertained by—

(a)determining, for each earlier year of assessment in which the income on which the trustees were chargeable to tax by virtue of subsection (2) above exceeded the amount treated by subsection (3) above as annual payments received by the unit holders, the amount of the excess,

(b)aggregating the amounts determined in the case of the scheme under paragraph (a) above, and

(c)deducting from that aggregate the total of any reductions made in the case of the scheme under subsection (5B) above for earlier years of assessment.

(5D)The references in subsection (5C)(a) above to subsections (2) and (3) above include references to subsections (2) and (3) of section 354A of the 1970 Act.”

72Entertainment of overseas customers

(1)Subsection (2) of section 577 of the Taxes Act 1988 (which excepts the entertainment of overseas customers from the general rule that entertainment expenses are not deductible for tax purposes) shall not have effect in relation to entertainment provided on or after 15th March 1988.

(2)Subsection (1) above shall not apply where the expenses incurred or the assets used in providing the entertainment were incurred or used under a contract entered into before 15th March 1988.

73Consideration for certain restrictive undertakings

(1)For subsections (1) to (5) of section 313 of the Taxes Act 1988 (taxation of consideration for certain restrictive undertakings) there shall be substituted—

“(1)Where an individual who holds, has held, or is about to hold, an office or employment gives in connection with his holding that office or employment an undertaking (whether absolute or qualified, and whether legally valid or not) the tenor or effect of which is to restrict him as to his conduct or activities, any sum to which this section applies shall be treated as an emolument of the office or employment, and accordingly shall be chargeable to tax under Schedule E, for the year of assessment in which it is paid.

(2)This section applies to any sum which—

(a)is paid, in respect of the giving of the undertaking or its total or partial fulfilment, either to the individual or to any other person; and

(b)would not, apart from this section, fall to be treated as an emolument of the office or employment.

(3)Where the individual has died before the payment of any sum to which this section applies, subsections (1) and (2) above shall have effect as if that sum had been paid immediately before his death.

(4)Where valuable consideration otherwise than in the form of money is given in respect of the giving of the undertaking or its total or partial fulfilment, subsections (1) to (3) above shall have effect as if a sum had instead been paid equal to the value of that consideration.”

(2)Notwithstanding anything in section 74 of the Taxes Act 1988, any sum to which section 313 of that Act applies, and which is paid or treated as paid by a person carrying on a trade, profession or vocation, may be deducted as an expense in computing the profits or gains of the trade, profession or vocation for the purposes of tax.

(3)Any sum to which section 313 of the Taxes Act 1988 applies, and which is paid or treated as paid by an investment company, shall for the purposes of section 75 of that Act be treated as an expense of management.

(4)This section has effect in relation to sums paid or treated as paid in respect of the giving of, or the total or partial fulfilment of, undertakings given on or after 9th June 1988.

74Payments on termination of office or employment etc

(1)In section 188(4) of the Taxes Act 1988 (tax not chargeable by virtue of section 148 of that Act in respect of the first £25,000 of a payment on termination of office or employment etc.) for “£25,000” there shall be substituted “£30,000”.

(2)Paragraphs 4 to 7 of Schedule 11 to that Act (relief by reduction of tax on next £50,000 of such a payment) shall cease to have effect.

(3)This section shall apply to any payment treated by section 148(4) of that Act as income received on 6th April 1988 or any later date, unless a notice is given in relation to it in accordance with paragraph 12 of that Schedule (payments in pursuance of pre-10th March 1981 obligations).

75Premiums for leases etc

Sections 39(3) and 780(5) of, and Schedule 2 to, the Taxes Act 1988 (top-slicing relief where premiums for leases etc. chargeable to income tax) shall not have effect for the year 1988-89 or any subsequent year of assessment.

76Foreign dividends etc., quoted Eurobonds and recognised clearing systems

(1)In section 17(1) of the Taxes Act 1988 (Schedule C) for paragraph 3 of Schedule C there shall be substituted—

“3Where a banker or any other person in the United Kingdom obtains payment of any overseas public revenue dividends by means of coupons received from any other person or otherwise on his behalf and either—

(a)the payment of those dividends was not entrusted to any person in the United Kingdom, or

(b)the securities in respect of which those dividends are paid are held in a recognised clearing system,

tax under this Schedule shall be charged in respect of those dividends.”

(2)In section 45 of that Act (definitions relating to Schedule C) for the definition of “overseas public revenue dividends” there shall be substituted—

““overseas public revenue dividends” means public revenue dividends payable out of any public revenue other than that of the United Kingdom;”.

(3)In section 123 of that Act, in paragraph (a) of subsection (3) (Schedule D charge where collecting agents in UK obtain payment of foreign dividends elsewhere than in UK) for the words “elsewhere than in the United Kingdom” there shall be substituted the words “and either—

(i)the payment of those dividends was not entrusted to any person in the United Kingdom, or

(ii)the stocks, funds, shares or securities in respect of which those dividends are paid are held in a recognised clearing system”.

(4)In section 124 of that Act (interest on quoted Eurobonds) in subsection (5) (which applies, with modifications, section 123(3) to (6)) the following paragraph shall be inserted immediately before paragraph (a)—

“(za)subsection (3)(a)(i) shall have effect in relation to quoted Eurobonds not held in a recognised clearing system as if the words “made by or” were inserted immediately before the words “entrusted to any person in the United Kingdom””.

(5)In subsection (6) of that section (definitions)—

(a)in the definition of “recognised clearing system” after the words “system for clearing quoted Eurobonds” there shall be inserted the words “or relevant foreign securities”; and

(b)after that definition there shall be added—

““relevant foreign securities” means any of the following, that is to say—

(a)any such stocks, funds, shares or securities as give rise to foreign dividends, within the meaning of section 123; and

(b)any such securities as give rise to overseas public revenue dividends, within the meaning of Part III.”

(6)Subsections (1) to (4) above shall have effect with respect to payments obtained on behalf of another by a banker or other person after the passing of this Act.