Finance (No. 2) Bill

Session 2012 - 13
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Finance (No. 2) Bill

Finance (No. 2) Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
522

(b)
the tax year is a split year because the circumstances of the
case fall within Case 1, Case 2 or Case 3 as described in Part 3
of Schedule 43 to FA 2013 (split year treatment: cases
involving actual or deemed departure from the United
Kingdom), and
5
(c)
had it not been a split year—
(i)
the earnings from the employment for that tax year
(or some of them) would have been general earnings
to which section 15, 22 or 26 applied, or
(ii)
if there had been any earnings from the employment
10
for that tax year, they (or some of them) would have
been general earnings to which any of those sections
applied.”
65
In section 474 (cases where Chapter 5 of Part 7 does not apply), for
subsection (1) substitute—
15
“(1)
This Chapter (apart from sections 473 and 483) does not apply in
relation to an employment-related securities option if the acquisition
occurs in a tax year that is not a split year as respects the employee
and—
(a)
the earnings from the employment are not general earnings
20
to which section 15, 22 or 26 applies (earnings for year when
employee UK resident), or
(b)
had there been any earnings from the employment, they
would not have been general earnings to which any of those
sections applied.
25
(1A)
This Chapter (apart from sections 473 and 483) does not apply in
relation to an employment-related securities option if the acquisition
occurs in the UK part of a tax year that is a split year as respects the
employee and—
(a)
the earnings from the employment attributable to that part of
30
the year are not general earnings to which section 15, 22 or 26
applies (earnings for year when employee UK resident), or
(b)
had there been any earnings from the employment
attributable to that part of the year, they would not have been
general earnings to which any of those sections applied.
35
(1B)
This Chapter (apart from sections 473 and 483) does not apply in
relation to an employment-related securities option if the acquisition
occurs in the overseas part of a tax year that is a split year as respects
the employee.”
66    (1)
Section 554Z4 (residence issues) is amended as follows.
40
      (2)
For subsections (3) to (5) substitute—
“(3)
Subsection (4) applies if the value of the relevant step, or a part of it,
is “for”—
(a)
a tax year for which A is non-UK resident, or
(b)
a tax year that is a split year as respects A.
45
(4)
The value, or the part of it, is to be reduced—
(a)
in a case within subsection (3)(a), by so much of the value, or
the part of it, as is not in respect of UK duties, and

Finance (No. 2) Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
523

(b)
in a case within subsection (3)(b), by so much of the value, or
the part of it, as is both—
(i)
attributable to the overseas part of the tax year, and
(ii)
not in respect of UK duties.
(5)
The extent to which—
5
(a)
the value, or the part of it, is not in respect of UK duties, or
(b)
so much of the value, or the part of it, as is attributable to the
overseas part of the tax year is not in respect of UK duties,

is to be determined on a just and reasonable basis.”
      (3)
After subsection (5) insert—
10
“(5A)
Any attribution required for the purposes of subsection (4)(b)(i) is to
be done on a just and reasonable basis.
(5B)
“UK duties” means duties performed in the United Kingdom.”
67
In section 554Z6 (overlap with certain earnings), in subsection (1)(a), after
“UK resident” insert “(and, in the case of a tax year that is a split year as
15
respects A, are not “excluded” by virtue of section 15(1A)(a) and (b)(i))”.
68
In section 554Z9 (remittance basis: A is ordinarily UK resident), in
subsection (5)—
(a)
in paragraph (b), after “that income” insert “(or of so much of it as is
attributable to the UK part of the relevant tax year, if it was a split
20
year as respects A)”, and
(b)
in paragraph (c), after “tax year” insert “(or the UK part of it)”.
69    (1)
Section 554Z10 (remittance basis: A is not ordinarily resident) is amended as
follows.
      (2)
In subsection (1), for paragraph (a) substitute—
25
“(a)
the value of the relevant step, or a part of it, is “for” a tax year
(“the relevant tax year”) as determined under section
554Z4,”.
      (3)
For subsection (2) substitute—
“(2)
The overseas portion of (as the case may be)—
30
(a)
A’s employment income by virtue of section 554Z2(1), or
(b)
the relevant part of A’s employment income by virtue of that
section,

is “taxable specific income” in a tax year so far as the overseas portion
is remitted to the United Kingdom in that year.”
35
      (4)
After that subsection insert—
“(2A)
“The overseas portion” of A’s employment income by virtue of
section 554Z2(1), or of the relevant part of that income, is so much of
that income, or of the relevant part of it, as is not in respect of UK
duties.
40
(2B)
“UK duties” means duties performed in the United Kingdom.”
      (5)
In subsection (3), for “this purpose” substitute “the purposes of this section”.

Finance (No. 2) Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
524

      (6)
For subsection (4) substitute—
“(4)
The extent to which—
(a)
the employment income, or the relevant part of it, is not in
respect of UK duties, or
(b)
so much of the employment income, or of the relevant part of
5
it, as is attributable to the UK part of the relevant tax year is
not in respect of UK duties,

is to be determined on a just and reasonable basis.”
Special charging rules for pension income
70    (1)
Section 575 of ITEPA 2003 (foreign pensions: taxable pension income) is
10
amended as follows.
      (2)
In subsection (1), after “subsections” insert “(1A),”.
      (3)
After that subsection insert—
“(1A)
If the person liable for the tax under this Part is an individual and the
tax year is a split year as respects that individual, the taxable pension
15
income for the tax year is the full amount of the pension income
arising in the UK part of the year, subject to subsections (2) and (3)
and section 576A.”
      (4)
In subsection (2), after “tax year” insert “or, as the case may be, the UK part
of the tax year”.
20
PAYE income
71    (1)
Section 690 of ITEPA 2003 (employee non-residents etc) is amended as
follows.
      (2)
In subsection (1), omit “only”.
      (3)
After that subsection insert—
25
“(1A)
This section also applies in relation to an employee in a tax year if it
appears to an officer of Revenue and Customs that—
(a)
the tax year is likely to be a split year as respects the
employee, and
(b)
the employee works or will work in the United Kingdom and
30
also works or is likely to work outside the United Kingdom.”
Special charging rules for trading income
72
ITTOIA 2005 is amended as follows.
73
In section 6 (territorial scope of charge to tax), after subsection (2) insert—
“(2A)
If the tax year is a split year as respects a UK resident individual, this
35
section has effect as if, for the overseas part of that year, the
individual were non-UK resident.”
74    (1)
Section 17 (effect of becoming or ceasing to be UK resident) is amended as
follows.

Finance (No. 2) Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
525

      (2)
For subsection (1) substitute—
“(1)
This section applies if—
(a)
an individual carries on a trade otherwise than in
partnership, and
(b)
there is a change of residence.
5
(1A)
For the purposes of this section there is a “change of residence” if—
(a)
the individual becomes or ceases to be UK resident, or
(b)
a tax year is, as respects the individual, a split year.
(1B)
The change of residence occurs—
(a)
in a case falling within subsection (1A)(a), at the start of the
10
tax year for which the individual becomes or ceases to be UK
resident, and
(b)
in a case falling within subsection (1A)(b), at the start of
whichever of the UK part or the overseas part of the tax year
is the later part.”
15
      (3)
In subsection (2), at the beginning insert “If this section applies and the
individual does not actually cease permanently to carry on the trade
immediately before the change of residence occurs,”.
75
In section 243 (post-cessation receipts: extent of charge to tax), after
subsection (5) insert—
20
“(6)
If the tax year is a split year as respects a UK resident individual, this
section has effect as if, for the overseas part of that year, the
individual were non-UK resident.”
76
In section 849 (calculation of firm’s profits or losses), after subsection (3)
insert—
25
“(3A)
For any tax year that is a split year as respects the partner, this section
has effect as if the partner were non-UK resident in the overseas part
of the year.”
77    (1)
Section 852 (carrying on by partner of notional trade) is amended as follows.
      (2)
For subsection (6) substitute—
30
“(6)
If there is a change of residence, the partner is treated as permanently
ceasing to carry on one notional trade when that change of residence
occurs and starting to carry on another immediately afterwards.”
      (3)
After subsection (7) insert—
“(8)
Subsections (1A) and (1B) of section 17 apply for the purposes of
35
subsection (6).”
78    (1)
Section 854 (carrying on by partner of notional business) is amended as
follows.
      (2)
For subsection (5) substitute—
“(5)
If there is a change of residence, the partner is treated as permanently
40
ceasing to carry on one notional business when that change of
residence occurs and starting to carry on another immediately
afterwards.”

Finance (No. 2) Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
526

      (3)
After that subsection insert—
“(5A)
Subsections (1A) and (1B) of section 17 apply for the purposes of
subsection (5).”
Special charging rules for property income
79
In section 270 of ITTOIA 2005 (profits of property businesses: income
5
charged), after subsection (2) insert—
“(3)
If, as respects an individual carrying on an overseas property
business, the tax year is a split year—
(a)
tax is charged under this Chapter on so much of the profits
referred to in subsection (1) as arise in the UK part of the tax
10
year, and
(b)
the portion of the profits arising in the overseas part of the tax
year is, accordingly, not chargeable to tax under this Chapter.
(4)
In determining how much of the profits arise in the UK part of the tax
year—
15
(a)
determine first how much of the non-CAA profits arise in the
UK part by apportioning the non-CAA profits between the
UK part and the overseas part on a just and reasonable basis,
and
(b)
then adjust the portion of the non-CAA profits arising in the
20
UK part by deducting any CAA allowances for the year and
adding any CAA charges for the year.
(5)
In subsection (4)—
“CAA allowances” means allowances treated under section 250
or 250A of CAA 2001 (capital allowances for overseas
25
property businesses) as an expense of the business;
“CAA charges” means charges treated under either of those
sections as a receipt of the business;
“non-CAA profits” means profits before account is taken of any
CAA allowances or CAA charges.”
30
Special charging rules for savings and investment income
80
Part 4 of ITTOIA 2005 (savings and investment income) is amended as
follows.
81
In section 368 (territorial scope of charges in respect of savings and
investment income), after subsection (2) insert—
35
“(2A)
If income arising to an individual who is UK resident arises in the
overseas part of a split year, it is to be treated for the purposes of this
section as arising to a non-UK resident.”
82
In section 465 (person liable for tax on gains from life insurance etc:
individuals), after subsection (1) insert—
40
“(1A)
But if the tax year is a split year as respects the individual, the
individual is not liable for tax under this Chapter in respect of gains
arising in the overseas part of that year (subject to section 465B).”
83
In section 467 (person liable: UK resident trustees), in subsection (4), after

Finance (No. 2) Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
527

paragraph (a) insert—
“(aa)
is UK resident but the gain arises in the overseas part of a tax
year that is, as respects the person who created the trusts, a
split year,”.
84    (1)
Section 528 (reduction in amount charged under Chapter 9 of Part 4: non-UK
5
resident policy holders) is amended as follows.
      (2)
The amendments made by sub-paragraphs (3) to (6) apply to section 528 as
substituted by paragraph 3 of Schedule 8 to this Act, and have effect in
relation to policies and contracts in relation to which that section as so
substituted has effect.
10
      (3)
In subsection (1)(b), for the words from “on which” to the end substitute
“that are foreign days”.
      (4)
After subsection (1) insert—
“(1A)
“Foreign days” are—
(a)
days falling within any tax year for which the individual is
15
not UK resident, and
(b)
days falling within the overseas part of any tax year that is a
split year as respects the individual.”
      (5)
In subsection (3), in the definition of “A”, for “days falling within subsection
(1)(b)” substitute “foreign days”.
20
      (6)
In subsection (8), for “subsection (1)(b)” substitute “subsection (1A)(a) and
(b)”.
      (7)
The amendments made by sub-paragraphs (8) to (10) apply to section 528 as
in force immediately before the substitution mentioned in sub-paragraph (2)
so far as that section as so in force continues to have effect after the
25
substitution.
      (8)
In subsection (1), for the words from “the policy holder” to the end substitute
“there are one or more days in the policy period that are foreign days.”
      (9)
After that subsection insert—
“(1A)
“Foreign days” are—
30
(a)
days on which the policy holder is not UK resident, and
(b)
days falling within the overseas part of any tax year that is a
split year as respects the policy holder (if the policy holder is
an individual).”
     (10)
In subsection (3), in the definition of “A”, for the words from “on which” to
35
the end substitute “in the policy period that are foreign days, and”.
85    (1)
Section 528A (reduction in amount charged on basis of non-UK residence of
deceased person), as inserted by paragraph 3 of Schedule 8 to this Act, is
amended as follows.
      (2)
In subsection (1)(b), for the words from “on which” to the end substitute
40
“that were foreign days”.
      (3)
In subsection (2)—
(a)
in paragraph (b), for the words from “on which” to the end substitute
“that were foreign days, and”, and

Finance (No. 2) Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
528

(b)
for paragraph (c), substitute—
“(c)
the deceased died—
(i)
in a tax year for which the deceased was UK
resident but not one that was a split year as
respects the deceased, or
5
(ii)
in the UK part of a tax year that was a split
year as respects the deceased.”
      (4)
After that subsection insert—
“(2A)
“Foreign days” are—
(a)
days falling within any tax year for which the deceased was
10
not UK resident, and
(b)
days falling within the overseas part of any tax year that was
a split year as respects the deceased.”
      (5)
In subsection (4), in the definition of “A”, for the words from “are days
falling” to the end substitute “were foreign days, and”.
15
      (6)
In subsection (8), for “subsection (1)(b) or (2)(b)” substitute “subsection
(2A)(a) and (b)”.
86    (1)
Section 536 (top slicing relieved liability: one chargeable event) is amended
as follows.
      (2)
The amendment made by sub-paragraph (3) applies to section 536 as
20
amended by paragraph 5 of Schedule 8 to this Act, and has effect in
accordance with paragraph 7 of that Schedule.
      (3)
For subsection (7) substitute—
“(7)
If in the case of the individual the gain is reduced under section 528—
(a)
divide the number of foreign days in the material interest
25
period (as determined in accordance with that section,
including subsections (7) and (8)) by 365,
(b)
if the result is not a whole number, round it down to the
nearest whole number, and
(c)
reduce N, for steps 1 and 3 in subsection (1), by the number
30
found by applying paragraphs (a) and (b).”
      (4)
The amendment made by sub-paragraph (5) applies to section 536 as in force
immediately before it is amended by paragraph 5 of Schedule 8 to this Act,
so far as that section as so in force continues to have effect after it is so
amended.
35
      (5)
For subsection (7) substitute—
“(7)
If the gain is from such a policy—
(a)
divide the number of foreign days in the policy period (as
defined in section 528) by 365,
(b)
if the result is not a whole number, round it down to the
40
nearest whole number, and
(c)
reduce N, for steps 1 and 3 in subsection (1), by the number
found by applying paragraphs (a) and (b).”