Corporation Tax Rates
The main rate of corporation tax will be set at 30% for financial year 2006. The small companies rate and starting rate are unchanged at 19% and 0% respectively for financial year 2005. The non-corporate distribution rate is also unchanged at 19% for financial year 2005.

Corporate Intangible Assets
Related party rules
For transfers of assets, and debits and credits brought into account, on or after 16 March 2005 the related party rules for corporate intangible assets (in FA 2002, Sch 29) are to be amended to ensure that assets created before 1 April 2002 are excluded from the provisions if they were transferred between ‘related parties’ on or after that date. The proposed amendment provides for a participator (or a participator’s associate) in a close company that controls, or has a major interest in, another close company, to be a related party of that second company. For the purpose of bringing debits and credits into account, the proposed amendments are deemed to be part of the provisions as originally enacted.

Market value rules
For transfers of assets on or after 16 March 2005, the market value rules in FA 2002, Sch 29 are to be amended to prevent related parties gaining a tax advantage by agreeing an artificially high or low price for the asset. Where assets are transferred at an under or over-value, the proposals will ensure that Schedule 29 does not prevent a taxable distribution or employment income from arising. Secondly, where capital gains tax gifts relief is claimed on an asset gifted to a related-party company, the company’s acquisition cost for the purposes of Schedule 29 is to be the market value less the amount of the held-over gain.

International Accounting Standards (IAS)
A number of technical amendments are proposed to the legislation in FA 2004 and to regulations made in December 2004 to reflect recent developments in accounting practice and also to correct some errors and omissions in the 2004 legislation.

It is further proposed that special purpose vehicle companies (SPVs) in a defined category can, for all accounting periods beginning in 2005, continue to use UK GAAP as it stood on 31 December 2004 for the purpose of computing their taxable profits, even where they make the transition to preparing accounts under IAS or revised UK GAAP. The Finance Bill is also to contain a power to make regulations setting out a permanent scheme of taxation for SPVs.

An anti-avoidance measure is to be introduced to prevent companies crystallising losses in advance of the transition to IAS.

Life Insurance Companies
Measures affecting the taxation of life insurance companies will be included in the Finance Bill. These will affect the following:

• Transfers of business from one life insurance company to another (note that there are significant differences from material published at the time of the pre-Budget report in 2004). This will apply to transfers of business after 1 December 2004.
• The treatment of receipts as ‘notional’. This will apply to accounting periods ending after 1 December 2004.
• The use of sub-funds to obtain a more favourable tax apportionment of investment return. This will apply to accounting periods beginning after 31 December 2004.
• The tax treatment of income and gains attributable to assets not needed to pay policyholder benefits. For accounting periods beginning after 31 December 2004 these will be taxed at normal corporation tax rates.