(2) The requirement of subsection (2)(b) of that section is to be treated as met in
that case.

57 (1) This paragraph applies for the purposes of section 554R of ITEPA 2003 in a
case in which—

(a) 5the relevant step mentioned in subsection (6)(a) of that section was
taken before 6 April 2011, and

(b) the requirement of subsection (6)(b) of that section would have been
met had Part 7A of ITEPA 2003 had effect in relation to relevant steps
within section 554B of that Act taken before that date.

(2) 10The requirement of subsection (6)(b) of that section is to be treated as met in
that case.

58 (1) This paragraph applies if—

(a) B takes a step within section 554Z19 of ITEPA 2003 before 6 April
2011 by providing security (“the early security”) for the performance
15of an undertaking (“the early undertaking”),

(b) on or after 6 April 2011 at a time when B is continuing to provide the
early security, there is a change in the terms of the early undertaking
which does not amount to the giving of a new undertaking, and

(c) as a result of the change, the amount to be paid as a contribution (“the
20early contribution”) under the early undertaking increases, or will
increase.

(2) Chapter 3 of Part 7A of ITEPA 2003 has effect—

(a) as if the change in the terms of the early undertaking were a new
undertaking to pay a contribution covering the increase in the
25amount of the early contribution as determined on a just and
reasonable basis, and

(b) as if B, in continuing to provide the early security, provides security
for the performance of the new undertaking at the time of the change
in the terms.

(3) 30Section 554Z17(7) of ITEPA 2003 applies for the purposes of this paragraph
as it applies for the purposes of Chapter 3 of Part 7A of that Act.

59 (1) This paragraph applies if—

(a) a relevant step within section 554C or 554D of ITEPA 2003 (“the
chargeable step”) is taken,

(b) 35Chapter 2 of Part 7A of ITEPA 2003 applies by reason of the
chargeable step,

(c) in a tax year before 6 April 2011 (“the pre-6 April 2011 tax year”) a
relevant step (“the pre-6 April 2011 step”) within section 554B of
ITEPA 2003 was taken,

(d) 40before the chargeable step is taken—

(i) an agreement was made between Her Majesty’s Revenue and
Customs and either A or B (or both) under which it was
agreed that the pre-6 April 2011 step was to be treated as
giving rise to earnings of A from A’s employment with B
45within Chapter 1 of Part 3 of ITEPA 2003 for the pre-6 April
2011 tax year, or

(ii) the tax payable by A for the pre-6 April 2011 tax year was
otherwise decided on the basis that the pre-6 April 2011 step
was to be treated as giving rise to earnings of A from A’s

employment with B within Chapter 1 of Part 3 of ITEPA 2003
for that tax year,

(e) before the chargeable step is taken, A or B has paid, or otherwise accounted for, any tax which A or B is required to pay or otherwise account for as a consequence of—

(i) the agreement mentioned in paragraph (d)(i), or

(ii) the tax payable by A for the pre-6 April 2011 tax year having
5otherwise been decided on the basis mentioned in paragraph
(d)(ii), and

(f) after any reductions under sections 554Z4 to 554Z8 of ITEPA 2003, it
is determined on a just and reasonable basis that the value of the
10chargeable step represents (or still represents after any such
reductions) to any extent—

(i) the earnings treated as arising from the pre-6 April 2011 step
as mentioned in paragraph (d)(i) or (ii), or

(ii) any return on those earnings since the taking of the pre-6
15April 2011 step (whether income or capital, direct or indirect
or realised or unrealised).

(2) After any reductions under sections 554Z4 to 554Z8 of ITEPA 2003, the value
of the chargeable step is to be reduced (but not below nil) by an amount
reflecting the extent to which, as determined under sub-paragraph (1)(f),
20that value represents (or still represents) the earnings mentioned in sub-
paragraph (1)(f)(i) or any return on those earnings mentioned in sub-
paragraph (1)(f)(ii).

(3) In sub-paragraph (1)(f)(ii) “return” does not include any return so far as, it is
reasonable to suppose, the return exceeds the return which might have been
25expected applying the assumption that all relevant connected persons are
acting at arm’s length of each other.

(4) In sub-paragraph (3) “relevant connected person” means a person with a
connection (direct or indirect) to an arrangement (within the meaning of Part
7A of ITEPA 2003) by virtue of which the return arises.

30Other commencement provision

60 The amendments made by paragraph 14 of this Schedule, so far as relating
to general earnings, have effect in relation to benefits to which Chapter 2 of
Part 6 of ITEPA 2003 applies received on or after 6 April 2011.

61 The amendments made by paragraphs 36, 39(a), 45 and 48(a) of this
35Schedule have effect in relation to acts or omissions occurring on or after 6
April 2011.

62 The amendments made by paragraphs 37(2), 39(b), 46(2) and 48(b) of this
Schedule have effect in relation to payments or transfers made on or after 6
April 2011.

63 40The amendments made by paragraphs 38(2) and 47(2) of this Schedule have
effect in relation to money treated as received on or after 6 April 2011
(subject to paragraphs 53(9) and (10) and 54(11) and (12) of this Schedule).

Power to make provision dealing with interactions etc

64 (1) The Treasury may by order made by statutory instrument make such
provision as the Treasury consider appropriate dealing with the interaction
between Part 7A of ITEPA 2003 (as inserted by paragraph 1 of this Schedule)
5and any other provision of the Tax Acts or any enactment relating to capital
gains tax or inheritance tax.

(2) The Treasury may by order made by statutory instrument make such
provision as the Treasury consider appropriate in consequence of this
Schedule.

(3) 10An order under this paragraph may contain provision having retrospective
effect, so long as it does not increase any person’s liability to any tax.

(4) An order under this paragraph may amend, repeal or revoke any provision
made by or under an Act, including, in the case of an order under sub-
paragraph (1), Part 7A of ITEPA 2003.

(5) 15An order under this paragraph may contain incidental, supplemental,
consequential and transitional provision and savings.

(6) The powers conferred by this paragraph may not be exercised after 5 April
2015.

(7) A statutory instrument containing an order under this paragraph is subject
20to annulment in pursuance of a resolution of the House of Commons.

Section 27

SCHEDULE 3 Tainted charity donations

Part 1 Income tax

1 25In Part 13 of ITA 2007 (tax avoidance), after Chapter 7 insert—

“CHAPTER 8 Tainted charity donations

Introduction

809ZH Overview of Chapter

(1) 30This Chapter makes provision for removing entitlement to income
tax reliefs, and counteracting income tax advantages, where a person
makes a relievable charity donation which is a tainted donation.

(2) See section 257A of TCGA 1992 and Part 21C of CTA 2010 for the
removal of entitlement to other reliefs where a person makes a
35relievable charity donation which is a tainted donation.

809ZI Relievable charity donations

(1) In this Chapter “relievable charity donation” means a gift or other
disposal which—

(a) is made by a person to a charity, and

(b) 5is eligible for tax relief.

(2) A gift or other disposal is eligible for tax relief if one or both of the
following apply—

(a) (ignoring the tainted donation provisions) tax relief would be
available in respect of it under a relevant relieving provision;

(b) 10the charity is entitled to claim a repayment of tax in respect of
it.

(3) “The tainted donation provisions” are—

(a) this Chapter,

(b) section 257A of TCGA 1992 (tainted charity donations:
15disapplication of section 257), and

(c) Part 21C of CTA 2010 (tainted charity donations: removal of
corporation tax reliefs).

(4) The following are “relevant relieving provisions”—

(a) section 257 of TCGA 1992 (gifts of chargeable assets),

(b) 20section 63(2)(a), (aa) and (ab) of CAA 2001 (gifts of plant and
machinery),

(c) Part 12 of ITEPA 2003 (payroll giving),

(d) section 108 of ITTOIA 2005 (gifts of trading stock),

(e) Chapters 2 and 3 of Part 8 of this Act (gift aid and gifts of
25shares),

(f) section 105 of CTA 2009 (gifts of trading stock), and

(g) Part 6 of CTA 2010 (charitable donations relief).

(5) For the purposes of this Chapter, an amount of income which arises
under a UK settlement and to which a charity is entitled under the
30terms of the settlement is to be regarded as an amount gifted to the
charity by the trustees of the settlement.

“UK settlement” has the same meaning as in section 628 of ITTOIA
2005.

Tainted donations

809ZJ 35 Tainted donations

(1) For the purposes of this Chapter, a relievable charity donation is a
tainted donation if (and only if) Conditions A, B and C are met.

(2) Condition A is that—

(a) a linked person enters into arrangements (whether before or
40after the donation is made), and

(b) it is reasonable to assume from either or both of—

(i) the likely effects of the donation and the
arrangements, and

(ii) the circumstances in which the donation is made and
the circumstances in which the arrangements are
entered into,

that the donation would not have been made and the
5arrangements would not have been entered into
independently of one another.

(3) “Linked person” means—

(a) the person who made the donation (“the donor”), or

(b) a person connected with the donor at a relevant time.

(4) 10In subsection (3) “relevant time” means a time during the period
which begins with the earliest, and ends with the latest, of the
following times—

(a) the time when the arrangements are entered into as
mentioned in subsection (2);

(b) 15the time when the relievable charity donation is made;

(c) the time when the arrangements are first materially
implemented.

(5) Condition B is that the main purpose, or one of the main purposes,
of the linked person in entering into the arrangements is to obtain a
20financial advantage—

(a) directly or indirectly from the charity to which the donation
is made or a connected charity,

(b) for one or more linked persons who are not charities (each of
whom is referred to in this Chapter as “a potentially
25advantaged person”).

(6) Condition C is that the donor is not—

(a) a qualifying charity-owned company, or

(b) a relevant housing provider linked with the charity to which
the donation is made.

(7) 30For the purposes of subsection (6)(b) a relevant housing provider is
linked with the charity if (and only if)—

(a) one is wholly owned, or subject to control, by the other, or

(b) both are wholly owned, or subject to control, by the same
person.

(8) 35In this section—

• “qualifying charity-owned company”, in relation to a relievable
  charity donation, means a company which—

  (a)

  is wholly owned by one or more charities, at least one
  of which is the charity to which the donation is made
  40or a connected charity, and

  (b)

  has not previously been under the control of, and
  does not carry on a trade or business previously
  carried on by, one or more of the following—

  (i)

  a potentially advantaged person;

  (ii)

  45a person (other than a charity) who, at any
  time within the period of 4 years ending with
  the day on which paragraph (a) was first

  Finance (No. 3) BillPage 125

  satisfied, was connected with a person who is
  a potentially advantaged person;

• “relevant housing provider” means a body which is—

  (a)

  a non-profit registered provider of social housing, or

  (b)

  5entered on a register maintained under section 1 of
  the Housing Act 1996, section 20 of the Housing
  (Scotland) Act 2010 (asp 17)2010 (asp 17) or Article 14 of the
  Housing (Northern Ireland) Order 1992 (S.I. 1992/
  1725 (N.I. 15)).

(9) 10Section 200 of CTA 2010 (company wholly owned by a charity)
applies for the purposes of subsection (8), and for those purposes
references in that section to “charity” include a registered club within
the meaning of section 658(6) of that Act.

(10) This section is subject to section 809ZL (certain financial advantages
15to be ignored).

809ZK Circumstances in which financial advantage deemed to be obtained

(1) This section applies for the purposes of Condition B.

(2) Subsection (3) applies where the arrangements entered into by the
linked person (as mentioned in Condition A) involve a transaction to
20which—

(a) that or any other linked person (“X”), and

(b) another person (“Y”),

are parties.

(3) X obtains a financial advantage from the charity to which the
25donation is made or a connected charity if—

(a) the terms of the transaction are less beneficial to Y or more
beneficial to X (or both) than those which might reasonably
be expected in a transaction concluded between parties
dealing at arm’s length, or

(b) 30the transaction is not of a kind which a person dealing at
arm’s length and in place of Y might reasonably be expected
to make.

(4) Nothing in this section is intended to limit the circumstances in
which a linked person may be regarded as obtaining a financial
35advantage for the purposes of section 809ZJ.

(5) In this section—

• “Condition A” and “Condition B” have the same meaning as in
  section 809ZJ;

• “linked person” has the meaning given by section 809ZJ(3);

• 40“transaction” includes (for example)—

  (a)

  the sale or letting of property,

  (b)

  the provision of services,

  (c)

  the exchange of property,

  (d)

  the provision of a loan or any other form of financial
  45assistance, and

  (e)

  investment in a business.

809ZL Certain financial advantages to be ignored

(1) When determining whether a relievable charity donation is a tainted
donation, a financial advantage within subsection (2), (3), (4) or (5) is
to be ignored.

(2) 5A financial advantage is within this subsection if the person for
whom it is obtained applies the advantage for charitable purposes
only.

(3) A financial advantage is within this subsection if (ignoring the
tainted donation provisions) it is—

(a) 10a benefit associated with a gift which is a qualifying donation
for the purposes of Chapter 2 of Part 8 (gift aid), or

(b) a benefit associated with a payment which is a qualifying
payment for the purposes of Chapter 2 of Part 6 of CTA 2010
(charitable donations relief: payments to charity).

(4) 15A financial advantage is within this subsection if (ignoring the
tainted donation provisions)—

(a) the relievable charity donation is a disposal in respect of
which tax relief would be available under Chapter 3 of Part 8
of this Act (gifts of shares, securities and real property to
20charities etc) or Chapter 3 of Part 6 of CTA 2010 (charitable
donations: certain disposals to charity), and

(b) the advantage is a benefit the value of which would be taken
into account in determining the relievable amount in respect
of the disposal for the purposes of the Chapter in question.

(5) 25A financial advantage is within this subsection if (ignoring the
tainted donation provisions)—

(a) the relievable charity donation is a gift in respect of which tax
relief would be available under section 108 of ITTOIA 2005 or
section 105 of CTA 2009 (gifts of trading stock to charities
30etc), and

(b) the advantage is a benefit attributable to the making of the
gift in respect of which an amount would be brought into
account under section 109 of ITTOIA 2005 or section 108 of
CTA 2009 (receipt of benefits by donor or connected person).

(6) 35In this section—

• “benefit associated with a gift” has the meaning given by section
  417;

• “benefit associated with a payment” has the meaning given by
  section 196 of CTA 2010;

• 40“the tainted donation provisions” has the meaning given by
  section 809ZI(3).

Removal of reliefs and imposition of charge to tax

809ZM Removal of income tax relief in respect of tainted donations etc

(1) This section applies where a tainted donation is made by a person.

(2) 45Where (ignoring this Chapter) income tax relief would be available
in respect of the tainted donation, that relief is not available.

(3) Where—

(a) (ignoring this Chapter) income tax relief would be available
in respect of an associated donation, and

(b) entitlement to that relief is not withdrawn by subsection (2),

5that relief is not available.

(4) In this section—

• “associated donation”, in relation to a tainted donation, means
  a relievable charity donation made—

  (a)

  in accordance with the relevant arrangements, and

  (b)

  10by a person, other than—

  (i)

  a qualifying charity-owned company in
  relation to that relievable charity donation, or

  (ii)

  a relevant housing provider linked (within the
  meaning of section 809ZJ(7)) with the charity
  15to which that donation is made;

• “income tax relief” means relief under—

  (a)

  section 63(2)(a), (aa) or (ab) of CAA 2001 (gifts of plant
  and machinery), so far as it applies in relation to
  income tax,

  (b)

  20Part 12 of ITEPA 2003 (payroll giving),

  (c)

  section 108 of ITTOIA 2005 (gifts of trading stock),

  (d)

  Chapter 2 of Part 8 of this Act (gift aid), or

  (e)

  Chapter 3 of that Part (gifts of shares etc);

• “qualifying charity-owned company” has the meaning given by
  25section 809ZJ(8) (except that paragraph (b) of that definition
  does not apply);

• “relevant housing provider” has the meaning given by section
  809ZJ(8);

• “the relevant arrangements”, in relation to a tainted donation,
  30means the arrangements by reference to which Conditions A
  and B in section 809ZJ are met.

(5) Where entitlement to relief is withdrawn under this section in
respect of a donation—

(a) subsections (6) and (7) apply if the relief is under Chapter 2 of
35Part 8 (gift aid), and

(b) subsection (8) applies if the relief is under Part 12 of ITEPA
2003 (payroll giving).

(6) For the purposes of Step 2 in section 58(1), the donation is not a
qualifying donation for the purposes of Chapter 2 of Part 8.

(7) 40But—

(a) the donation remains a qualifying donation for the purposes
of—

(i) Part 10 (special rules about charitable trusts etc),

(ii) section 899(5) (meaning of “qualifying annual
45payment”),

(iii) Chapter 2 of Part 11 of CTA 2010 (charitable
companies: gifts and other payments),

(iv) section 664 of that Act (community amateur sports
clubs: exemption for interest and gift aid income), and

(b) accordingly, section 414(2)(a) (donation treated as made after
deduction of basic rate income tax) applies for the purposes
5of section 520(4) (income tax treated as deducted to be treated
as income tax paid by charitable trust).

(8) The donation remains a donation for the purposes of Part 12 of
ITEPA 2003 for the purposes of—

(a) section 521A (gifts under payroll deduction scheme: income
10tax liability and exemption), and

(b) section 472A of CTA 2010 (gifts under payroll reduction
scheme: corporation tax liability and exemption).

809ZN Income tax charge where gift aid is withdrawn

(1) Income tax is charged under this section if—

(a) 15a person makes a tainted donation in a tax year,

(b) (ignoring this Chapter) relief would have been available
under Chapter 2 of Part 8 in respect of the tainted donation or
an associated donation (“the gift aid donation”), and

(c) the charity to which the gift aid donation is made is entitled
20to claim a repayment of tax in respect of that donation.

(2) The amount of the tax charged under this section is equal to the
amount of the repayment of tax which the charity is entitled to claim
in respect of the gift aid donation (whether or not such a claim is
made).

(3) 25Each of the persons mentioned in subsection (4) is liable for any tax
charged under this section, and the liability of those persons is joint
and several.

(4) The persons are—

(a) the donor in respect of the gift aid donation,

(b) 30if different, the donor in respect of the tainted donation,

(c) each potentially advantaged person under the relevant
arrangements relating to the tainted donation, and

(d) any charity to which the gift aid donation or (if different) the
tainted donation is made, or any connected charity, which
35falls within subsection (5).

(5) A charity falls within this subsection if the charity—

(a) is or was party to the relevant arrangements relating to the
tainted donation, and

(b) was aware, at the time it entered into those arrangements,
40that a linked person was entering (or had entered or was
likely to enter) into the arrangements in circumstances falling
within Condition B in section 809ZJ.

(6) No liability to income tax arises under this section in respect of a
repayment of tax, if (and to the extent that) the repayment is itself
45repaid to the Commissioners for Her Majesty’s Revenue and
Customs under any other provision of the Tax Acts.

(7) In this section—

Finance (No. 3) BillPage 129

• “associated donation” has the same meaning as in section
  809ZM;

• “linked person” has the same meaning as in section 809ZJ;

• “the relevant arrangements” has the same meaning as in section
  5809ZM.

809ZO Income tax charge where payment of trust income to charity

(1) Income tax is charged under this section if—