Finance Act 2016

2016 c. 24

An Act to grant certain duties, to alter other duties, and to amend the law relating to the National Debt and the Public Revenue, and to make further provision in connection with finance.

Enacted[15th September 2016]

Most Gracious Sovereign

WE, Your Majesty's most dutiful and loyal subjects, the Commons of the United Kingdom in Parliament assembled, towards raising the necessary supplies to defray Your Majesty's public expenses, and making an addition to the public revenue, have freely and voluntarily resolved to give and to grant unto Your Majesty the several duties hereinafter mentioned; and do therefore most humbly beseech Your Majesty that it may be enacted, and be it enacted by the Queen's most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—

PART 1 Income tax¶

Charge and principal rates etc¶

1 Income tax charge and rates for 2016-17¶

1 Income tax is charged for the tax year 2016-17.

2 For that tax year—

a the basic rate is 20%,

b the higher rate is 40%, and

c the additional rate is 45%.

2 Basic rate limit for 2017-18¶

1 In section 4(1)(b) of FA 2015 (basic rate limit for 2017-18) for “£32,400” substitute “ £33,500 ”.

2 Accordingly, omit section 6(b) of F(No.2)A 2015 (basic rate limit for 2017-18).

3 Personal allowance for 2017-18¶

1 In section 5(1)(b) of FA 2015 (personal allowance for 2017-18) for “£11,200” substitute “ £11,500 ”.

2 Accordingly, omit section 5(b) of F(No.2)A 2015 (personal allowance for 2017-18).

Rate structure¶

4 Savings allowance, and savings nil rate etc¶

1 ITA 2007 is amended in accordance with subsections (2) to (12).

2 In section 6(3)(a) (other rates: savings), after “starting rate for savings” insert “ and savings nil rate ”.

3 In section 7 (starting rate for savings)—

a the existing text becomes subsection (1),

b after that subsection insert—

, and

c in the heading, after “starting rate for savings” insert “ and savings nil rate ”.

4 In section 10(4) (provisions displacing charge at basic, higher and additional rates), before the entry relating to section 13 insert— “ section 12A (savings income charged at the savings nil rate), ”.

5 After section 12 insert—

12A Savings income charged at the savings nil rate

1 This section applies in relation to an individual if—

a the amount of the individual's Step 3 income is greater than £L, where £L is the amount of the starting rate limit for savings, and

b when the individual's Step 3 income is split into two parts—

i one (“the individual's income up to the starting rate for savings”) consisting of the lowest £L of the individual's Step 3 income, and

ii the other (“the individual's income above the starting rate limit for savings”) consisting of the rest of the individual's Step 3 income,

some or all of the individual's income above the starting rate limit for savings consists of savings income (whether or not some or all of the individual's income up to the starting rate limit for savings consists of savings income).

2 In this section—

£A is the amount of the individual's savings allowance (see section 12B),
“the excess” is so much of the individual's income above the starting rate limit for savings as consists of savings income, and
£X is the amount of the excess.

3 If £X is less than or equal to £A, income tax is charged at the savings nil rate (rather than the basic, higher or additional rate) on the excess.

4 If £X is more than £A, income tax is charged at the savings nil rate (rather than the basic, higher or additional rate) on the lowest £A of the excess.

5 Subsections (3) and (4) are subject to any provisions of the Income Tax Acts (apart from section 10) which provide for income to be charged at different rates of income tax in some circumstances.

6 Section 16 has effect for determining the extent to which the individual's income above the starting rate limit for savings consists of savings income.

7 For the purposes of this section, an individual's “Step 3 income” is the individual's net income less allowances deducted at Step 3 of the calculation in section 23.

12B Individual's entitlement to a savings allowance

1 Subsections (2) to (4) determine the amount of an individual's savings allowance for a tax year.

2 If any of the individual's income for the year is additional-rate income, the individual's savings allowance for the year is nil.

3 If—

a any of the individual's income for the year is higher-rate income, and

b none of the individual's income for the year is additional-rate income,

the individual's savings allowance for the year is £500.

4 If none of the individual's income for the year is higher-rate income, the individual's savings allowance for the year is £1,000.

5 The Treasury may by regulations substitute a different amount for the amount for the time being specified in subsection (2), (3) or (4); and regulations under this subsection that have effect for a tax year may be made at any time before the end of that tax year.

6 If regulations under subsection (5) reduce any amount, the regulations may not be made unless a draft of the instrument containing them (whether alone or together with regulations under subsection (5) which increase any amount) has been laid before, and approved by a resolution of, the House of Commons.

7 Section 1014(4) (negative procedure) does not apply to regulations under subsection (5) which increase any amount if—

a the instrument containing them also contains regulations under subsection (5) which reduce any amount, and

b a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.

8 For the purposes of this section—

a each of the following is “additional-rate income”—

i income on which income tax is charged at the additional rate or dividend additional rate,

ii income on which income tax would be charged at the additional rate but for section 12A (income charged at savings nil rate),

iii income on which income tax would be charged at the dividend additional rate but for section 13A (income charged at dividend nil rate), and

iv income of an individual who is a Scottish taxpayer or Welsh taxpayer which would, if the individual were not a Scottish taxpayer or Welsh taxpayer (as the case may be), be income on which income tax is charged at the additional rate, and

b each of the following is “higher-rate income”—

i income on which income tax is charged at the higher rate or dividend upper rate,

ii income on which income tax would be charged at the higher rate but for section 12A (income charged at savings nil rate),

iii income on which income tax would be charged at the dividend upper rate but for section 13A (income charged at dividend nil rate), and

6 In section 16(1) (purposes of rules about highest part of income), before the “and” at the end of paragraph (a) insert—

7 In section 17 (repayment where tax paid at basic rate instead of starting rate for savings)—

a after subsection (1) insert—

, and

b in the heading—

i for “basic” substitute “ greater ”, and

ii after “savings” insert “ or savings nil rate ”.

8 In sections 55B(2)(b) and 55C(1)(c) (individual liable to tax only at certain rates), after “dividend ordinary rate” insert “ , the savings nil rate ”.

9 In section 745(1) (transfer of assets abroad: same rate of tax not to be charged twice), after “the starting rate for savings” insert “ when that rate is more than 0%, ”.

10 In section 828B(5) (individual liable to tax only at certain rates), after “basic rate” insert “ , the savings nil rate ”.

11 In section 989 (definitions for the purposes of the Income Tax Acts)—

a at the appropriate places insert—

, and

b in the entry for “starting rate of savings”, for “has the meaning given by section 7” substitute “ means the rate of income tax specified in section 7(1) ”.

12 In Schedule 4 (index of defined expressions), at the appropriate places insert—

, and

13 In section 669(3) of ITTOIA 2005 (preventing charge to both income and inheritance tax: meaning of “extra liability”), for paragraphs (a) and (b) substitute—

14 In consequence of the amendment made by subsection (13)—

a in Schedule 1 to ITA 2007 omit paragraph 561,

b in Schedule 1 to FA 2008 omit paragraph 59, and

c in Schedule 2 to FA 2009 omit paragraph 21.

15 In section 7(6) of TMA 1970 (cases where person not required to give notice of being chargeable to income tax), after “dividend ordinary rate” insert “ , the savings nil rate ”.

16 In section 91(3)(c) of TMA 1970 (interest adjustments where reliefs given: when to ignore relief from higher rates on income paid subject to deduction of tax) after “basic rate” insert “ , the savings nil rate ”.

17 Subject to subsection (18), the amendments made by this section have effect for the tax year 2016-17 and subsequent tax years.

18 The amendments in section 669 of ITTOIA 2005, and the repeals made by subsection (14), have effect where the tax year mentioned in section 669(1)(b) of ITTOIA 2005 is the tax year 2016-17 or a later tax year.

19 The Treasury may, by regulations made by statutory instrument, make such provision amending, repealing or revoking any provision made by or under the Taxes Acts as the Treasury considers appropriate in consequence of the amendments made by this section; and regulations under this subsection that have effect for the tax year 2016-17 may be made at any time before the end of that tax year.

20 In subsection (19) “the Taxes Acts” means—

a the Tax Acts,

b TMA 1970, and

c TCGA 1992 and all other enactments relating to capital gains tax.

21 A statutory instrument containing regulations under subsection (19) is subject to annulment in pursuance of a resolution of the House of Commons.

5 Rates of tax on dividend income, and abolition of dividend tax credits etc¶

1 ITA 2007 is amended in accordance with subsections (2) to (8).

2 In section 6(3)(b) (other rates: dividends), before “dividend ordinary rate,” insert “ dividend nil rate, ”.

3 In section 8 (dividend ordinary, upper and additional rates)—

a in the heading, after “The” insert “ dividend nil rate, ”,

b before subsection (1) insert—

c in subsection (1) (dividend ordinary rate), for “10%” substitute “ 7.5% ”, and

d in subsection (3) (dividend additional rate), for “37.5%” substitute “ 38.1% ”.

4 In section 9(2) (dividend trust rate), for “37.5%” substitute “ 38.1% ”.

5 After section 13 insert—

13A Income charged at the dividend nil rate

1 Subsection (2) applies if, ignoring this section, at least some of an individual's income would be charged to income tax at the dividend ordinary rate, the dividend upper rate or the dividend additional rate.

2 Income tax is charged at the dividend nil rate (rather than the dividend ordinary rate, dividend upper rate or dividend additional rate) on one or more amounts of the individual's income as follows—

Step 1 Identify the amount (“D”) of the individual's income which would, ignoring this section, be charged at the dividend ordinary rate.Rule 1A: If D is more than £5,000, the first £5,000 of D is charged at the dividend nil rate (rather than the dividend ordinary rate), and is the only amount charged at the dividend nil rate.Rule 1B: If D is equal to £5,000, D is charged at the dividend nil rate (rather than the dividend ordinary rate), and is the only amount charged at the dividend nil rate.Rule 1C: If D is less than £5,000 but more than nil, D is charged at the dividend nil rate (rather than the dividend ordinary rate).
Step 2 If D is less than £5,000, identify the amount (“U”) of the individual's income which would, ignoring this section, be charged at the dividend upper rate.Rule 2A: If the total of D and U is more than £5,000—
1. the first £M of U is charged at the dividend nil rate (rather than the dividend upper rate), where £M is the difference between £5,000 and D, and
2. the amounts charged under this Rule and Rule 1C are the only amounts charged at the dividend nil rate.
Rule 2B: If the total of D and U is equal to £5,000, U is charged at the dividend nil rate (rather than the dividend upper rate), and the amounts charged under this Rule and Rule 1C are the only amounts charged at the dividend nil rate.Rule 2C: If the total of D and U is less than £5,000 but more than nil, U is charged at the dividend nil rate (rather than the dividend upper rate).
Step 3 If the total of D and U is less than £5,000, identify the amount (“A”) of the individual's income which would, ignoring this section, be charged at the dividend additional rate.Rule 3A: If the total of D, U and A is more than £5,000, the first £X of A is charged at the dividend nil rate (rather than the dividend additional rate), where £X is the difference between—
- £5,000, and
- the total of D and U,
and the amounts charged under this Rule, and Rules 1C and 2C, are the amounts charged at the dividend nil rate.Rule 3B: If the total of D, U and A is less than or equal to £5,000, A is charged at the dividend nil rate (rather than the dividend additional rate), and the amounts charged under this Rule, and Rules 1C and 2C, are the amounts charged at the dividend nil rate.

6 In section 55B(2) (transferable allowance: conditions for entitlement to tax reduction)—

a in paragraph (b) (individual liable to tax only at certain rates), after “the basic rate,” insert “ the dividend nil rate, ”, and

b after paragraph (b) insert—

7 In section 55C(1) (transferable allowance: conditions for entitlement to elect for reduced personal allowance)—

a in paragraph (c) (individual would be liable to tax only at certain rates), after “the basic rate,” insert “ the dividend nil rate, ”, and

b before the “and” at the end of paragraph (c) insert—

8 In section 989 (definitions for the purposes of the Income Tax Acts), after the entry for “dividend income” insert—

9 In section 7 of TMA 1970 (duty to notify HMRC of liability to tax)—

a in subsection (6) (exception for net payments etc)—

i after paragraph (a) insert “ or ”,

ii at the end of paragraph (b), for “; or” substitute a comma,

iii omit paragraph (c), and

iv in the words after paragraph (c), after “the basic rate” insert “ , the dividend nil rate ”, and

b after subsection (6) insert—

10 The amendments made by the preceding provisions of this section have effect for the tax year 2016-17 and subsequent tax years.

11 Schedule 1 contains provision for, and connected with, the abolition of dividend tax credits etc.

6 Structure of income tax rates¶

1 ITA 2007 is amended in accordance with subsections (2) to (22).

2 Before section 10 insert—

9A Overview of sections 10 to 15

The general effect of sections 10 to 15 is outlined in the following table—

Type of taxpayer	Rates payable on savings income	Rates payable on most dividend income	Rates payable on other income
UK resident individual who is neither a Scottish taxpayer nor a Welsh taxpayer	Savings rates	Dividend rates	Main rates
Scottish taxpayer	Savings rates	Dividend rates	Scottish rates
Welsh taxpayer	Savings rates	Dividend rates	Main rates while section 11B is not in force; Welsh rates if that section is in force
Non-UK resident individual	Savings rates	Dividend rates	Default rates
Non-individual, except that some trustees in some circumstances are subject instead to the trust rate or the dividend trust rate	Default basic rate	Dividend ordinary rate	Default basic rate

Note: the table does not address the effect of some exceptions referred to in sections 10 to 15.

3 Before section 7 insert—

4 After section 7 insert—

5 In section 6(3) (other rates)—

a before paragraph (a) insert—

, and

b after paragraph (a) insert—

6 In section 10(2) (income charged at basic rate) omit the words after “at the basic rate”.

7 In section 10(4) (provisions displacing charge at basic, higher and additional rates), before the entry (inserted by this Act) relating to section 12A insert—

8 In section 11 (income charged at the basic rate: other persons)—

a in the heading, for “basic rate: other persons” substitute “ default basic rate: non-individuals ”, and

b in subsection (1), before “basic” insert “ default ”.

9 After section 11B insert—

11C Income charged at the default basic, higher and additional rates: non-UK resident individuals

1 Income tax on a non-UK resident individual's income up to the basic rate limit is charged at the default basic rate.

2 Income tax is charged at the default higher rate on a non-UK resident individual's income above the basic rate limit and up to the higher rate limit.

3 Income tax is charged at the default additional rate on a non-UK resident individual's income above the higher rate limit.

4 Subsections (1) to (3) are subject to—

section 11D (savings income charged at the savings basic, higher and additional rates),
section 12 (savings income charged at the starting rate for savings),
section 12A (savings income charged at the savings nil rate),
section 13 (income charged at the dividend ordinary, upper and additional rates: individuals), and
any other provisions of the Income Tax Acts (apart from section 10) which provide for income to be charged at different rates of income tax in some circumstances.

11D Income charged at the savings basic, higher and additional rates

1 Income tax is charged at the savings basic rate on an individual's income which—

a is saving income, and

b would otherwise be charged at the basic rate or the default basic rate.

2 Income tax is charged at the savings higher rate on an individual's income which—

a is savings income, and

b would otherwise be charged at the higher rate or the default higher rate.

3 Income tax is charged at the savings additional rate on an individual's income which—

a is savings income, and

b would otherwise be charged at the additional rate or the default additional rate.

4 Subsections (1) to (3)—

a have effect after sections 12 and 12A have been applied (so that any reference in subsections (1) to (3) to income which would otherwise be charged at a particular rate does not include income charged at the starting rate for savings or at the savings nil rate), and

b are subject to any other provisions of the Income Tax Acts (apart from sections 10 and 11C) which provide for income to be charged at different rates of income tax in some circumstances.

5 Section 16 has effect for determining the extent to which an individual's savings income above the starting rate limit for savings would otherwise be charged at the basic, higher or additional rate or the default basic, default higher or default additional rate.

6 In relation to an individual who is a Scottish taxpayer, references in this section to income which would otherwise be charged at a particular rate are to be read as references to income that would, if the individual were not a Scottish taxpayer (but were UK resident), be charged at that rate (and subsection (5) is to be read accordingly).

10 In section 12(1) (income charged at the starting rate for savings)—

a omit “(rather than the basic rate)”, and

b for “as is savings income” substitute

11 In section 12A (inserted by this Act)—

a in each of subsections (3) and (4), after “rather than the basic, higher or additional rate” insert “ or the default basic, default higher or default additional rate ”, and

b in subsection (5), for “section 10” substitute “ sections 10 and 11C ”.

12 In section 12B (inserted by this Act), in subsection (8) (income charged at savings nil-rate: meaning of “additional-rate income” and “higher-rate income”)—

a in paragraph (a)(i), after “at the additional rate” insert “ , default additional rate ”,

b in paragraph (a)(ii), after “additional rate” insert “ , or default additional rate, ”,

c in paragraph (a)(iv), after “additional rate” insert “ or default additional rate ”,

d in paragraph (b)(i), after “at the higher rate” insert “ , default higher rate ”,

e in paragraph (b)(ii), after “higher rate” insert “ , or default higher rate, ”, and

f in paragraph (b)(iv), after “higher rate” insert “ or default higher rate ”.

13 In section 16(1) (purposes of rules about highest part of income), before the “and” at the end of the paragraph (aa) (inserted by this Act) insert—

14 In section 17(1) (repayment where tax paid at basic rate instead of starting rate for savings), for “at the basic rate” substitute “ at a rate greater than the starting rate for savings ”.

15 In section 55B (entitlement to transferable tax allowances for married couples and civil partners)—

a in subsection (2)(b) as amended by section 5 of this Act, after “other than the basic rate,” insert “ the default basic rate, the savings basic rate, ”, and

b in subsection (3), after “is the basic rate” insert “ or default basic rate ”.

16 In section 55C(1)(c) (election to reduce personal allowance conditional on not becoming subject to higher rates) as amended by section 5 of this Act, after “other than the basic rate,” insert “ the default basic rate, the savings basic rate, ”.

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20 In section 828B(5) (exemption for non-domiciled UK residents conditional on not being subject to higher rates) as amended by section 4 of this Act, after “other than the basic rate” insert “ , the savings basic rate ”.

21 In section 989 (definitions for the purposes of the Income Tax Acts), at the appropriate places insert—

and—

22 In Schedule 4 (index of defined expressions), at the appropriate places insert—

23 In sections 4(4) and (5) and 4BA(1) of TCGA 1992 (rate of capital gains tax depends on individual's liability to higher rates of income tax), after “at the higher rate” insert “ , the default higher rate, the savings higher rate ”.

^P124 Subject to any provision made by virtue of subsection (25)(b), the amendments made by this section come into force on the day appointed by the Treasury under section 13(14) of the Scotland Act 2016 and have effect—

a for the tax year appointed by the Treasury under section 13(15) of the Scotland Act 2016, and

b for subsequent tax years.

25 The Treasury may by regulations make—

a such consequential provision as they consider appropriate in connection with any preceding provision of this section;

b such transitional or saving provision as they consider appropriate in connection with the coming into force of any provision of the preceding subsections of this section.

26 Regulations under this section may amend, repeal or revoke an enactment, whenever passed or made (including this Act).

27 Regulations under this section must be made by statutory instrument.

28 A statutory instrument containing regulations under this section which includes provision amending or repealing a provision of an Act may not be made unless a draft of the instrument has been laid before and approved by a resolution of the House of Commons.

29 Any other statutory instrument containing regulations under this section, if made without a draft having been approved by a resolution of the House of Commons, is subject to annulment in pursuance of a resolution of the House of Commons.

30 In subsection (26) “enactment” includes an enactment contained in subordinate legislation (within the meaning of the Interpretation Act 1978).

Employment income: taxable benefits¶

7 Taxable benefits: application of Chapters 5 to 7 of Part 3 of ITEPA 2003¶

1 Part 3 of ITEPA 2003 (employment income: earnings and benefits etc treated as earnings) is amended as follows.

2 In section 97 (living accommodation to which Chapter 5 applies), after subsection (1) insert—

3 In section 109 (priority of Chapter 5 over Chapter 1), after subsection (3) insert—

4 In section 114 (cars, vans and related benefits to which Chapter 6 applies), after subsection (1) insert—

5 For section 117 substitute—

117 Meaning of car or van made available by reason of employment

1 For the purposes of this Chapter a car or van made available by an employer to an employee or member of an employee's family or household is to be regarded as made available by reason of the employment unless subsection (2) or (3) excludes the application of this subsection.

2 Subsection (1) does not apply where—

a the employer is an individual, and

b the car or van in question is made available in the normal course of the employer's domestic, family or personal relationships.

3 Subsection (1) does not apply where—

a the employer carries on a vehicle hire business under which cars or vans of the same kind are made available to members of the public for hire,

b the car or van in question is hired to the employee or member in the normal course of that business, and

c in hiring that car or van the employee or member is acting as an ordinary member of the public.

6 In section 120 (benefit of car treated as earnings)—

a in subsection (2) after “case” insert “ (including a case where the cash equivalent of the benefit of the car is nil) ”, and

b after subsection (2) insert—

7 In section 154 (benefit of van treated as earnings)—

a the existing text becomes subsection (1) of that section, and

b after that subsection insert—

8 In section 173 (loans to which Chapter 7 applies), after subsection (1) insert—

9 The amendments made by this section have effect for the tax year 2016-17 and subsequent tax years.

8 Cars: appropriate percentage for 2019-20 and subsequent tax years¶

1 ITEPA 2003 is amended as follows.

2 Section 139 (car with a CO₂figure: the appropriate percentage) is amended as set out in subsections (3) and (4).

3 In subsection (2)—

a in paragraph (a), for “13%” substitute “ 16% ”,

b in paragraph (aa), for “16%” substitute “ 19% ”, and

c in paragraph (b), for “19%” substitute “ 22% ”.

4 In subsection (3), for “20%” substitute “ 23% ”.

5 Section 140 (car without a CO₂figure: the appropriate percentage) is amended as set out in subsections (6) and (7).

6 In subsection (2), in the Table—

a for “20%” substitute “ 23% ”, and

b for “31%” substitute “ 34% ”.

7 In subsection (3)(a), for “13%” (as substituted by section 9(3)) substitute “ 16% ”.

8 In section 142(2) (car first registered before 1 January 1998: the appropriate percentage), in the Table—

a for “20%” substitute “ 23% ”, and

b for “31%” substitute “ 34% ”.

9 The amendments made by this section have effect for the tax year 2019-20 and subsequent tax years.

9 Cars which cannot emit CO₂: appropriate percentage for 2017-18 and 2018-19¶

1 In section 140(3)(a) of ITEPA 2003 (car which cannot emit CO₂: the appropriate percentage), for “7%” substitute “ 9% ”.

2 The amendment made by subsection (1) has effect for the tax year 2017-18.

3 In section 140(3)(a) of ITEPA 2003, for “9%” substitute “ 13% ”.

4 The amendment made by subsection (3) has effect for the tax year 2018-19.

10 Diesel cars: appropriate percentage¶

1 In section 24 of FA 2014 (cars: the appropriate percentage), omit the following (“the repealing provisions”)—

a subsection (2),

b subsection (6),

c subsection (10),

d subsection (11), and

e subsection (15).

2 Any provision of ITEPA 2003 amended or omitted by the repealing provisions has effect for the tax year 2016-17 and subsequent tax years as if the repealing provisions had not been enacted.

11 Cash equivalent of benefit of a van¶

1 Section 155 of ITEPA 2003 (cash equivalent of the benefit of a van) is amended as follows.

2 In subsection (1B)(a), for “2019-20” substitute “ 2021-22 ”.

3 In subsection (1C), for paragraphs (b) to (e) substitute—

4 The amendments made by this section have effect for the tax year 2016-17 and subsequent tax years.

12 Tax treatment of payments from sporting testimonials¶

Schedule 2 contains provision about the tax treatment of payments from sporting testimonials.

13 Exemption for trivial benefits provided by employers¶

1 ITEPA 2003 is amended as follows.

2 After section 323 insert—

323A Trivial benefits provided by employers

1 No liability to income tax arises in respect of a benefit provided by, or on behalf of, an employer to an employee or a member of the employee's family or household if—

a conditions A to D are met, or

b in a case where subsection (2) applies, conditions A to E are met.

2 This subsection applies where—

a the employer is a close company, and

b the employee is—

i a person who is a director or other office-holder of the employer, or

ii a member of the family or household of such a person.

3 Condition A is that the benefit is not cash or a cash voucher within the meaning of section 75.

4 Condition B is that the benefit cost of the benefit does not exceed £50.

5 In this section “benefit cost”, in relation to a benefit, means—

a the cost of providing the benefit, or

b if the benefit is provided to more than one person and the nature of the benefit or the scale of its provision means it is impracticable to calculate the cost of providing it to each person to whom it is provided, the average cost per person of providing the benefit.

6 For the purposes of subsection (5)(b), the average cost per person of providing a benefit is found by dividing the total cost of providing the benefit by the number of persons to whom the benefit is provided.

7 Condition C is that the benefit is not provided pursuant to relevant salary sacrifice arrangements or any other contractual obligation.

8 “Relevant salary sacrifice arrangements”, in relation to the provision of a benefit to an employee or to a member of an employee's family or household, means arrangements (whenever made, whether before or after the employment began) under which the employee gives up the right to receive an amount of general earnings or specific employment income in return for the provision of the benefit.

9 Condition D is that the benefit is not provided in recognition of particular services performed by the employee in the course of the employment or in anticipation of such services.

10 Condition E is that—

a the benefit cost of the benefit provided to the employee, or

b in a case where the benefit is provided to a member of the employee's family or household who is not an employee of the employer, the amount of the benefit cost allocated to the employee in accordance with section 323B(4),

does not exceed the employee's available exempt amount (see section 323B).

323B Section 323A: calculation of available exempt amount

1 The “available exempt amount”, in relation to an employee of an employer, is the amount found by deducting from the annual exempt amount the aggregate of—

a the benefit cost of eligible benefits provided earlier in the tax year by, or on behalf of, the employer to the employee, and

b any amounts allocated to the employee in accordance with subsection (4) in respect of eligible benefits provided earlier in the tax year by, or on behalf of, the employer to a member of the employee's family or household who was not at that time an employee of the employer.

2 The annual exempt amount is £300.

3 For the purposes of subsection (1) “eligible benefits” means benefits in respect of which conditions A to D in section 323A are met.

4 The amount allocated to an employee of an employer in respect of a benefit provided to a person (“P”) who—

a is a member of the employee's family or household, and

b is not an employee of the employer,

is the benefit cost of that benefit divided by the number of persons who meet the condition in subsection (5) and are members of P's family or household.

5 This condition is met if the person is—

a a director or other office-holder of the employer,

b an employee of the employer who is a member of the family or household of a person within paragraph (a), or

c a former employee of the employer who—

i was a director or other office-holder at any time when the employer was a close company, or

ii is a member of the family or household of such a person.

6 In this section “benefit cost” has the same meaning as in section 323A.

323C Power to amend sections 323A and 323B

1 The Treasury may by regulations amend section 323A so as to alter the conditions which must be met for the exemption conferred by section 323A(1) to apply.

2 Regulations under subsection (1) may include any amendment of section 323B that is appropriate in consequence of an amendment made under subsection (1).

3 The Treasury must not make regulations under subsection (1) unless a draft of the regulations has been laid before and approved by a resolution of the House of Commons.

3 In section 716 (alteration of amounts by Treasury order) in subsection (2), after paragraph (f) insert—

4 In section 717(4) (negative procedure not to apply to certain statutory instruments) after “other care: meaning of “eligible employee”),” insert “ section 323C(1) (trivial benefits provided by employers), ”.

5 The amendments made by this section have effect for the tax year 2016-17 and subsequent tax years.

14 Travel expenses of workers providing services through intermediaries¶

1 In Chapter 2 of Part 5 of ITEPA 2003 (deductions for employee's expenses), after section 339 insert—

339A Travel for necessary attendance: employment intermediaries

1 This section applies where an individual (“the worker”)—

a personally provides services (which are not excluded services) to another person (“the client”), and

b the services are provided not under a contract directly between the client or a person connected with the client and the worker but under arrangements involving an employment intermediary.

This is subject to the following provisions of this section.

2 Where this section applies, each engagement is for the purposes of sections 338 and 339 to be regarded as a separate employment.

3 This section does not apply if it is shown that the manner in which the worker provides the services is not subject to (or to the right of) supervision, direction or control by any person.

4 Subsection (3) does not apply in relation to an engagement if—

a Chapter 8 of Part 2 applies in relation to the engagement,

b the conditions in section 51, 52 or 53 are met in relation to the employment intermediary, and

c the employment intermediary is not a managed service company.

5 This section does not apply in relation to an engagement if—

a Chapter 8 of Part 2 does not apply in relation to the engagement merely because the circumstances in section 49(1)(c) are not met,

b assuming those circumstances were met, the conditions in section 51, 52 or 53 would be met in relation to the employment intermediary, and

c the employment intermediary is not a managed service company.

6 In determining for the purposes of subsection (4) or (5) whether the conditions in section 51, 52 or 53 are or would be met in relation to the employment intermediary—

a in section 51(1)—

i disregard “either” in the opening words, and

ii disregard paragraph (b) (and the preceding or), and

b read references to the intermediary as references to the employment intermediary.

7 Subsection (8) applies if—

a the client or a relevant person provides the employment intermediary (whether before or after the worker begins to provide the services) with a fraudulent document which is intended to constitute evidence that, by virtue of subsection (3), this section does not or will not apply in relation to the services,

b that section is taken not to apply in relation to the services, and

c in consequence, the employment intermediary does not under PAYE regulations deduct and account for an amount that would have been deducted and accounted for under those regulations if this section had been taken to apply in relation to the services.

8 For the purpose of recovering the amount referred to in subsection (7)(c) (“the unpaid tax”)—

a the worker is to be treated as having an employment with the client or relevant person who provided the document, the duties of which consist of the services, and

b the client or relevant person is under PAYE regulations to account for the unpaid tax as if it arose in respect of earnings from that employment.

9 In subsections (7) and (8) “relevant person” means a person, other than the client, the worker or a person connected with the employment intermediary, who—

a is resident, or has a place of business, in the United Kingdom, and

b is party to a contract with the employment intermediary or a person connected with the employment intermediary under or in consequence of which—

i the services are provided, or

ii the employment intermediary, or a person connected with the employment intermediary, makes payments in respect of the services.

10 In determining whether this section applies, no regard is to be had to any arrangements the main purpose, or one of the main purposes, of which is to secure that this section does not to any extent apply.

11 In this section—

“arrangements” includes any scheme, transaction or series of transactions, agreement or understanding, whether or not enforceable, and any associated operations;
“employment intermediary” means a person, other than the worker or the client, who carries on a business (whether or not with a view to profit and whether or not in conjunction with any other business) of supplying labour;
“engagement” means any such provision of service as is mentioned in subsection (1)(a);
“excluded services” means services provided wholly in the client's home;
“managed service company” means a company which—
1. is a managed service company within the meaning given by section 61B, or
2. would be such a company disregarding subsection (1)(c) of that section.

2 In section 688A of ITEPA 2003 (managed service companies: recovery from other persons), in subsection (5), in the definition of “managed service company”, after “section 61B” insert “ but for the purposes of section 339A has the meaning given by subsection (11) of that section ”.

3 After section 688A of ITEPA 2003 insert—

688B Travel expenses of workers providing services through intermediaries: recovery of unpaid tax

1 PAYE regulations may make provision for, or in connection with, the recovery from a director or officer of a company, in such circumstances as may be specified in the regulations, of amounts within any of subsections (2) to (5).

2 An amount within this subsection is an amount that the company is to account for in accordance with PAYE regulations by virtue of section 339A(7) to (9) (persons providing fraudulent documents).

3 An amount within this subsection is an amount which the company is to deduct and pay in accordance with PAYE regulations by virtue of section 339A in circumstances where—

a the company is an employment intermediary,

b on the basis that section 339A does not apply by virtue of subsection (3) of that section, the company has not deducted and paid the amount, but

c the company has not been provided by any other person with evidence from which it would be reasonable in all the circumstances to conclude that subsection (3) of that section applied (and the mere assertion by a person that the manner in which the worker provided the services was not subject to (or to the right of) supervision, direction or control by any person is not such evidence).

4 An amount within this subsection is an amount that the company is to deduct and pay in accordance with PAYE regulations by virtue of section 339A in a case where subsection (4) of that section applies (services provided under arrangements made by intermediaries).

5 An amount within this subsection is any interest or penalty in respect of an amount within any of subsections (2) to (4) for which the company is liable.

6 In this section—

“company” includes a limited liability partnership;
“director” has the meaning given by section 67;
“employment intermediary” has the same meaning as in section 339A;
“officer”, in relation to a company, means any manager, secretary or other similar officer of the company, or any person acting or purporting to act as such

4 In Part 4 of the Income Tax (Pay As You Earn) Regulations 2003 (S.I. 2003/2682) (payments, returns and information), after Chapter 3A insert—

CHAPTER 3B Certain debts of companies under section 339A of ITEPA (travel expenses of workers providing services through employment intermediaries)

97ZG Interpretation of Chapter 3B: “relevant PAYE debt” and “relevant date”

1 In this Chapter “relevant PAYE debt”, in relation to a company means an amount within any of paragraphs (2) to (5).

2 An amount within this paragraph is an amount that the company is to account for in accordance with these Regulations by virtue of section 339A(7) to (9) of ITEPA (persons providing fraudulent documents).

3 An amount within this paragraph is an amount which a company is to deduct and pay in accordance with these Regulations by virtue of section 339A of ITEPA in circumstances where—

a the company is an employment intermediary,

b on the basis that section 339A of ITEPA does not apply by virtue of subsection (3) of that section the company has not deducted and paid the amount, but

4 An amount within this paragraph is an amount that the company is to deduct and pay in accordance with these Regulations by virtue of section 339A of ITEPA in a case where subsection (4) of that section applies (services provided under arrangements made by intermediaries).

5 An amount within this paragraph is any interest or penalty in respect of an amount within any of paragraphs (2) to (4) for which the company is liable.

6 In this Chapter “the relevant date” in relation to a relevant PAYE debt means the date on which the first payment is due on which PAYE is not accounted for.

97ZH Interpretation of Chapter 3B: general

In this Chapter—

“company” includes a limited liability partnership;
“director” has the meaning given by section 67 of ITEPA;
“personal liability notice” has the meaning given by regulation 97ZI(2);
“the specified amount” has the meaning given by regulation 97ZI(2)(a).

97ZI Liability of directors for relevant PAYE debts

1 This regulation applies in relation to an amount of relevant PAYE debt of a company if the company does not deduct that amount by the time by which the company is required to do so.

2 HMRC may serve a notice (a “personal liability notice”) on any person who was, on the relevant date, a director of the company—

a specifying the amount of relevant PAYE debt in relation to which this regulation applies (“the specified amount”), and

b requiring the director to pay to HMRC—

i the specified amount, and

ii specified interest on that amount.

3 The interest specified in the personal liability notice—

a is to be at the rate applicable under section 178 of the Finance Act 1989 for the purposes of section 86 of TMA, and

b is to run from the date the notice is served.

4 A director who is served with a personal liability notice is liable to pay to HMRC the specified amount and the interest specified in the notice within 30 days beginning with the day the notice is served.

5 If HMRC serve personal liability notices on more than one director of the company in respect of the same amount of relevant PAYE debt, the directors are jointly and severally liable to pay to HMRC the specified amount and the interest specified in the notices.

97ZJ Appeals in relation to personal liability notices

1 A person who is served with a personal liability notice in relation to an amount of relevant PAYE debt of a company may appeal against the notice.

2 A notice of appeal must—

a be given to HMRC within 30 days beginning with the day the personal liability notice is served, and

b specify the grounds of the appeal.

3 The grounds of appeal are —

a that all or part of the specified amount does not represent an amount of relevant PAYE debt, of the company, to which regulation 97ZI applies, or

b that the person was not a director of the company on the relevant date.

4 But a person may not appeal on the ground mentioned in paragraph (3)(a) if it has already been determined, on an appeal by the company, that—

a the specified amount is a relevant PAYE debt of the company, and

b the company did not deduct, account for, or (as the case may be) pay the debt by the time by which the company was required to do so.

5 Subject to paragraph (6), on an appeal that is notified to the tribunal, the tribunal is to uphold or quash the personal liability notice.

6 In a case in which the ground of appeal mentioned in paragraph (3)(a) is raised, the tribunal may also reduce or increase the specified amount so that it does represent an amount of relevant PAYE debt, of the company, to which regulation 97ZI applies.

97ZK Withdrawal of personal liability notices

1 A personal liability notice is withdrawn if the tribunal quashes it.

2 An officer of Revenue and Customs may withdraw a personal liability notice if the officer considers it appropriate to do so.

3 If a personal liability notice is withdrawn, HMRC must give notice of that fact to the person upon whom the notice was served.

97ZL Recovery of sums due under personal liability notice: application of Part 6 of TMA

1 For the purposes of this Chapter, Part 6 of TMA (collection and recovery) applies as if—

a the personal liability notice were an assessment, and

b the specified amount, and any interest on that amount under regulation 97ZI(2)(b)(ii), were income tax charged on the director upon whom the notice is served,

and that Part of that Act applies with the modification in paragraph (2) and any other necessary modifications.

2 Summary proceedings for the recovery of the specified amount, and any interest on that amount under regulation 97ZI(2)(b)(ii), may be brought in England and Wales or Northern Ireland at any time before the end of the period of 12 months beginning with the day after the day on which the personal liability notice is served.

97ZM Repayment of surplus amounts

1 This regulation applies if—

a one or more personal liability notices are served in respect of an amount of relevant PAYE debt of a company, and

b the amounts paid to HMRC (whether by directors upon whom notices are served or the company) exceed the aggregate of the specified amount and any interest on it under regulation 97ZI(2)(b)(ii).

2 HMRC is to repay the difference on a just and equitable basis and without unreasonable delay.

3 HMRC is to pay interest on any sum repaid.

4 The interest—

a is to be at the rate applicable under section 178 of the Finance Act 1989 for the purposes of section 824 of ICTA, and

b is to run from the date the amounts paid to HMRC come to exceed the aggregate mentioned in subsection (1)(b).

5 The amendment made by subsection (4) is to be treated as having been made by the Commissioners for Her Majesty's Revenue and Customs in exercise of the power conferred by section 688B of ITEPA 2003 (inserted by subsection (3)).

6 The amendment made by subsection (1) has effect in relation to the tax year 2016-17 and subsequent tax years.

7 The amendment made by subsection (4) has effect in relation to relevant PAYE debts that are to be deducted, accounted for or paid on or after 6 April 2016.

15 Taxable benefits: PAYE¶

In section 684 of ITEPA 2003 (PAYE regulations), in subsection (2), in item 1ZA(a), for “Chapters 3 and 5 to 10” substitute “ Chapters 3 to 10 ”.

Employment income: other provision¶

16 Employee share schemes¶

Schedule 3 contains miscellaneous minor amendments relating to employee share schemes.

17 Securities options¶

1 In section 418 of ITEPA 2003 (provisions related to Part 7 of ITEPA 2003), in subsection (1), omit “(but not securities options)”.

2 In that section, after subsection (1) insert—

3 In section 227 of that Act (scope of Part 4), in subsection (4), before paragraph (a) insert—

4 The amendments made by this section come into force on 6 April 2016.

18 Employment income provided through third parties¶

1 Part 7A of ITEPA 2003 (employment income provided through third parties) is amended in accordance with subsections (2) and (3).

2 In section 554Z2 (value of relevant step to count as employment income) after subsection (1) insert—

3 In section 554Z8 (cases where consideration given for relevant step) in subsection (5), omit “and” at the end of paragraph (b) and after paragraph (c) insert

4 Paragraph 59 of Schedule 2 to FA 2011 (transitional provision relating to Part 7A of ITEPA 2003) is amended in accordance with subsections (5) to (7).

5 In sub-paragraph (2) for the words from “the earnings” to the end substitute—

6 After sub-paragraph (2) insert—

7 At the end insert—

8 In Schedule 2 to FA 2011, omit paragraph 64 (power to make provision dealing with interactions etc.).

9 The amendment made by subsection (3) has effect in relation to payments made on or after 16 March 2016 by way of consideration for a relevant step (as defined in section 554A(2) of ITEPA 2003) taken on or after that date.

10 The amendment made by subsection (7) has effect in relation to chargeable steps (as defined in paragraph 59(1)(a) of Schedule 2 to FA 2011) taken on or after 16 March 2016.

Pensions¶

19 Standard lifetime allowance from 2016-17¶

1 Section 218 of FA 2004 (pension schemes etc: lifetime allowance) is amended in accordance with subsections (2) to (5).

2 For subsections (2) and (3) (standard lifetime allowance is £1,250,000 but may be increased by Treasury order) substitute—

2 The standard lifetime allowance for the tax years 2016-17 and 2017-18 is £1,000,000.

2A The standard lifetime allowance for any later tax year (“the subsequent tax year”) is the same as the standard lifetime allowance for the tax year immediately preceding the subsequent tax year, unless subsection (2C) provides for it to be higher.

2B Subsection (2C) applies if—

a the consumer prices index for the month of September in any tax year (“the prior tax year”) is higher than it was for the previous September, and

b the prior tax year is the tax year 2017-18 or a later tax year.

2C The standard lifetime allowance for the tax year following the prior tax year is the standard lifetime allowance for the prior tax year—

a increased by the percentage increase in the index, and

b if the result is not a multiple of £100, rounded up to the nearest amount which is such a multiple.

2D The Treasury must before the tax year 2018-19, and before each subsequent tax year, make regulations specifying the amount given by subsections (2A) to (2C) as the standard lifetime allowance for the tax year concerned.

3 After subsection (5BB) insert—

4 After subsection (5D) insert—

5 After subsection (5E) insert—

5F Where—

a benefit crystallisation event 5C occurs by reason of the designation on or after 6 April 2015 of sums or assets held for the purposes of an arrangement relating to the individual, and

b the individual died before 6 April 2012,

the standard lifetime allowance at the time of the benefit crystallisation event is £1,800,000.

5G Where—

a benefit crystallisation event 5C occurs by reason of the designation on or after 6 April 2015 of sums or assets held for the purposes of an arrangement relating to the individual, and

b the individual died in the period consisting of the tax year 2012-13 and the tax year 2013-14,

the standard lifetime allowance at the time of the benefit crystallisation event is £1,500,000.

5H Where—

a benefit crystallisation event 5C occurs by reason of the designation on or after 6 April 2016 of sums or assets held for the purposes of an arrangement relating to the individual, and

b the individual died in the period consisting of the tax year 2014-15 and the tax year 2015-16,

the standard lifetime allowance at the time of the benefit crystallisation event is £1,250,000.

5I Where—

a benefit crystallisation event 5D occurs by reason of a person becoming entitled on or after 6 April 2016 to an annuity in respect of the individual, and

b the individual died in the period beginning with 3 December 2014 and ending with 5 April 2016,

the standard lifetime allowance at the time of the benefit crystallisation event is £1,250,000.

6 In section 280 of FA 2004 (abbreviations and general index for Part 4), in the entry for “standard lifetime allowance” for “and (3)” substitute “ to (2C) ”.

7 In section 282 of FA 2004 (orders and regulations under Part 4), after subsection (2) (negative procedure applies to instruments not approved in draft) insert—

8 The amendments made by subsections (2) to (4) have effect for the tax year 2016-17 and subsequent tax years.

9 The amendment made by subsection (5)—

a so far as it consists of the insertion of new subsections (5F) and (5G)—

i is to be treated as having come into force on 6 April 2015, and

ii has effect in relation to benefit crystallisation events occurring on or after that date, and

b so far as it consists of the insertion of new subsections (5H) and (5I)—

i is to be treated as having come into force on 6 April 2016, and

ii has effect in relation to benefit crystallisation events occurring on or after that date.

10 Schedule 4 contains transitional and connected provision (including provision for “fixed protection 2016” and “individual protection 2016”).

^I220 Pensions bridging between retirement and state pension¶

1 In Part 1 of Schedule 28 to FA 2004 (registered pension schemes: the pension rules), paragraph 2 (meaning of “scheme pension”) is amended in accordance with subsections (2) to (4).

2 In sub-paragraph (4) (which specifies circumstances in which amount of scheme pension may go down and gives power to specify additional circumstances) omit paragraph (c) (reduction by reference to state retirement pensions for persons reaching pensionable age before 6 April 2016).

3 Omit sub-paragraphs (4B), (5) and (5A) (interpretation of sub-paragraph (4)(c)).

4 In sub-paragraph (8) (regulations under certain sub-paragraphs may make back-dated provision) omit “or (5)”.

5 In consequence of the amendments made by subsections (2) and (3)—

a in FA 2006, in Schedule 23 omit paragraph 20(2) and (3), and

b in FA 2013, omit section 51(2).

6 Regulations under paragraph 2(4)(h) of Schedule 28 to FA 2004 (power to prescribe permitted reductions of scheme pensions, and to do so with back-dated effect) may provide for the coming into force of the amendments made by subsections (2) to (5), and—

a those amendments have effect in accordance with regulations under paragraph 2(4)(h) of that Schedule, and

b paragraph 2(8) of that Schedule (back-dating) applies for the purposes of regulations bringing the amendments into force only so as to permit the amendments to be given effect in relation to times not earlier than 6 April 2016.

21 Dependants' scheme pensions¶

1 Part 2 of Schedule 28 to Part 4 of FA 2004 (pension death benefit rules) is amended as follows.

2 In paragraph 16A (dependants' scheme pension: when limits in paragraphs 16B and 16C apply), after sub-paragraph (1) insert—

3 After paragraph 16A insert—

16AA

Paragraphs 16B and 16C do not apply if—

a each benefit crystallisation event that has occurred in relation to the member by reference to arrangements relating to the member under the scheme is benefit crystallisation event 5B (having unused funds under a money purchase arrangement at age 75), or

b paragraph 12 of Schedule 36 (enhanced protection by reference to pre-6 April 2006 rights) applies in the case of the member immediately before the member's death.

16AB

1 Paragraph 16B does not apply if, at all times in the post-death year (as defined in that paragraph), the payable annual rate is less than the limit.

2 Paragraph 16C does not apply in relation to a period of 12 months within paragraph (a) or (b) of paragraph 16C(1) if, at all times in that period of 12 months, the payable annual rate is less than the limit.

3 “The payable annual rate”, at any time, is arrived at as follows—

a identify each dependants' scheme pension payable in respect of the member under the scheme to which a dependant of the member is actually entitled at that time, and

b identify the annual rate at which each pension identified at paragraph (a) is payable at that time, and

c if only one pension is identified at paragraph (a), the payable annual rate is the annual rate identified at paragraph (b), and

d if two or more pensions are identified at paragraph (a), the payable annual rate is the total of the annual rates identified at paragraph (b).

4 “The limit”, at any time, is—

a the general limit at that time (see paragraph 16AC), or,

b if higher, the personal limit at that time (see paragraph 16AD).

16AC

1 This paragraph applies for the purposes of paragraph 16AB(4).

2 “The general limit” at a time in the tax year 2016-17 is £25,000.

3 “The general limit” at a time in a later tax year (“year T”)—

a is given by—

G + (G \times U %)

where G is the general limit at times in the tax year (“year P”) that precedes year T, or

b if the amount given by paragraph (a) is not a multiple of £100, is that amount rounded up to the nearest amount that is such a multiple.

4 See paragraph 16AE for the meaning of U%.

16AD

1 This paragraph applies for the purposes of paragraph 16AB(4).

2 “The personal limit” at a time in the tax year in which the member dies is arrived at as follows—

a identify each scheme pension under the scheme to which the member is actually or prospectively entitled immediately before the member's death, and

b as regards each pension identified at paragraph (a)—

i if it is one to which the member is actually entitled immediately before the member's death, identify the annual rate at which it is payable immediately before the member's death, or

ii if it is one to which the member is prospectively entitled immediately before the member's death, identify the annual rate at which it would have been payable immediately before the member's death had the member been actually entitled to it immediately before the member's death, and

c if only one pension is identified at paragraph (a), the personal limit is the annual rate identified at paragraph (b), and

d if two or more pensions are identified at paragraph (a), the personal limit is the total of the annual rates identified at paragraph (b).

3 “The personal limit” at a time in a tax year (“year S”) later than the tax year in which the member dies—

a is given by—

L + (L \times U %)

where L is the personal limit at times in the tax year (“year P”) that precedes year S, or

b if the amount given by paragraph (a) is not a multiple of £100, is that amount rounded up to the nearest amount that is such a multiple.

4 See paragraph 16AE for the meaning of U%.

5 If the scheme is a public service pension scheme, ignore any abatement when identifying at sub-paragraph (2)(b) the annual rate of any scheme pension under the scheme.

16AE

1 In paragraphs 16AC(3) and 16AD(3), U% means the highest of—

a 5%,

b CPI% (see sub-paragraph (2)), and

c RPI% (see sub-paragraph (3)).

2 If the consumer prices index for September in year P is higher than the consumer prices index for September in the tax year preceding year P, CPI% is the percentage increase in the index (but is otherwise 0%).

3 If the retail prices index for September in year P is higher than the retail prices index for September in the tax year preceding year P, RPI% is the percentage increase in the index (but is otherwise 0%).

4 In this paragraph “year P” has the same meaning as in paragraph 16AC or (as the case may be) paragraph 16AD.

4 In paragraph 16B (limit in post-death year)—

a in sub-paragraph (3)(c), for “amounts” substitute “ uprated amounts (see sub-paragraph (6)) ”, and

b after sub-paragraph (5) insert—

5 In paragraph 16C (limit in subsequent years)—

a in sub-paragraph (3)(a), omit “period of”,

b in sub-paragraph (3)(b), for “subsection” substitute “ sub-paragraph ”,

c for sub-paragraphs (4) and (5) substitute—

d in sub-paragraph (6)—

i for “month period” substitute “ months ”, and

ii for the words after “increased by” substitute “ the permitted margin. ”,

e in sub-paragraph (8)(a), for “end of the post-death year” substitute “ member's death ”,

f in sub-paragraph (8)(b), after “first month” insert “ ending after the start ”,

g in sub-paragraph (11), for “opening month” substitute “ month in which the member died ”, and

h omit sub-paragraphs (13) and (14).

6 The amendments made by this section are treated as having come into force on 6 April 2016.

7 The amendments made by subsections (2) to (4), so far as they relate to paragraph 16B of Schedule 28 to FA 2004, have effect where the last day of “the post-death year” (see sub-paragraph (1) of that paragraph) is 6 April 2016 or any later day.

8 The following amendments—

a the amendments made by subsections (2) to (4), so far as they relate to paragraph 16C of Schedule 28 to FA 2004, and

b the amendments made by subsection (5),

have effect where the last day of “the 12 months in question” (see sub-paragraph (1) of that paragraph) is 6 April 2016 or any later day.

22 Pension flexibility¶

Schedule 5 makes amendments in connection with pension flexibility.

23 Netherlands Benefit Act for Victims of Persecution 1940-1945¶

1 After section 642 of ITEPA 2003 insert—

2 The amendment made by this section has effect for the tax year 2016-17 and subsequent tax years.

Trading and other income¶

24 Fixed-rate deductions for use of home for business purposes¶

1 In Part 2 of ITTOIA 2005 (trading income), Chapter 5A (trade profits: deductions allowable at a fixed rate) is amended as follows.

2 Section 94H (use of home for business purposes) is amended as follows.

3 In subsection (1), for the words from “in respect of” to the end substitute

4 In subsection (4), for the words from “work done” to the end substitute “ qualifying work ”.

5 After subsection (4) insert—

6 In subsection (5), after “person” insert “ , or, where the person is a firm, a partner of the firm, ”.

7 After subsection (5) insert—

8 Section 94I (premises used both as a home and as business premises) is amended as follows.

9 In subsection (1)(b), for “used by the person as a home,” substitute

10 After subsection (6) insert—

11 The amendments made by this section have effect for the tax year 2016-17 and subsequent tax years.

25 Averaging profits of farmers etc¶

1 Chapter 16 of Part 2 of ITTOIA 2005 (averaging profits of farmers and creative artists) is amended as specified in subsections (2) to (7).

2 In section 221 (claim for averaging of fluctuating profits)—

a in subsection (2), at the beginning insert “ For the purposes of section 222 (two-year averaging) ”;

b after that subsection insert—

;

c in subsection (3), for “this purpose” substitute “ the purpose of subsection (2) ”.

3 After section 222 insert—

222A Circumstances in which claim for five-year averaging may be made

1 An averaging claim may be made under this section in relation to five consecutive tax years in which a taxpayer is or has been carrying on the qualifying trade, profession or vocation if the volatility condition in subsection (2) is met.

2 The volatility condition is that—

a one of the following is less than 75% of the other—

i the average of the relevant profits of the first four tax years to which the claim relates;

ii the relevant profits of the last of the tax years to which the claim relates; or

b the relevant profits of one or more (but not all) of the five tax years to which the claim relates are nil.

3 Any of the first four tax years to which an averaging claim under this section relates may be a tax year in relation to which an averaging claim under this section or section 222 has already been made.

4 An averaging claim (“the subsequent claim”) may not be made under this section if an averaging claim in respect of the trade, profession or vocation has already been made under this section or section 222 in relation to a tax year which is later than the last of the tax years to which the subsequent claim relates.

5 An averaging claim may not be made under this section in relation to the tax year in which the taxpayer starts, or permanently ceases, to carry on the trade, profession or vocation.

6 An averaging claim under this section must be made on or before the first anniversary of the normal self-assessment filing date for the last of the tax years to which the claim relates.

7 But see section 225(4) (extended time limit if profits adjusted for some other reason).

4 In section 222 (circumstances in which claim may be made)—

a in the heading, after “claim” insert “ for two-year averaging ”;

b in subsection (1), after “made” insert “ under this section ”;

c for subsection (2) substitute—

;

d in subsection (3)—

i after “made”, in the first place, insert “ under this section ”;

ii after “made”, in the second place, insert “ under this section or section 222A ”;

e in subsection (4), after “made” insert “ under this section ”;

f in subsection (5), after “averaging claim” insert “ under this section ”.

5 In section 223 (adjustment of profits)—

a in subsection (2), for “second of the two tax years” substitute “ last of the two or five tax years ”;

b for subsection (3) substitute—

;

c omit subsection (4).

6 In section 224 (effect of adjustment)—

a in subsection (4), for “either” substitute “ any ”;

b in subsection (6), for “second of the two tax years” substitute “ last of the two or five tax years ”.

7 In section 225 (effect of later adjustment of profits), in subsection (1), for “either or both” substitute “ any one or more ”.

8 In section 31C of ITTOIA 2005 (excluded provisions), in subsection (6), for “section 221” substitute “ Chapter 16 ”.

9 In section 1025 of ITA 2007 (meaning of “modified net income”), in subsection (2)(d), for “the earlier of the tax years” substitute “ any earlier tax year ”.

10 In paragraph 3 of Schedule 1B to TMA 1970 (relief for fluctuating profits of farmers etc)—

a in sub-paragraph (1), for the words from “for two” to the end substitute—

;

b in sub-paragraph (2), for “the later year” substitute “ the last of the two or five years ”;

c in sub-paragraph (3), for “the earlier year”, where it occurs first, substitute “ an earlier year ”;

d in sub-paragraph (5)—

i for “the earlier year” substitute “ an earlier year ”;

ii for “the later year” substitute “ the last of the two or five years ”;

e after sub-paragraph (6) insert—

11 In paragraph 4 of Schedule 1B to TMA 1970 (relief claimed by virtue of section 224(4) of ITTOIA 2005)—

a in sub-paragraph (1)—

i after “for two” insert “ or five ”;

ii omit “(“the earlier year” and “the later year”)”;

iii for “either” substitute “ any ”;

b in sub-paragraph (2), for “the later year” substitute “ the last of the two or five years ”;

c in sub-paragraph (3), for “the earlier year”, where it occurs first, substitute “ an earlier year ”;

d in sub-paragraph (5)—

i for “the earlier year” substitute “ an earlier year ”;

ii for “the later year” substitute “ the last of the two or five years ”.

12 The amendments made by this section have effect for the tax year 2016-17 and subsequent tax years.

26 Relief for finance costs related to residential property businesses¶

1 In ITTOIA 2005, for sections 274A and 274B and the preceding italic heading (tax reductions for non-deductible costs of dwelling-related loans: individuals, and accumulated or discretionary trust income) substitute—

Tax reductions for non-deductible costs of a dwelling-related loan

274A Reduction for individuals: entitlement

1 If for a tax year an individual has—

a a relievable amount in respect of a property business, or

b two or more relievable amounts each in respect of a different property business,

the individual is entitled to relief under this section for that year in respect of that relievable amount or (as the case may be) each of those relievable amounts.

2 An individual has a relievable amount for a tax year in respect of a property business if for that year the individual has any one or more of the following in respect of that business—

a a current-year amount;

b a current-year estate amount;

c a brought-forward amount.

3 An individual's relievable amount for a tax year in respect of a property business is the total of—

a the individual's current-year amount (if any) for that year in respect of that business,

b the individual's current-year estate amounts (if any) for that year in respect of that business, and

c the individual's brought-forward amount (if any) for that year in respect of that business.

4 An individual has a current-year amount for a tax year in respect of a property business if—

a an amount (“A”) would be deductible in calculating the profits for income tax purposes of that business for that year but for section 272A,

b the individual is liable for income tax on N% of those profits, where N is a number—

i greater than 0, and

ii less than or equal to 100, and

c that liability is not under Chapter 6 of Part 5 (estate income),

in which event the individual's current-year amount for that tax year in respect of that business is equal to N% of A.

5 An individual has a current-year estate amount for a tax year (“the current year”), in respect of a property business and a particular deceased person's estate, if—

a an amount (“A”) would, but for section 272A, be deductible in calculating the profits for income tax purposes of that business for a particular tax year (“the profits year”), whether that year is the current year or an earlier tax year,

b the personal representatives of the deceased person are liable for income tax on N% of those profits, where N is a number—

i greater than 0, and

ii less than or equal to 100,

c the individual is liable for income tax on estate income treated under Chapter 6 of Part 5 as arising in the current year from an interest in the estate, and

d the basic amount of that estate income consists of, or includes, an amount representative of E% of the personal representatives' N% of the profits of the business for the profits year, where E is a number—

i greater than 0, and

ii less than or equal to 100,

in which event the individual's current-year estate amount for the current tax year, in respect of that business and estate and the profits year, is equal to E% of N% of A.

6 As to whether an individual has a brought-forward amount for a tax year in respect of a property business, see section 274AA(4).

7 In this section and section 274AA—

“estate income”, and
“basic amount” in relation to any estate income,

have the same meaning as in Chapter 6 of Part 5 (see sections 649 and 656(4)).

274AA Reduction for individuals: calculation

1 This section applies if for a tax year an individual is entitled to relief under section 274A in respect of a relievable amount or in respect of each of two or more relievable amounts, and in the following subsections of this section “relievable amount” means that relievable amount or (as the case may be) any of those relievable amounts.

2 In respect of a relievable amount, the actual amount on which relief for the year is to be given is (subject to subsection (3)) the amount (“L”) that is the lower of—

a the relievable amount, and

b the total of—

i the profits for income tax purposes of the property business concerned for the year after any deduction under section 118 of ITA 2007 (“the adjusted profits”) or, if less, the share (if any) of the adjusted profits on which the individual is liable to income tax otherwise than under Chapter 6 of Part 5, and

ii so much (if any) of the relievable amount as consists of current-year estate amounts.

3 If S is greater than the individual's adjusted total income for the year (“ATI”), the actual amount on which relief for the year is to be given in respect of a relievable amount is given by—

\frac{ATI}{S} \times L

where—

S is the total obtained by identifying the amount that is L for each relievable amount and then finding the total of the amounts identified, and

L has the same meaning as in subsection (2).

4 Where—

a a relievable amount,

is greater than—

b the actual amount on which relief for the year is to be given in respect of the relievable amount,

the difference is the individual's brought-forward amount for the following tax year in respect of the property business concerned.

5 The amount of the relief for the year in respect of a relievable amount is given by—

AA \times BR

where—

AA is the actual amount on which relief for the year is to be given in respect of the relievable amount, and

BR is the basic rate of income tax for the year,

6 For the purposes of this section, an individual's adjusted total income for a tax year is identified as follows—

Step 1 Identify the individual's net income for the year (see Step 2 of the calculation in section 23 of ITA 2007).
Step 2 Exclude from that net income—
1. so much of it as is within section 18(3) or (4) of ITA 2007 (income from savings), and
2. so much of it as is dividend income.
Step 3 Reduce what is left after Step 2 of this calculation by the amount of any allowances deducted for the year in the individual's case at Step 3 of the calculation in section 23 of ITA 2007. The result is the individual's adjusted total income for the year.

274B Reduction for accumulated or discretionary trust income: entitlement

1 If for a tax year the trustees of a settlement have—

a a relievable amount in respect of a property business, or

b two or more relievable amounts each in respect of a different property business,

the trustees of the settlement are entitled to relief under this section for that year in respect of that relievable amount or (as the case may be) each of those relievable amounts.

2 The trustees of a settlement have a relievable amount for a tax year in respect of a property business if for that year the trustees of the settlement have a current-year amount, or brought-forward amount, in respect of that business (or have both).

3 In the case of trustees of a settlement, their relievable amount for a tax year in respect of a property business is the total of—

a their current-year amount (if any) for that year in respect of that business, and

b their brought-forward amount (if any) for that year in respect of that business.

4 The trustees of a settlement have a current-year amount for a tax year in respect of a property business if—

a an amount (“A”) would be deductible in calculating the profits for income tax purposes of that business for that year but for section 272A,

b the trustees of the settlement are liable for income tax on N% of those profits, where N is a number—

i greater than 0, and

ii less than or equal to 100, and

c in relation to the trustees of the settlement, that N% of those profits is accumulated or discretionary income,

in which event the current-year amount of the trustees of the settlement for that tax year in respect of that business is equal to N% of A.

5 As to whether the trustees of a settlement have a brought-forward amount for a tax year in respect of a property business, see section 274C(3).

6 In this section and section 274C “accumulated or discretionary income” has the meaning given by section 480 of ITA 2007.

274C Reduction for accumulated or discretionary trust income: calculation

1 This section applies if for a tax year the trustees of a settlement are entitled to relief under section 274B in respect of a relievable amount or in respect of each of two or more relievable amounts, and in the following subsections of this section “relievable amount” means that relievable amount or (as the case may be) any of those relievable amounts.

2 The amount of the relief in respect of a relievable amount is given by—

L \times BR

where—

BR is the basic rate of income tax for the year, and

L is the lower of—

the relievable amount, and
the profits for income tax purposes of the property business concerned for the year after any deduction under section 118 of ITA 2007 (“the adjusted profits”) or, if less, the share of the adjusted profits—
1. on which the trustees of the settlement are liable for income tax, and
2. which, in relation to the trustees of the settlement, is accumulated or discretionary income.

3 Where L in the case of a relievable amount is less than the relievable amount, the difference between them is the brought-forward amount of the trustees of the settlement for the following tax year in respect of the property business concerned.

2 In consequence of the amendment made by subsection (1), in F(No.2)A 2015 omit section 24(5).

27 Individual investment plans of deceased investors¶

1 In Chapter 3 of Part 6 of ITTOIA 2005 (power to exempt income from individual investment plans from income tax), after section 694 insert—

694A Deceased investors

1 In section 694(1) “income of an individual from investments under a plan” includes—

a income (of any person) from administration-period investments under a plan, and

b income (of any person) from the estate of a deceased person (“D”) where the whole or any part of the income of D's personal representatives is income from administration-period investments under a plan.

2 For the purposes of sections 694(3)(a) and (4) and 695(1) “individual”, in relation to investments that are administration-period investments, includes—

a the personal representatives of the deceased individual concerned, and

b any other person on whose directions plan managers agree to act in relation to the investments.

3 In sections 699 and 701 “investor” includes a person entitled to an exemption given by investment plan regulations by virtue of subsection (1) of this section.

4 Investments are “administration-period investments” if—

a an individual dies, and

b immediately before the individual's death—

i the investments were held under a plan,

ii the individual was entitled to the income from the investments, and

iii as a result of investment plan regulations, the individual's income from investments under the plan was exempt from income tax (either wholly or to an extent specified in the regulations).

5 Investments are also “administration-period investments” if (directly or indirectly) they represent investments that are administration-period investments as a result of subsection (4).

6 Investment plan regulations may provide that investments are administration-period investments as a result of subsection (4) or (5) only at times specified in, or ascertained in accordance with, the regulations.

7 Provision under subsection (6) may (in particular) be framed by reference to the completion of the administration of a deceased individual's estate.

8 In the application of subsection (7) in relation to Scotland, the reference to the completion of the administration is to be read in accordance with section 653(2).

2 In section 151(2) of TCGA 1992 (Chapter 3 of Part 6 of ITTOIA 2005 applies with modifications in relation to regulations giving relief from capital gains tax in respect of investments under plans)—

a in the words before paragraph (a), for “section 694(1) to (2)” substitute “ sections 694(1) to (2) and 694A(1) ”, and

b after paragraph (a) insert—

3 In section 62 of TCGA 1992 (death: general provisions), after subsection (4) (acquisition of asset as legatee) insert—

4 In consequence of subsection (2)(a), in FA 2011 omit section 40(6)(a).

Reliefs: enterprise investment scheme, venture capital trusts etc¶

28 EIS, SEIS and VCTs: exclusion of energy generation¶

1 In section 192(1) of ITA 2007 (meaning of “excluded activities”: EIS and SEIS), for paragraphs (ka) to (kc) substitute—

2 In section 303(1) of ITA 2007 (meaning of “excluded activities”: VCTs), for paragraphs (ka) to (kc) substitute—

3 In consequence of subsection (1), ITA 2007 is amended as follows—

a in section 192(2)—

i for paragraph (g) substitute

;

ii omit paragraph (h);

b in section 198A—

i in the heading, omit “subsidised generation or”;

ii omit subsections (3) to (9);

c omit section 198B.

4 In consequence of subsection (2), ITA 2007 is amended as follows—

a in section 303(2)—

i for paragraph (g) substitute

;

ii omit paragraph (h);

b in section 309A—

i in the heading, omit “subsidised generation or”;

ii omit subsections (3) to (9);

c omit section 309B.

5 The amendments made by subsections (1) and (3) have effect in relation to shares issued on or after 6 April 2016.

6 The amendments made by subsections (2) and (4) have effect in relation to relevant holdings issued on or after 6 April 2016.

29 EIS and VCTs: definition of certain periods¶

1 In section 175A of ITA 2007 (EIS: the permitted maximum age requirement)—

a in subsection (7) for the words from “five” to the end substitute “ relevant five year period. ”;

b after that subsection insert—

2 In section 252A of ITA 2007 (EIS: meaning of “knowledge-intensive company”)—

a in subsection (4), in the definition of “the relevant three preceding years”, for the words from “means” to the end substitute “ means, subject to subsection (4A), the three consecutive years the last of which ends immediately before the beginning of the last accounts filing period. ”;

b after that subsection insert—

3 In section 280C of ITA 2007 (VCTs: the permitted maximum age condition)—

a in subsection (8) for the words from “five” to the end substitute “ relevant five year period. ”;

b after that subsection insert—

4 In section 294A of ITA 2007 (VCTs: the permitted company age requirement)—

a in subsection (7) for the words from “five” to the end substitute “ relevant five year period. ”;

b after that subsection insert—

5 In section 331A of ITA 2007 (VCTs: meaning of “knowledge-intensive company”)—

a in subsection (5), in the definition of “the relevant three preceding years”, for the words from “means” to the end substitute “ means, subject to subsection (5A), the three consecutive years the last of which ends immediately before the beginning of the last accounts filing period. ”;

b after that subsection insert—

6 The amendments made by this section are to be treated as always having had effect; but this is subject to section 30.

30 EIS and VCTs: election¶

1 If a company (“the relevant company”) makes an election for this section to apply, then—

a the amendments made by subsection (1) of section 29 do not apply in relation to shares issued by the relevant company in the material period,

b the amendments made by subsection (2) of that section do not apply for the purposes of determining whether, at the date of issue of any shares issued by the company in the material period, the company is a knowledge-intensive company for the purposes of Part 5 of ITA 2007,

c the amendments made by subsection (3) of that section do not apply in relation to investments made in the relevant company in the material period,

d the amendments made by subsection (4) of that section do not apply for the purposes of determining whether the requirement of section 294A of ITA 2007 is met in relation to any holding of shares or securities issued by the relevant company in the material period, and

e the amendments made by subsection (5) of that section do not apply for the purposes of determining whether, at any time in the material period which is the applicable time within the meaning given by section 331A of ITA 2007, the relevant company is a knowledge-intensive company for the purposes of Part 6 of ITA 2007.

2 Amendments that by reason of an election under this section do not apply in relation to particular shares or investments or for particular purposes are also to be treated as never having applied in relation to those shares or investments or for those purposes.

3 Any election under this section must be made in writing and signed by a director of the relevant company.

4 Where a company has made an election under this section—

a it must include a statement that the election has been made in any compliance statement subsequently provided by it under section 204(2) of ITA 2007 in respect of an issue of shares made by it in the material period, and

b it must provide a copy of the election to each company to which it has issued shares or securities in the material period.

5 An election under this section is irrevocable.

6 In this section “the material period” means the period beginning with 18 November 2015 (the date when F(No. 2)A 2015 was passed) and ending with 5 April 2016.

31 VCTs: requirements for giving approval¶

1 Section 274 of ITA 2007 (requirements for the giving of approval) is amended as follows.

2 In the table in subsection (2), after the entry beginning “The 70% eligible shares condition” insert—

3 In subsection (3), in each of paragraphs (f), (g) and (h), for “(3A)” substitute “ (3ZA) ”.

4 After subsection (3) insert—

5 In subsection (3A)—

a for the words from “In the second” to “does not include” substitute “ An investment made by a company (“the investor”) falls within this subsection if it is ”;

b in paragraph (c) for “the company” substitute “ the investor ”;

c after paragraph (c) insert—

6 After subsection (3A) insert—

7 In subsection (5)—

a after paragraph (b) insert—

;

b in paragraph (c) for the words from “made by” to “(3A)” substitute “ falling within subsection (3A) may be held by the company ”.

8 The amendments made by this section have effect in relation to investments made on or after 6 April 2016.

Reliefs: peer-to-peer lending¶

32 Income tax relief for irrecoverable peer-to-peer loans¶

1 ITA 2007 is amended as follows.

2 After section 412 insert—

CHAPTER 1A Irrecoverable peer-to-peer loans

The relief

412A Relief for irrecoverable peer-to-peer loans

1 A person (“L”) is entitled to relief under this section if—

a L has made a peer-to-peer loan (“the relevant loan”),

b the loan was made through an operator,

c L has not assigned the right to recover the principal of the loan, and

d any outstanding amount of the principal of the loan has, on or after 6 April 2015, become irrecoverable.

2 But if the outstanding amount became irrecoverable before 6 April 2016 L is entitled to relief under this section only on the making of a claim.

3 The relief is given by deducting the outstanding amount in calculating L's net income for the tax year in which the amount became irrecoverable (see Step 2 of the calculation in section 23).

4 The deduction under this section is to be made only from income arising from the payment to L of interest on—

a the relevant loan, and

b any other loan within subsection (5) or (6).

5 A loan is within this subsection if—

a it is a peer-to-peer loan made by L, and

b it was made through the operator through whom the relevant loan was made.

6 A loan is within this subsection if—

a the loan was made by someone other than L,

b the right to receive interest on the loan has been assigned to L,

c the right was assigned through the operator through whom the relevant loan was made, and

d either—

i L is a person within paragraph (a), (b) or (c) of section 412I(4), or

ii the recipient of the loan is a person within one of those paragraphs and the loan is a personal or small loan.

7 The amount deducted under this section is limited in accordance with section 25(4) and (5).

8 In this section “irrecoverable” means irrecoverable other than by legal proceedings or by the exercise of any right granted by way of security for the loan.

412B Claims for additional relief: sideways relief

1 A person (“L”) may make a claim for relief under this section if—

a L is entitled to relief under section 412A in respect of any outstanding amount of the principal of a loan (“the relevant loan”), but

b in the tax year in relation to which L is entitled to that relief (“the relevant year”)—

i L has no income of the kind mentioned in section 412A(4) from which to deduct the outstanding amount, or

ii L has insufficient income of that kind to enable the outstanding amount to be deducted in full under that section.

2 The claim is for the outstanding amount or (in a case within subsection (1)(b)(ii)) the part of the outstanding amount not capable of being deducted under section 412A to be deducted under this section in calculating L's net income for the relevant year.

3 The deduction under this section is to be made only from income arising from the payment to L of interest on loans within subsection (4) or (5).

4 A loan is within this subsection if—

a it is a peer-to-peer loan made by L, and

b it was made through an operator who is not the operator through whom the relevant loan was made.

5 A loan is within this subsection if—

a the loan was made by someone other than L,

b the right to receive interest on the loan has been assigned to L,

c that right was assigned through an operator who is not the operator through whom the relevant loan was made, and

d either—

i L is a person within paragraph (a), (b) or (c) of section 412I(4), or

ii the recipient of the loan is a person within one of those paragraphs and the loan is a personal or small loan.

6 The amount deducted under this section is limited in accordance with section 25(4) and (5).

412C Claims for additional relief: carry-forward relief

1 A person (“L”) may make a claim for relief under this section if—

a L is entitled to relief under section 412A in respect of any outstanding amount of the principal of a loan (“the relevant loan”), but

b in the tax year in relation to which L is entitled to that relief (“the relevant year”)—

i L has no income of the kind mentioned in section 412A(4) or section 412B(3) from which to deduct the outstanding amount, or

ii L has insufficient income of that kind to enable the outstanding amount to be deducted in full under those sections.

2 The claim is for the outstanding amount or (in a case within subsection (1)(b)(ii)) the part of the outstanding amount not capable of being deducted under sections 412A and 412B to be deducted under this section in calculating L's net income for the four tax years following the relevant year.

3 The deduction under this section is to be made only from income arising from the payment to L of interest on—

a the relevant loan, and

b any other loan within subsection (4) or (5).

4 A loan is within this subsection if—

a it is a peer-to-peer loan made by L, and

b it was made through an operator (whether or not that operator is the operator through whom the relevant loan was made).

5 A loan is within this subsection if—

a the loan was made by someone other than L,

b the right to receive interest on the loan has been assigned to L,

c that right was assigned through an operator (whether or not that operator is the operator through whom the relevant loan was made), and

d either—

i L is a person within paragraph (a), (b) or (c) of section 412I(4), or

ii the recipient of the loan is a person within one of those paragraphs and the loan is a personal or small loan.

6 This section needs to be read with section 412D (how relief works).

412D How carry-forward relief works

1 This subsection explains how deductions are to be made under section 412C.The amount to be deducted at any step is limited in accordance with section 25(4) and (5).

Step 1 Deduct the outstanding amount or (in a case within section 412C(1)(b)(ii)) the part of the outstanding amount not capable of being deducted under sections 412A and 412B from the lending income for the first tax year following the relevant year.
Step 2 Deduct from the lending income for the second tax year following the relevant year any part of the outstanding amount not previously deducted.
Step 3 Apply Step 2 in relation to the lending income for the third and fourth tax years following the relevant year, stopping if all of the outstanding amount is deducted.

2 In this section—

“lending income” means income of a kind mentioned in section 412C(3);
“relevant year” has the meaning given by section 412C(1)(b).

Supplementary provisions

412E Subsequent recovery of peer-to-peer loans

1 This section applies where—

a any amount of the principal of a loan has been deducted under this Chapter in calculating a person's net income for a tax year, and

b the person subsequently recovers that amount or any part of it.

2 The amount recovered is to be treated for the purposes of this Act as if it were interest on the loan paid to the person at the time it was recovered.

3 For the purposes of this section, a person is to be treated as recovering an amount if the person (or any other person at his or her direction) receives any money or money's worth—

a in satisfaction of the person's right to recover that amount, or

b in consideration of the person's assignment of the right to recover it;

and where a person assigns such a right otherwise than by way of a bargain made at arm's length the person shall be treated as receiving money or money's worth equal to the market value of the right at the time of the assignment.

412F Assigned loans treated as made by the assignee etc

1 This section applies where—

a a person (“A”) is assigned the right to recover the principal of a loan,

b the right is assigned through an operator (“O”),

c A makes a payment in consideration of the assignment, and

d A does not further assign the right.

2 The loan is to be treated for the purposes of section 412A(1) as—

a having been made by A, and

b having been made through O.

3 The amount (if any) of the principal of the loan which is treated as irrecoverable may not exceed the amount which is arrived at by—

a taking the amount of the payment mentioned in subsection (1)(c), and

b deducting any amount of the principal of the loan previously recovered by A.

412G Nominees etc

For the purposes of this Chapter—

a a loan or a payment made by or to a nominee or bare trustee for a person is treated as made by or to that person, and

b a right assigned by or to a nominee or bare trustee for a person is treated as assigned by or to that person.

412H Interaction with other reliefs

1 Subsection (2) applies in relation to a loan if any person has obtained income tax relief (other than under this Chapter) which is properly attributable to the loan.

2 The amount (if any) of the principal of the loan which is treated as irrecoverable may not exceed the amount which is arrived at by—

a taking the amount of the principal of the loan, and

b deducting the amount of the relief mentioned in subsection (1).

Interpretation

412I Meaning of “loan”, “peer-to-peer loan” and related terms

1 This section applies for the purposes of this Chapter.

2 “Loan” means a loan of money which—

a is made on genuine commercial terms, and

b is not part of a scheme or arrangement the main purpose or one of the main purposes of which is to obtain a tax advantage (within the meaning given by section 208 of the FA 2013).

3 A loan is a “peer-to-peer loan” only if it meets—

a Condition A or B, and

b Condition C.

4 Condition A is that the person who made the loan is—

a an individual,

b a partnership which consists of—

i two or three persons, and

ii at least one person who is not a body corporate, or

c an unincorporated body of persons which—

i is not a partnership, and

ii consists of at least one person who is not a body corporate.

5 Condition B is that—

a the recipient of the loan is a person within paragraph (a), (b) or (c) of subsection (4), and

b the loan is a personal or small loan.

6 Condition C is that, assuming interest were paid on the loan, the person who made the loan would (except for this Chapter) be liable for income tax charged on the interest.

7 “Personal loan” means a loan which is not used wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the recipient of the loan.

8 “Small loan” means a loan of £25,000 or less.

412J Meaning of “operator” and related terms

1 This section applies for the purposes of this Chapter.

2 “Operator” means a person who—

a has permission under Part 4A of FISMA 2000 to carry on a regulated activity specified in Article 36H of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544) (operating an electronic system in relation to lending), or

b has been granted equivalent permission under the law of a territory outside the United Kingdom that is within the European Economic Area.

3 A loan is “made through” an operator if the person who makes the loan and the recipient of the loan enter the agreement under which the loan is made at the invitation of the operator.

4 A right is “assigned through” an operator if the person who assigns the right and the person to whom the right is assigned enter the agreement under which the assignment takes effect at the invitation of the operator.

5 A person is not to be treated as having entered an agreement at the invitation of an operator if the operator made the invitation otherwise than in the course of carrying on the activity to which the permission mentioned in subsection (2)(a) or (b) relates.

3 In section 24(1) (list of reliefs deductible at Step 2 of the calculation of income tax liability), in paragraph (b), at the appropriate place insert— “ Chapter 1A of Part 8 (irrecoverable peer-to-peer loans), ”.

4 In section 25(3) (list of provisions requiring reliefs to be deducted from particular components of income etc) at the appropriate place insert— “ sections 412A(4), 412B(3) and 412C(3) (relief for irrecoverable peer-to-peer loans only against interest on certain loans), ”.

Transactions in securities¶

33 Transactions in securities: company distributions¶

1 Chapter 1 of Part 13 of ITA 2007 (transactions in securities) is amended as follows.

2 In section 684 (person liable to counteraction), in subsection (1)—

a in the opening words, after “a person” insert “ (“the party”) ”;

b in paragraph (c), omit “the person in being a party to”;

c in paragraph (d), for “the person” substitute “ the party or any other person ”.

3 In that section, in subsection (2)—

a in paragraph (c), omit the final “and”;

b after paragraph (d) insert—

4 In section 685 (receipt of consideration in connection with distribution by or assets of close company)—

a in subsection (2)—

i in the opening words, for “the person” substitute “ a relevant person ”;

ii in the words after paragraph (c), after “and” insert “ the relevant person ”;

b in subsection (3)—

i in paragraph (a), for “the person” substitute “ a relevant person ”;

ii in paragraph (c), for “the person” substitute “ the relevant person ”;

c after subsection (3) insert—

d omit subsection (6);

e after subsection (7) insert—

5 In section 686 (excluded circumstances: fundamental change of ownership)—

a in subsection (1)(a), for the words from “the person” to “party”)” substitute “ the party ”;

b for subsections (2) to (5) substitute—

2 There is a fundamental change of ownership of the close company if, as a result of the transaction or transactions in securities, the condition in subsection (3) is met.

3 The condition in this subsection is that the original shareholder or original shareholders taken together with any associate or associates—

a do not directly or indirectly hold more than 25% of the ordinary share capital of the close company,

b do not directly or indirectly hold shares in the close company carrying an entitlement to more than 25% of the distributions which may be made by the close company, and

c do not directly or indirectly hold shares in the close company carrying more than 25% of the total voting rights in the close company.

4 In this section “original shareholder” means a person who, immediately before the transaction in securities (or the first of the transactions in securities), held any ordinary share capital of the close company.

5 For the purposes of this section, shares of or share capital in the close company which are held by a person controlled by an original shareholder, or by two or more original shareholders taken together, count as shares or share capital held by that original shareholder or those original shareholders.

6 In section 687 (income tax advantage)—

a in subsection (1), in the opening words, for “the person” substitute “ a person ”;

b in subsection (2)—

i after “to the person” insert “ or an associate of the person ”;

ii for “the relevant consideration is received” substitute “ Condition A or B in section 685 is met ”.

7 In section 713 (interpretation), at the appropriate place insert—

8 The amendments made by this section have effect in relation to—

a a transaction occurring on or after 6 April 2016, or

b a series of transactions any one or more of which occurs on or after that date.

9 Accordingly, Chapter 1 of Part 13 of ITA 2007 has effect without the amendments made by this section in relation to a tax advantage obtained on or after 6 April 2016 in consequence of—

a a transaction occurring before that date, or

b a series of transactions all of which occur before that date.

10 Where—

a before 6 April 2016 a person provides particulars to the Commissioners for Her Majesty's Revenue and Customs under section 701 of ITA 2007 in respect of a transaction or transactions,

b on the basis of Chapter 1 of Part 13 of ITA 2007 as it has effect apart from this section, notification is given under section 701 of that Act that no counteraction notice ought to be served about the transaction or transactions,

c the transaction, or any one or more of the transactions, occurs on or after 6 April 2016, and

d the person would, but for the notification, be liable for counteraction of an income tax advantage from the transaction or transactions under Chapter 1 of Part 13 of ITA 2007 as amended by this section,

the notification is void and section 702(2) of ITA 2007 does not apply in relation to the transaction or transactions.

34 Transactions in securities: procedure for counteraction of advantage¶

1 Chapter 1 of Part 13 of ITA 2007 (transactions in securities) is amended as follows.

2 For section 695 (preliminary notification) substitute—

3 Omit sections 696 and 697 (opposed notifications).

4 In section 698 (counteraction notices), for subsection (1) substitute—

5 In that section, for subsection (5) substitute—

6 After that section insert—

698A No-counteraction notices

1 If on an enquiry under section 695 an officer of Revenue and Customs is of the opinion that no counteraction is required, the officer must serve notice on the person (a “no-counteraction notice”) stating that no counteraction is required and why.

2 The taxpayer may apply to the tribunal for a direction requiring an officer of Revenue and Customs to issue one of the following within a specified period—

a a counteraction notice;

b a no-counteraction notice.

3 Any such application is to be subject to the relevant provisions of Part 5 of TMA 1970 (see, in particular, section 48(2)(b) of that Act).

4 The tribunal must give the direction applied for unless satisfied that there are reasonable grounds for not serving either a counteraction notice or a no-counteraction notice within a specified period.

7 In section 684 (person liable to counteraction), for subsection (4) substitute—

8 The amendments made by this section have effect in relation to—

a a transaction occurring on or after 6 April 2016, or

b a series of transactions any one or more of which occurs on or after that date.

9 Accordingly, Chapter 1 of Part 13 of ITA 2007 has effect without the amendments made by this section in relation to a tax advantage obtained on or after 6 April 2016 in consequence of—

a a transaction occurring before that date, or

b a series of transactions all of which occur before that date.

35 Distributions in a winding up¶

1 In Chapter 3 of Part 4 of ITTOIA 2005 (dividends and other distributions from UK resident companies), after section 396A insert—

396B Distributions in a winding up

1 For the purposes of this Chapter, a distribution made to an individual in respect of share capital in the winding up of a UK resident company is a distribution of the company if—

a Conditions A to D are met, and

b the distribution is not excluded (see subsection (7)).

2 Condition A is that, immediately before the winding up, the individual has at least a 5% interest in the company.

3 Condition B is that the company—

a is a close company when it is wound up, or

b was a close company at any time in the period of two years ending with the start of the winding up.

4 Condition C is that, at any time within the period of two years beginning with the date on which the distribution is made—

a the individual carries on a trade or activity which is the same as, or similar to, that carried on by the company or an effective 51% subsidiary of the company,

b the individual is a partner in a partnership which carries on such a trade or activity,

c the individual, or a person connected with him or her, is a participator in a company in which he or she has at least a 5% interest and which at that time—

i carries on such a trade or activity, or

ii is connected with a company which carries on such a trade or activity, or

d the individual is involved with the carrying on of such a trade or activity by a person connected with the individual.

5 Condition D is that it is reasonable to assume, having regard to all the circumstances, that—

a the main purpose or one of the main purposes of the winding up is the avoidance or reduction of a charge to income tax, or

b the winding up forms part of arrangements the main purpose or one of the main purposes of which is the avoidance or reduction of a charge to income tax.

6 The circumstances referred to in subsection (5) include in particular the fact that Condition C is met.

7 A distribution to an individual is excluded if or to the extent that—

a the amount of the distribution does not exceed the amount that would result in no gain accruing for the purposes of capital gains tax, or

b the distribution is a distribution of irredeemable shares.

8 In this section—

“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable;
“effective 51% subsidiary” has the meaning given by section 170(7) of TCGA 1992;
“participator” has the meaning given by section 454 of CTA 2010.

9 For the purposes of this section, an individual has at least a 5% interest in a company if—

a at least 5% of the ordinary share capital of the company is held by the individual, and

b at least 5% of the voting rights in the company are exercisable by the individual by virtue of that holding.

10 For the purposes of subsection (9) if an individual holds any shares in a company jointly or in common with one or more other persons, he or she is to be treated as sole holder of so many of them as is proportionate to the value of his or her share (and as able to exercise voting rights by virtue of that holding).

2 In Chapter 4 of Part 4 of ITTOIA 2005 (dividends from non-UK resident companies), after section 404 insert—

404A Distributions in a winding up

1 For the purposes of this Chapter, a distribution made to an individual in respect of share capital in a winding up of a non-UK resident company is a dividend of the company if—