Introduction Income tax
2.Paragraphs 1 and 2 amend Chapter 1 of Part 13 of the Income Tax Act 2007 (ITA), by replacing sections 682 to 694 with new sections 682 to 687 inclusive. The scope of the legislation is changed to focus more effectively on those instances where there is a tax advantage that needs to be countered, although there is no change in the effect of the legislation.
3.New section 684 requires that the main, or one of the main purposes, of the transaction is to obtain an income tax advantage, and that an income tax advantage is actually obtained as a result of the transaction. This replaces the previous exception for transactions in securities made for genuine commercial reasons or in the ordinary course of making or managing investments, and where obtaining an income tax advantage was not the main, or one of the main objects of the transaction.
4.New section 685 merges the two provisions previously contained in section 689 and 690 of ITA. If either of two conditions are met the section will apply. The only substantive change is that the reference to a “relevant company” that was previously defined in section 691 of ITA is replaced with the term “close company”.
5.New section 686 excludes from the ambit of the transactions in securities legislation transactions that are immediately preceded by a fundamental change of ownership in the close company.
6.Subsection (1) of new section 687 introduces a new definition of income tax advantage for the purposes of Chapter 1. A person obtains an income tax advantage if there is an amount falling due under either new subsection (1)(a) or (1)(b).
7.Paragraph 3 of the Schedule makes consequential amendments to section 698 of ITA.
8.Paragraph 4 repeals section 699 of ITA.
9.Paragraphs 5 and 6 make consequential amendments to sections 700 and 701 of ITA.
10.Paragraph 7(2) adds to section 713 of ITA a definition of “close company” that includes a company that would be a close company if it were resident in the UK. This amended definition is intended to bring non resident companies that would be close companies if they were resident in the UK within the scope of Chapter 1.
11.Paragraph 7(3) removes the definition of a transaction in securities from section 713 of ITA because it is now defined in new section 684(2).