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 5 — Miscellaneous
557

(b)
in the Table in subsection (8), omit the entry for the expressions
“resident” and “ordinarily resident”.
147
In section 27 of ITEPA 2003 (UK-based earnings for year when employee not
UK resident), in subsection (1), for “in which” substitute “for which”.
148
In section 465 of ITTOIA 2005 (gains from contracts for life insurance etc:
5
liability of individuals), in subsection (1), for “in the tax year” substitute “for
the tax year”.
149   (1)
Chapter 4 of Part 2 of FA 2005 (trusts with vulnerable beneficiary) is
amended as follows.
      (2)
In section 28 (vulnerable person’s liability: VQTI), for subsection (4)
10
substitute—
“(4)
Where the vulnerable person is non-UK resident for the tax year, his
or her income tax liability for the purposes of determining TLV1 and
TLV2 is to be computed in accordance with the Income Tax Acts on
the assumption that—
15
(a)
he or she is UK resident for the tax year,
(b)
that year is not, as respects him or her, a split year within the
meaning of Part 3 of Schedule 43 to FA 2013, and
(c)
he or she is domiciled in the United Kingdom throughout
that year.”
20
      (3)
In section 30 (qualifying trusts gains: special capital gains tax treatment)—
(a)
in subsection (2)(a) and (b), for “during” substitute “for”, and
(b)
omit subsection (5).
      (4)
In section 31 (UK resident vulnerable persons: amount of relief), in
subsection (1), for “during” substitute “for”.
25
      (5)
In section 32 (non-UK resident vulnerable persons: amount of relief), in
subsection (1), for “during” substitute “for”.
      (6)
In section 41—
(a)
in subsection (1), insert the following definitions in the appropriate
places—
30
““non-UK resident” means not resident in the United
Kingdom in accordance with the statutory residence
test in Part 1 of Schedule 43 to FA 2013,”, and
““UK resident” means resident in the United Kingdom
in accordance with the statutory residence test in Part
35
1 of Schedule 43 to FA 2013.”, and
(b)
omit subsection (2).
150   (1)
ITA 2007 is amended as follows.
      (2)
In section 809B (claim for remittance basis to apply), in subsection (1)(a), for
“in that year” substitute “for that year”.
40
      (3)
In section 809D (application of remittance basis without claim where
unremitted foreign income and gains under £2,000), in subsection (1)(a), for
“in that year” substitute “for that year”.
      (4)
In section 809E (application of remittance basis without claim: other cases),
in subsection (1)(a), for “in that year” substitute “for that year”.
45

Finance (No. 2) Bill
Schedule 43 — Statutory residence test
Part 5 — Miscellaneous
558

      (5)
In section 810 (limits on liability to income tax of non-UK residents:
overview of Chapter), after subsection (3) insert—
“(4)
In relation to an individual—
(a)
a reference in this Chapter to a non-UK resident’s liability to
income tax is a reference to the liability of someone who is
5
non-UK resident for the tax year for which the liability arises,
and
(b)
accordingly, enactments under which income arising to a UK
resident in the overseas part of a split year is treated as
arising to a non-UK resident are of no relevance to this
10
Chapter.”
      (6)
Omit sections 829 to 832.
Commencement
151   (1)
Parts 1 and 2 of this Schedule have effect for determining whether
individuals are resident or not resident in the UK for the tax year 2013-14 or
15
any subsequent tax year.
      (2)
Part 3 of this Schedule has effect in calculating an individual’s liability to
income tax or capital gains tax for the tax year 2013-14 or any subsequent tax
year.
      (3)
Part 4 of this Schedule has effect if the year of departure (as defined in that
20
Part) is the tax year 2013-14 or a subsequent tax year.
Transitional and saving provision
152   (1)
This paragraph applies if—
(a)
year X or, in Part 3 of this Schedule, the relevant year is the tax year
2013-14, 2014-15 or 2015-16, and
25
(b)
it is necessary to determine under this Schedule whether an
individual was resident or not resident in the UK for a tax year before
the tax year 2013-14 (a “pre-commencement tax year”).
      (2)
The question under this Schedule is to be determined in accordance with the
rules in force for determining an individual’s residence for that pre-
30
commencement tax year (and not in accordance with the statutory residence
test).
      (3)
But an individual may by notice in writing to Her Majesty’s Revenue and
Customs elect, as respects one or more pre-commencement tax years, for the
question under this Schedule to be determined instead in accordance with
35
the statutory residence test.
      (4)
A notice under sub-paragraph (3)—
(a)
must be given no later than the first anniversary of the end of year X
or, in a Part 3 case, the relevant year, and
(b)
is irrevocable.
40
      (5)
Unless, in relation to a pre-commencement tax year, an election is made
under sub-paragraph (3) as respects that year—
(a)
paragraph 10(b) of this Schedule has effect in relation to that year as
if the words “by virtue of meeting the automatic residence test” were
omitted, and
45

Finance (No. 2) Bill
Schedule 43 — Statutory residence test
Part 5 — Miscellaneous
559

(b)
paragraph 16 of this Schedule has effect in relation to that year as if—
(i)
in sub-paragraph (1)(b), the words “because P met the third
automatic overseas test for each of those years” were omitted,
and
(ii)
in sub-paragraph (2)(a), the words “because P met the third
5
automatic overseas test for that year” were omitted.
153   (1)
This paragraph applies if—
(a)
year X or, for Part 3 of this Schedule, the tax year for which an
individual’s liability to tax is being calculated is the tax year 2013-14
or a subsequent tax year, and
10
(b)
it is necessary to determine under a provision of this Schedule, or a
provision inserted by Part 3 of this Schedule, whether a tax year
before the tax year 2013-14 (a “pre-commencement tax year”) was a
split year as respects the individual.
      (2)
The provision is to have effect as if—
15
(a)
the reference to a split year were to a tax year to which the relevant
ESC applied, and
(b)
any reference to the UK part or the overseas part of such a year were
to the part corresponding as far as possible, in accordance with the
terms of the relevant ESC, to the UK part or the overseas part of a
20
split year.
      (3)
Where the provision also refers to cases involving actual or deemed
departure from the UK, the reference is to be read and given effect so far as
possible in accordance with the terms of the relevant ESC.
      (4)
“The relevant ESC” means whichever of the extra-statutory concessions to
25
which effect is given by Part 3 of this Schedule is relevant in the individual’s
case.
154   (1)
This paragraph applies in determining whether the test in paragraph
108(1)(c) is met in relation to a tax year before the tax year 2013-14 (a “pre-
commencement tax year”).
30
      (2)
Paragraph 108(1) is to have effect as if for paragraph (c) there were
substituted—
“(c)
at least 4 out of the 7 tax years immediately preceding the
year of departure was a tax year meeting the following
conditions—
35
(i)
the individual was resident in the UK for that year,
and
(ii)
there was no time in that year when the individual
was Treaty non-resident (see paragraph 110(3)).”
      (3)
Whether an individual was resident in the UK for a pre-commencement tax
40
year is to be determined in accordance with the rules in force for
determining an individual’s residence for that pre-commencement tax year
(and not in accordance with the statutory residence test).
155   (1)
The existing temporary non-resident provisions, as in force immediately
before the day on which this Act is passed, continue to have effect on and
45
after that day in any case where the year of departure (as defined in Part 4 of
this Schedule) is a tax year before the tax year 2013-14.

Finance (No. 2) Bill
Schedule 44 — Ordinary residence
Part 1 — Income tax and capital gains tax: remittance basis of taxation
560

      (2)
Where those provisions continue to have effect by virtue of sub-paragraph
(1)—
(a)
the question of whether a person is or is not resident in the UK for
the tax year 2013-14 or a subsequent tax year is to be determined for
the purposes of those provisions in accordance with Part 1 of this
5
Schedule, but
(b)
the effect of Part 3 is to be ignored.
      (3)
The existing temporary non-resident provisions are—
(a)
section 10A of TCGA 1992 (chargeable gains),
(b)
section 576A of ITEPA 2003 (income withdrawals under certain
10
foreign pensions),
(c)
section 579CA of that Act (income withdrawals under registered
pension schemes), and
(d)
section 832A of ITTOIA (relevant foreign income charged on
remittance basis).
15
156
Section 13 of FA 2012 (Champions League final 2013) is to be read and given
effect, on and after the day on which this Act is passed, as if section 215 and
this Schedule had not been enacted.
Schedule 44
Section 216

Ordinary residence
20
Part 1
Income tax and capital gains tax: remittance basis of taxation
Remittance basis restricted to non-doms
1
Chapter A1 of Part 14 of ITA 2007 (remittance basis) is amended as follows.
2
In section 809A (overview of Chapter), omit “or are not ordinarily UK
25
resident”.
3
In section 809B (claim for remittance basis to apply)—
(a)
in subsection (1)(b), omit “or is not ordinarily UK resident in that
year”, and
(b)
omit subsection (2).
30
4
In section 809D (application of remittance basis without claim where
unremitted foreign income and gains under £2,000)—
(a)
in subsection (1)(b), omit “or is not ordinarily UK resident in that
year”, and
(b)
in subsection (1A), omit “the individual is not domiciled in the
35
United Kingdom in that year and”.
5
In section 809E (application of remittance basis without claim: other cases),
in subsection (1)(b), omit “or is not ordinarily UK resident in that year”.

Finance (No. 2) Bill
Schedule 44 — Ordinary residence
Part 1 — Income tax and capital gains tax: remittance basis of taxation
561

Treatment of relevant foreign earnings
6
ITEPA 2003 is amended as follows.
7     (1)
In section 22 (chargeable overseas earnings for year when remittance basis
applies and employee ordinarily UK resident), in subsection (1), for
paragraph (b) substitute—
5
“(b)
the employee does not meet the requirement of section 26A
for that year.”
      (2)
Accordingly—
(a)
in the heading of that section, for “ordinarily UK resident”
substitute “outside section 26”, and
10
(b)
in the italicised heading before that section, for “UK ordinarily resident
employees” substitute “employees outside section 26”.
8
In section 23 (calculation of “chargeable overseas earnings”), in subsection
(2), for paragraph (aa) substitute—
“(aa)
the employee does not meet the requirement of section 26A
15
for that year,”.
9     (1)
In section 26 (foreign earnings for year when remittance basis applies and
employee not ordinarily UK resident), in subsection (1), for “is not ordinarily
UK resident in” substitute “meets the requirement of section 26A for”.
      (2)
Accordingly—
20
(a)
in the heading of that section, for “not ordinarily UK resident”
substitute “meets section 26A requirement”, and
(b)
in the italicised heading before that section, for “not UK ordinarily
resident” substitute “who meet section 26A requirement”.
10
After that section insert—
25
“26A
Section 26: requirement for 3-year period of non-residence
(1)
An employee meets the requirement of this section for a tax year if
the employee was—
(a)
non-UK resident for the previous 3 tax years, or
(b)
UK resident for the previous tax year but non-UK resident for
30
the 3 tax years before that, or
(c)
UK resident for the previous 2 tax years but non-UK resident
for the 3 tax years before that, or
(d)
non-UK resident for the previous tax year, UK resident for
the tax year before that and non-UK resident for the 3 tax
35
years before that.
(2)
The residence status of the employee before the 3 years of non-UK
residence is not relevant for these purposes.”
11    (1)
Section 41C (foreign securities income) is amended as follows.
      (2)
In subsection (4), for paragraph (b) substitute—
40
“(b)
the individual does not meet the requirement of section 26A
for the year (reading references there to the employee as
references to the individual),”.

Finance (No. 2) Bill
Schedule 44 — Ordinary residence
Part 1 — Income tax and capital gains tax: remittance basis of taxation
562

      (3)
In subsection (6), for paragraph (b) substitute—
“(b)
the individual meets the requirement of section 26A for the
year (reading references there to the employee as references
to the individual), and”.
12
In section 271 (limited exemption of removal benefits and expenses:
5
general), in subsection (2)—
(a)
in paragraph (a), for “ordinarily UK resident” substitute “outside
section 26”, and
(b)
in paragraph (b), for “not ordinarily UK resident” substitute “meets
section 26A requirement”.
10
13    (1)
In section 554Z9 (remittance basis: A is ordinarily UK resident), in
subsection (1), for paragraph (c) substitute—
“(c)
A does not meet the requirement of section 26A for the
relevant tax year (reading references there to the employee as
references to A),”.
15
      (2)
Accordingly, in the heading of that section, for “A is ordinarily UK
resident” substitute “A does not meet section 26A requirement”.
14    (1)
In section 554Z10 (remittance basis: A is not ordinarily resident), in
subsection (1), for paragraph (c) substitute—
“(c)
A meets the requirement of section 26A for the relevant tax
20
year (reading references there to the employee as references
to A).”
      (2)
Accordingly, in the heading of that section, for “A is not ordinarily
resident” substitute “A meets section 26A requirement”.
15    (1)
Section 690 (employee non-resident etc) is amended as follows.
25
      (2)
In subsection (1), for paragraph (a) substitute—
“(a)
is either non-UK resident for the tax year or is UK resident
but meets the requirement of section 26A for the tax year,
and”.
      (3)
In subsection (2A), for “but not ordinarily resident in a tax year” substitute
30
“for a tax year but not domiciled in the United Kingdom in that tax year”.
Consequential amendments
16
In section 266A of ICTA (life assurance premiums paid by employer), in
subsection (8)—
(a)
in paragraph (a), for “employee resident and ordinarily resident, but
35
not domiciled, in UK” substitute “remittance basis applies and
employee outside section 26”, and
(b)
in paragraph (b), for “employee resident, but not ordinarily resident,
in UK” substitute “remittance basis applies and employee meets
section 26A requirement”.
40
17
In section 12 of TCGA 1992 (non-UK domiciled individuals to whom
remittance basis applies), for subsection (1) substitute—
“(1)
This section applies to foreign chargeable gains accruing to an
individual in a tax year (“the foreign chargeable gains”) if section

Finance (No. 2) Bill
Schedule 44 — Ordinary residence
Part 1 — Income tax and capital gains tax: remittance basis of taxation
563

809B, 809D or 809E of ITA 2007 (remittance basis) applies to the
individual for that year.”
18
In section 87B of that Act (section 87: remittance basis), in subsection (1)—
(a)
insert “and” at the end of paragraph (a),
(b)
omit “and” at the end of paragraph (b), and
5
(c)
omit paragraph (c).
19
In section 726 of ITA 2007 (non-UK domiciled individuals to whom
remittance basis applies), for subsection (1) substitute—
“(1)
This section applies in relation to income treated under section 721 as
arising to an individual in a tax year (“the deemed income”) if section
10
809B, 809D or 809E (remittance basis) applies to the individual for
that year.”
20
In section 730 of that Act (non-UK domiciled individuals to whom
remittance basis applies), for subsection (1) substitute—
“(1)
This section applies in relation to income treated under section 728 as
15
arising to an individual in a tax year (“the deemed income”) if section
809B, 809D or 809E (remittance basis) applies to the individual for
that year.”
21
In section 735 of that Act (non-UK domiciled individuals to whom
remittance basis applies), for subsection (1) substitute—
20
“(1)
This section applies in relation to income treated under section 732 as
arising to an individual in a tax year (“the deemed income”) if section
809B, 809D or 809E (remittance basis) applies to the individual for
that year.”
22
In section 809F of that Act (effect on what is chargeable), in subsection (4),
25
for “If the individual is not domiciled in the United Kingdom in that year,
the” substitute “The”.
23
In section 809YD of that Act (chargeable gains accruing on sales of exempt
property), in subsection (3), omit “and P is not domiciled in the United
Kingdom in that year”.
30
24
In section 809Z7 of that Act (meaning of “foreign income and gains” etc)—
(a)
in subsection (2)(d), omit “if the individual is not domiciled in the
United Kingdom in that year,”, and
(b)
in subsection (3)(a), for “is ordinarily UK resident in” substitute
“does not meet the requirement of section 26A of ITEPA 2003 for”.
35
Commencement
25
The amendments made by this Part of this Schedule have effect in relation
to an individual’s foreign income and gains for the tax year 2013-14 or any
subsequent tax year.
Savings
40
26    (1)
This paragraph applies to an individual who—
(a)
was not resident in the United Kingdom for the tax year 2009-10,
(b)
is resident there for the tax year 2012-13, but