Finance Act 1997

Part VU.K. Income Tax, Corporation Tax and Capital Gains Tax

Income tax charge, rates and reliefsU.K.

54 Charge and rates of income tax for 1997-98.U.K.

F1(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F2(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F355 Modification of indexed allowances.U.K.

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56 Blind person’s allowance.U.K.

(1)In subsection (1) of section 265 of the Taxes Act 1988 (blind person’s allowance), for “£1,250” there shall be substituted “ £1,280 ”.

F4(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3)Subsection (1) above shall apply for the year 1997-98 and, subject to subsection (2) above, for subsequent years of assessment.

F557 Limit on relief for interest.U.K.

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Corporation tax charge and rateU.K.

F658. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

F759 Small companies.U.K.

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Payments for wayleavesU.K.

60 Wayleaves for electricity cables, telephone lines, etc.U.K.

(1)Section 120 of the Taxes Act 1988 (payments for wayleaves for electricity cables, telephone lines, etc.) shall be amended as follows.

(2)In subsection (1) (payments charged under Schedule D subject to deduction of tax)—

(a)at the beginning there shall be inserted “ Subject to subsection (1A) below, ”; and

(b)the words from “and, subject to” onwards (which provide for the deduction of tax) shall be omitted.

(3)After subsection (1) there shall be inserted the following subsection—

“(1A)If—

(a)the profits and gains arising to any person for any chargeable period include both rent in respect of any such easement as is mentioned in subsection (1) above and amounts which are charged to tax under Schedule A, and

(b)some or all of the land to which the easement relates is included in the land by reference to which the amounts charged under Schedule A arise,

then, for that period, that rent shall be charged to tax under Schedule A, instead of being charged under Schedule D.”

(4)Subsections (2) to (4) and, in subsection (5), paragraph (c) and the word “and” immediately preceding it shall cease to have effect.

(5)This section has effect in relation to payments made on or after 6th April 1997.

Schedule EU.K.

F861 Phasing out of relief for profit-related pay.U.K.

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F962 Travelling expenses etc.U.K.

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F1063 Work-related training.U.K.

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Relieved expenditure, losses etc.U.K.

F1164 Postponed company donations to charity.U.K.

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F1265 National Insurance contributions.U.K.

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F1366 Expenditure on production wells etc.U.K.

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F1467 Annuity business of insurance companies.U.K.

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F1568 Consortium claims for group relief.U.K.

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Distributions etc.U.K.

69 Special treatment for certain distributions.U.K.

Schedule 7 to this Act (which makes provision for the treatment of distributions arising on the purchase etc. by a company of its own shares and for cases where a distribution has a connection with a transaction in securities) shall have effect.

[F1670 Distributions of exempt funds.U.K.

(1)In subsection (5) of section 236 of the Taxes Act 1988 (meaning of “relevant profits”)—

(a)in paragraph (a), after “franked investment income” there shall be inserted “ and foreign income dividends ”; and

(b)in paragraph (b), for “and franked investment income” there shall be substituted “ , franked investment income and foreign income dividends ”.

(2)After subsection (7) of that section there shall be inserted the following subsection—

“(8)In this section “foreign income dividends” shall be construed in accordance with Chapter VA of Part VI.”

(3)This section has effect (subject to subsection (4) below) for the purposes of computing the relevant profits (within the meaning of section 236 of the Taxes Act 1988) arising to a company in any period falling wholly or partly after 7th October 1996.

(4)No foreign income dividend paid before 8th October 1996 shall be included or, as the case may be, excluded by virtue of this section from any such profits as are mentioned in subsection (3) above.]

[F1771 Set-off against franked investment income.U.K.

Section 242 of the Taxes Act 1988 (set-off of losses against surplus franked investment income) shall have effect, and be deemed always to have had effect, as if at the end of paragraph (c) of subsection (6) (power to carry set-off forward) there were inserted “and

(d)in relation to relief given in respect of amounts available to be set against profits under section 83 of the M1Finance Act 1996 or paragraph 4 of Schedule 11 to that Act or under section 131(4) of the M2Finance Act 1993 (which are provisions relating to deficits on loan relationships, foreign exchange losses and losses on certain financial instruments);”.]

[F1872 FIDs paid to unauthorised unit trusts.U.K.

(1)In section 246D(5) of the Taxes Act 1988 (section 233(1) and (1A) of that Act not to apply to FIDs paid to individuals, personal representatives or certain trustees), after “representatives” there shall be inserted “ , a foreign income dividend paid to the trustees of a unit trust scheme to which section 469 applies ”.

(2)This section has effect in relation to distributions made on or after 26th November 1996.]

F1973 Tax advantages to include tax credits.U.K.

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Investments etc.U.K.

F2074 Enterprise investment scheme.U.K.

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F2175 Venture capital trusts.U.K.

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76 Stock lending and manufactured payments.U.K.

Schedule 10 to this Act (which makes provision for the treatment for the purposes of income tax, corporation tax and capital gains tax of stock lending arrangements and manufactured payments) shall have effect.

F2277 Bond washing and repos.U.K.

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F2378 National Savings Bank interest.U.K.

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F2479 Payments under certain life insurance policies.U.K.

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80 Futures and options: transactions with guaranteed returns.U.K.

F25(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F25(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F25(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F25(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F26(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F26(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F27(7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Transfer of assets abroadU.K.

F2881 Transfer of assets abroad.U.K.

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Leasing and loan arrangementsU.K.

F2982 Finance leases and loans.U.K.

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83 Loan relationships: transitions.U.K.

F30(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F30(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F30(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F30(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F30(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6)Schedule 13 to this Act (which contains amendments of the transitional provisions in Schedule 15 to the Finance Act 1996) shall have effect.

Capital allowancesU.K.

F3184. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

85 Schedule A cases etc.U.K.

Schedule 15 to this Act (which makes provision in relation to capital allowances for cases where persons have income chargeable to tax under Schedule A or make lettings of furnished holiday accommodation in the United Kingdom) shall have effect.

F3286. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

Chargeable gainsU.K.

87 Re-investment relief.U.K.

Schedule 17 to this Act (which amends Chapter IA of Part V of the M3Taxation of Chargeable Gains Act 1992) shall have effect.

88 Conversion of securities: QCBs and debentures.U.K.

(1)The Taxation of Chargeable Gains Act 1992 shall be amended as follows.

(2)In paragraph (a) of subsection (3) of section 132 (meaning of conversion of securities)—

(a)after “includes” there shall be inserted “ any of the following, whether effected by a transaction or occurring in consequence of the operation of the terms of any security or of any debenture which is not a security, that is to say ”;

(b)after sub-paragraph (i) there shall be inserted the following sub-paragraphs—

“(ia)a conversion of a security which is not a qualifying corporate bond into a security of the same company which is such a bond, and

(ib)a conversion of a qualifying corporate bond into a security which is a security of the same company but is not such a bond, and”.

(3)After that subsection there shall be inserted the following subsections—

“(4)In subsection (3)(a)(ia) above the reference to the conversion of a security of a company into a qualifying corporate bond includes a reference to—

(a)any such conversion of a debenture of that company that is deemed to be a security for the purposes of section 251 as produces a security of that company which is a qualifying corporate bond; and

(b)any such conversion of a security of that company, or of a debenture that is deemed to be a security for those purposes, as produces a debenture of that company which, when deemed to be a security for those purposes, is such a bond.

(5)In subsection (3)(a)(ib) above the reference to the conversion of a qualifying corporate bond into a security of the same company which is not such a bond includes a reference to any conversion of a qualifying corporate bond which produces a debenture which—

(a)is not a security; and

(b)when deemed to be a security for the purposes of section 251, is not such a bond.”

(4)In section 116(2) (qualifying corporate bonds), after the word “section”, in the first place where it occurs, there shall be inserted “ references to a transaction include references to any conversion of securities (whether or not effected by a transaction) within the meaning of section 132 and ”.

(5)In section 251(6) (deemed securities), after paragraph (d) there shall be inserted—

“and any debenture which results from a conversion of securities within the meaning of section 132, or is issued in pursuance of rights attached to such a debenture, shall be deemed for the purposes of this section to be a security (as defined in that section).”

(6)This section has effect for the purposes of the application of the M4Taxation of Chargeable Gains Act 1992 in relation to any disposal on or after 26th November 1996 and shall so have effect, where a conversion took place at a time before that date, as if it had come into force before that time.

89 Earn-out rights.U.K.

(1)After section 138 of the Taxation of Chargeable Gains Act 1992 there shall be inserted the following section—

“138A Use of earn-out rights for exchange of securities.

(1)For the purposes of this section an earn-out right is so much of any right conferred on any person (“the seller”) as—

(a)constitutes the whole or any part of the consideration for the transfer by him of shares in or debentures of a company (“the old securities”);

(b)consists in a right to be issued with shares in or debentures of another company (“the new company”);

(c)is such that the value or quantity of the shares or debentures to be issued in pursuance of the right (“the new securities”) is unascertainable at the time when the right is conferred; and

(d)is not capable of being discharged in accordance with its terms otherwise than by the issue of the new securities.

(2)Where—

(a)there is an earn-out right,

(b)the exchange of the old securities for the earn-out right is an exchange to which section 135 would apply, in a manner unaffected by section 137, if the earn-out right were an ascertainable amount of shares in or debentures of the new company, and

(c)the seller elects under this section for the earn-out right to be treated as a security of the new company,

this Act shall have effect, in the case of the seller and every other person who from time to time has the earn-out right, in accordance with the assumptions specified in subsection (3) below.

(3)Those assumptions are—

(a)that the earn-out right is a security within the definition in section 132;

(b)that the security consisting in the earn-out right is a security of the new company and is incapable of being a qualifying corporate bond for the purposes of this Act;

(c)that references in this Act (including those in this section) to a debenture include references to a right that is assumed to be a security in accordance with paragraph (a) above; and

(d)that the issue of shares or debentures in pursuance of such a right constitutes the conversion of the right, in so far as it is discharged by the issue, into the shares or debentures that are issued.

(4)For the purposes of this section where—

(a)any right which is assumed, in accordance with this section, to be a security of a company (“the old right”) is extinguished,

(b)the whole of the consideration for the extinguishment of the old right consists in another right (“the new right”) to be issued with shares in or debentures of that company,

(c)the new right is such that the value or quantity of the shares or debentures to be issued in pursuance of the right (“the replacement securities”) is unascertainable at the time when the old right is extinguished,

(d)the new right is not capable of being discharged in accordance with its terms otherwise than by the issue of the replacement securities, and

(e)the person on whom the new right is conferred elects under this section for it to be treated as a security of that company,

the assumptions specified in subsection (3) above shall have effect in relation to the new right, in the case of that person and every other person who from time to time has the new right, as they had effect in relation to the old right.

(5)An election under this section in respect of any right must be made, by a notice given to an officer of the Board—

(a)in the case of an election by a company within the charge to corporation tax, within the period of two years from the end of the accounting period in which the right is conferred; and

(b)in any other case, on or before the first anniversary of the 31st January next following the year of assessment in which that right is conferred.

(6)An election under this section shall be irrevocable.

(7)Subject to subsections (8) to (10) below, where any right to be issued with shares in or debentures of a company is conferred on any person, the value or quantity of the shares or debentures to be issued in pursuance of that right shall be taken for the purposes of this section to be unascertainable at a particular time if, and only if—

(a)it is made referable to matters relating to any business or assets of one or more relevant companies; and

(b)those matters are uncertain at that time on account of future business or future assets being included in the business or assets to which they relate.

(8)Where a right to be issued with shares or debentures is conferred wholly or partly in consideration for the transfer of other shares or debentures or the extinguishment of any right, the value and quantity of the shares or debentures to be issued shall not be taken for the purposes of this section to be unascertainable in any case where, if—

(a)the transfer or extinguishment were a disposal, and

(b)a gain on that disposal fell to be computed in accordance with this Act,

the shares or debentures to be issued would, in pursuance of section 48, be themselves regarded as, or as included in, the consideration for the disposal.

(9)Where any right to be issued with shares in or debentures of a company comprises an option to choose between shares in that company and debentures of that company, the existence of that option shall not, by itself, be taken for the purposes of this section either—

(a)to make unascertainable the value or quantity of the shares or debentures to be issued; or

(b)to prevent the requirements of subsection (1)(b) and (d) or (4)(b) and (d) above from being satisfied in relation to that right.

(10)For the purposes of this section the value or quantity of shares or debentures shall not be taken to be unascertainable by reason only that it has not been fixed if it will be fixed by reference to the other and the other is ascertainable.

(11)In subsection (7) above “relevant company”, in relation to any right to be issued with shares in or debentures of a company, means—

(a)that company or any company which is in the same group of companies as that company; or

(b)the company for whose shares or debentures that right was or was part of the consideration, or any company in the same group of companies as that company;

and in this subsection the reference to a group of companies shall be construed in accordance with section 170(2) to (14).”

(2)Subject to subsections (3) to (8) below—

(a)the section 138A inserted by subsection (1) above shall be deemed always to have been a section of the M5Taxation of Chargeable Gains Act 1992; and

(b)the enactments applying to chargeable periods beginning before 6th April 1992 shall be deemed always to have included a corresponding section.

(3)Subject to subsections (4) to (6) below, an election under section 138A of the Taxation of Chargeable Gains Act 1992 in respect of a right conferred on any person before 26th November 1996 may be made at any time before the end of the period for the making of such an election in respect of a right conferred on that person on that date.

(4)An election in respect of a right conferred on any person shall not be made by virtue of subsection (3) above at any time after the final determination of his liability to corporation tax or capital gains tax for the chargeable period in which the right was in fact conferred on him.

(5)A notice given to an officer of the Board before the day on which this Act is passed shall not have effect as an election under section 138A of the Taxation of Chargeable Gains Act 1992, or the corresponding provision applying to chargeable periods beginning before 6th April 1992, except in accordance with subsection (6) below.

(6)Where—

(a)any person has given a notification to an officer of the Board before the day on which this Act is passed, and

(b)that notification was given either—

(i)in anticipation of the right to make an election under section 138A of the Taxation of Chargeable Gains Act 1992, or

(ii)for the purposes of an extra-statutory concession available to be used by that person for purposes similar to those of that section,

that notification shall, unless the Board otherwise direct, be treated as if it were a valid and irrevocable election made by that person for the purposes of that section or, as the case may be, the corresponding provision.

(7)Where any notification given as mentioned in subsection (6)(b)(ii) above is treated as an election for the purposes of section 138A of the M6Taxation of Chargeable Gains Act 1992 or any corresponding provision, that section or, as the case may be, the corresponding provision shall be taken to have no effect by virtue of that election in relation to any disposal before 26th November 1996 of any asset which—

(a)was issued to any person in pursuance of an earn-out right;

(b)was issued to any person in pursuance of any such right as is mentioned in subsection (4) of that section; or

(c)falls for the purposes of that Act to be treated as the same as an asset issued at any time to any person in pursuance of such a right as is mentioned in paragraph (a) or (b) above but is not an asset first held by that person before that time.

(8)Subsection (7) above shall not prevent section 138A of the Taxation of Chargeable Gains Act 1992 from being taken, for the purposes of applying that Act to any disposal on or after 26th November 1996, to have had effect in relation to—

(a)any disposal before that date on which, by virtue of any of the [F33no gain/no loss provisions (within the meaning of that Act: see section 288(3A) of that Act)], neither a gain nor a loss accrued,

(b)any deemed disposal before that date by reference to which a gain or loss falls to be calculated in accordance with section 116(10)(a) of that Act, or

(c)any transaction before that date that would have fallen to be treated as a disposal but for section 127 of that Act.

Double taxation reliefU.K.

F3490 Restriction of relief for underlying tax.U.K.

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F3491 Disposals of loan relationships with or without interest.U.K.

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Repayment supplementU.K.

92 Time from which entitlement runs.U.K.

(1)Section 824 of the M7Taxes Act 1988 (repayment supplements), where it has effect as amended by paragraph 41 of Schedule 19 to the Finance Act 1994, shall be amended in accordance with subsections (2) to (4) below.

(2)For paragraphs (a) and (b) of subsection (3) there shall be substituted the following paragraphs—

“(a)if the repayment is—

(i)the repayment of an amount paid in accordance with the requirements of section 59A of the Management Act on account of income tax for a year of assessment, or

(ii)the repayment of income tax for such a year which is not income tax deducted at source,

the relevant time is the date of the payment that is being repaid;

(b)if the repayment is of income tax deducted at source for a year of assessment, the relevant time is the 31st January next following that year; and”.

(3)In paragraph (c) of that subsection, for the words from “the relevant time” to the end of that paragraph there shall be substituted “ the relevant time is the date on which the penalty or surcharge was paid ”.

(4)For subsection (4) there shall be substituted the following subsections—

“(4)For the purposes of subsection (3) above, where a repayment in respect of income tax for a year of assessment is made to any person, that repayment—

(a)shall be attributed first to so much of any payment made by him under section 59B of the Management Act as is a payment in respect of income tax for that year;

(b)in so far as it exceeds the amount (if any) to which it is attributable under paragraph (a) above, shall be attributed in two equal parts to each of the payments made by him under section 59A of the Management Act on account of income tax for that year;

(c)in so far as it exceeds the amounts (if any) to which it is attributable under paragraphs (a) and (b) above, shall be attributed to income tax deducted at source for that year; and

(d)in so far as it is attributable to a payment made in instalments shall be attributed to a later instalment before being attributed to an earlier one.

(4A)In this section any reference to income tax deducted at source for a year of assessment is a reference to—

(a)income tax deducted or treated as deducted from any income, or treated as paid on any income, in respect of that year, and

(b)amounts which, in respect of that year, are tax credits to which section 231 applies,

but does not include a reference to amounts which, in that year, are deducted at source under section 203 in respect of previous years.”

(5)In subsection (2) of section 283 of the M8Taxation of Chargeable Gains Act 1992 (repayment supplements), for the words from “the relevant time” to the end of that subsection there shall be substituted “ the relevant time is the date on which the tax was paid ”.

(6)This section has effect as respects the year 1997-98 and subsequent years of assessment and shall be deemed to have had effect as respects the year 1996-97.