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Finance (No. 2) Bill (HC Bill 154)

Finance (No. 2) BillPage 570

(b) the amendments made by sub-paragraphs (3) and (4) apply in
relation to settlements created on or after that date, and

(c) the amendments made by sub-paragraph (5) apply to changes in the
residence status of trustees on or after that date.

110 (1) 5Schedule 5B (enterprise investment scheme: re-investment) is amended as
follows.

(2) In paragraph 1—

(a) in sub-paragraph (1)(d), omit “or ordinarily resident”, and

(b) in sub-paragraph (4)(a), omit “or ordinarily resident”.

(3) 10In paragraph 3(3)(b), omit “or ordinarily resident”.

(4) In paragraph 19(1), in the definition of “non-resident”, for “neither resident
nor ordinarily resident” substitute “not resident”.

(5) The amendments made by this paragraph apply in cases where the accrual
time is on or after 6 April 2013 (even if the qualifying investment was made
15before that date).

111 In Schedule 7C (reliefs for transfers to approved share plans), in paragraph
8, for paragraph (a) substitute—

(a) the claimant would be chargeable to capital gains tax
under section 2(1) (persons and gains chargeable to capital
20gains tax) in respect of the gain, or.

Commencement

112 (1) The amendments made by this Part of this Schedule have effect in relation
to a person’s liability to capital gains tax for the tax year 2013-14 or any
subsequent tax year.

(2) 25Sub-paragraph (1) is without prejudice to any provision in this Part of this
Schedule about the application of a particular amendment.

Part 4 Other amendments

FA 1916

113 30In FA 1916, omit section 63 (exemption from taxation of municipal securities
issued in America).

F(No.2)A 1931

114 (1) In section 22 of F(No.2)A 1931 (provisions in cases where Treasury has
power to borrow money), in subsection (1)(a) and (b), omit “ordinarily”.

(2) 35Nothing in sub-paragraph (1) limits the power conferred by section 60(1) of
FA 1940.

(3) Subject to sub-paragraph (5), the amendment made by sub-paragraph (1)
does not affect a pre-commencement security (nor the availability of the
relevant exemption).

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(4) Sub-paragraph (5) applies to a person who becomes the beneficial owner of
a pre-commencement security (or an interest in such a security) on or after 6
April 2013.

(5) If obtaining the relevant exemption is conditional on being not ordinarily
5resident in the United Kingdom, any enactment conferring the exemption is
to have effect (in relation to a person to whom this sub-paragraph applies)
as if obtaining the exemption were conditional instead on being not resident
in the United Kingdom.

(6) In this paragraph—

  • 10“pre-commencement security” means a FOTRA security (as defined in
    section 713 of ITTOIA 2005) issued before the day on which this Act
    is passed;

  • “the relevant exemption”, in relation to a pre-commencement security,
    means the exemption for which provision is made in the exemption
    15condition (as defined in that section).

TMA 1970

115 TMA 1970 is amended as follows.

116 (1) In section 98 (special returns etc), in subsection (4E)(d), omit “ordinarily”.

(2) The amendment made by this paragraph takes effect on the coming into
20force of regulations made under section 17(3) of F(No.2)A 2005 (authorised
investment funds) by virtue of the amendment made by paragraph 136.

117 In Schedule 1A (claims etc not included in returns), in paragraph 2(6), omit
“or not ordinarily resident”.

IHTA 1984

118 (1) 25Section 157 of IHTA 1984 (non-residents’ bank accounts) is amended as
follows.

(2) For subsection (2) substitute—

(2) This section applies to a person who is not domiciled and not
resident in the United Kingdom immediately before his death.

(3) 30In subsection (3), for “, resident or ordinarily resident” substitute “or
resident”.

(4) In subsection (4)—

(a) in paragraph (a), omit “or ordinarily resident”, and

(b) in paragraph (b), omit “or ordinarily resident” and “and ordinarily
35resident”.

(5) The amendments made by this paragraph do not apply if the person dies
before 6 April 2013.

FA 2004

119 Part 4 of FA 2004 (pension schemes etc) is amended as follows.

120 40In section 185G (disposal by person holding directly), in subsection (3)(a),
omit “, ordinarily resident”.

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121 In section 205 (short service refund lump sum charge), in subsection (3), omit
“, ordinarily resident”.

122 In section 205A (serious ill-health lump sum charge), in subsection (3), omit
“, ordinarily resident”.

123 5In section 206 (special lump sum death benefits charge), in subsection (3),
omit “, ordinarily resident”.

124 In section 207 (authorised surplus payments charge), in subsection (3), omit
“, ordinarily resident”.

125 In section 208 (unauthorised payments charge), in subsection (4), omit “,
10ordinarily resident”.

126 In section 209 (unauthorised payments surcharge), in subsection (5), omit “,
ordinarily resident”.

127 In section 217 (persons liable to lifetime allowance charge), in subsection (5),
omit “, ordinarily resident”.

128 15In section 237A (liability of individual to annual allowance charge), in
subsection (2), omit “, ordinarily resident”.

129 In section 237B (liability of scheme administrator), in subsection (8), omit “,
ordinarily resident”.

130 In section 239 (scheme sanction charge), in subsection (4), omit “, ordinarily
20resident”.

131 In section 242 (de-registration charge), in subsection (3), omit “, ordinarily
resident”.

132 The amendments of Part 4 of FA 2004 made by this Part of this Schedule
have effect in relation to the tax year 2013-14 and any subsequent tax year.

25FA 2005

133 (1) In section 30 of FA 2005 (qualifying trust gains: special capital gains tax
treatment), in subsection (1), for paragraph (c) substitute—

(c) the trustees are resident in the United Kingdom during any
part of the tax year, and.

(2) 30The amendment made by this paragraph has effect in relation to the tax year
2013-14 and any subsequent tax year.

F(No.2)A 2005

134 F(No.2)A 2005 is amended as follows.

135 (1) In section 7 (charge to income tax on lump sum), in subsection (3), omit “,
35ordinarily resident”.

(2) The amendment made by this paragraph has effect in relation to the tax year
2013-14 and any subsequent tax year.

136 In section 18 (section 17(3): specific powers), in subsection (1)(f) and (g), omit
“ordinarily”.

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CTA 2009

137 CTA 2009 is amended as follows.

138 (1) In section 900 (which relates to roll-over relief for disposals of pre-FA 2002
assets), in subsection (2), omit “or ordinarily UK resident”.

(2) 5The amendment made by this paragraph applies in relation to gains
accruing or treated as accruing on or after 6 April 2013.

139 (1) In section 936 (meaning of “UK estate” and “foreign estate”), in subsection
(3), omit “or not ordinarily UK resident”.

(2) The amendment made by this paragraph applies if the tax year in question
10begins on or after 6 April 2013.

140 (1) In section 947 (aggregate income of the estate), in subsection (2)(b)(i), omit
“who was ordinarily UK resident”.

(2) The amendment made by this paragraph applies if the tax year in question
begins on or after 6 April 2013.

141 (1) 15In section 1009 (conditions relating to employee’s income tax position), in
subsection (5)(a), omit “and ordinarily UK resident”.

(2) The amendment made by this paragraph applies in relation to shares
acquired on or after 6 April 2013.

142 (1) In section 1017 (condition relating to employee’s income tax position), in
20subsection (4)(a), omit “and ordinarily UK resident”.

(2) The amendment made by this paragraph applies in relation to options
obtained on or after 6 April 2013.

143 (1) In section 1025 (additional relief available if shares acquired are restricted
shares), in subsection (5)(a), omit “and ordinarily UK resident”.

(2) 25The amendment made by this paragraph applies in relation to restricted
shares acquired on or after 6 April 2013.

144 (1) In section 1032 (meaning of “chargeable event”), in subsection (5)(a), omit
“and ordinarily UK resident”.

(2) The amendment made by this paragraph applies in relation to convertible
30shares acquired on or after 6 April 2013.

CTA 2010

145 (1) Section 1034 of CTA 2010 (purchase by unquoted trading company of own
shares: requirements as to residence) is amended as follows.

(2) In subsections (1) and (2), omit “and ordinarily resident”.

(3) 35In subsection (3), omit “and ordinary residence” in both places.

(4) Omit subsection (4).

(5) The amendments made by this paragraph do not apply in relation to a
purchase by an unquoted trading company of its own shares if the purchase
takes place before 6 April 2013.

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TIOPA 2010

146 In section 363A of TIOPA 2010 (residence of offshore funds which are
undertakings for collective investment in transferable securities), in
subsection (3), for “neither resident nor ordinarily resident” substitute “not
5resident”.

Constitutional Reform and Governance Act 2010

147 (1) In section 41 of the Constitutional Reform and Governance Act 2010 (tax
status of MPs and members of the House of Lords), in subsection (2), omit “,
ordinarily resident”.

(2) 10The amendment made by this paragraph has effect for the purposes of a
member’s liability to income tax or capital gains tax for the tax year 2013-14
or any subsequent tax year.

Section 217

SCHEDULE 45 Controlled foreign companies

15Relevant finance leases etc

1 Part 9A of TIOPA 2010 (controlled foreign companies) is amended as
follows.

2 Chapter 5 (the CFC charge gateway: non-trading finance profits) is amended
as follows.

3 20In section 371ED (arrangements in lieu of dividends) in subsection (1) omit
“(other than a relevant finance lease)”.

4 (1) Section 371EE (leases to UK resident companies etc) is amended as follows.

(2) In subsection (2)(b)(i) for “which is the subject of the lease” substitute “(“the
relevant asset”) which is the subject of the lease or making (directly or
25indirectly) an arrangement which would fall within subsection (3)”.

(3) After subsection (2) insert—

(3) An arrangement would fall within this subsection if—

(a) the arrangement would meet one or both of the following
requirements—

(i) 30it would not be a relevant finance lease;

(ii) it would not involve the CFC, and

(b) under the arrangement the other company would (directly or
indirectly) purchase rights to use the relevant asset.

5 Chapter 22 (supplementary provision) is amended as follows.

6 35In section 371VA (definitions) for the definition of “relevant finance lease”
substitute—

  • “relevant finance lease” is to be read in accordance with section
    371VIA,.

7 (1) Section 371VG (finance profits) is amended as follows.

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(2) In subsection (1) for paragraph (b) substitute—

(b) which are included in the CFC’s assumed total profits for the
accounting period in question and which—

(i) arise from a relevant finance lease, but

(ii) 5are not trading profits.

(3) In subsection (4)(b) omit “an arrangement which would be”.

8 (1) Section 371VH (interests in companies) is amended as follows.

(2) In subsection (9) omit the second sentence.

(3) After subsection (10) insert—

(10A) 10For the purposes of subsection (9), if for any relevant period accounts
for a loan creditor are not prepared in accordance with international
accounting standards or UK generally accepted accounting practice,
any question relating to generally accepted accounting practice is to
be determined in relation to the loan creditor for that period by
15reference to generally accepted accounting practice in relation to
accounts prepared in accordance with international accounting
standards.

9 After section 371VI insert—

371VIA Relevant finance leases

(1) 20In this Part “relevant finance lease” means an arrangement falling
within subsection (2) or (3).

(An arrangement which is a loan relationship of any company does
not fall within either of those subsections.)

(An arrangement which is a loan relationship of any company does
25not fall within either of those subsections.)

(2) An arrangement falls within this subsection if—

(a) it provides for an asset to be leased or otherwise made
available by a person (“the lessor”) to another person, and

(b) in accordance with generally accepted accounting practice, it
30falls (or would fall) to be treated in the accounts of the lessor,
or of a person connected with the lessor, as a finance lease or
a loan.

(3) A hire-purchase, conditional sale or other arrangement relating to an
asset falls within this subsection if it does not fall within subsection
35(2) but is of a similar character to an arrangement which would fall
within that subsection.

(4) If for any relevant period accounts for a person are not prepared in
accordance with international accounting standards or UK generally
accepted accounting practice, any question relating to generally
40accepted accounting practice is to be determined for the purposes of
this section in relation to that person for that period by reference to
generally accepted accounting practice in relation to accounts
prepared in accordance with international accounting standards.

(5) In this section “accounts”, in relation to a company, includes
45accounts relating to two or more companies of which that company
is one.

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Limit on double taxation relief in cases involving qualifying loan relationships of CFCs

10 Part 2 of TIOPA 2010 (double taxation relief) is amended as follows.

11 Chapter 2 (double taxation relief by way of credit) is amended as follows.

12 In section 42 (limit on credit against corporation tax) after subsection (4)
5insert—

(5) See also section 49A which contains an additional limit on credit
allowed in certain cases involving CFCs.

13 After section 49 insert—

49A Limit on credit in cases involving qualifying loan relationships of
10CFCs

(1) This section applies if—

(a) a claim is made under Chapter 9 of Part 9A (controlled
foreign companies: exemptions for profits from qualifying
loan relationships) in relation to an accounting period (“the
15relevant period”) of a CFC (“the creditor CFC”),

(b) in the relevant period, the creditor CFC has a qualifying loan
relationship in relation to which another CFC is the ultimate
debtor by virtue of section 371IG(4) or (5), and

(c) a UK resident company (“the relevant UK company”) has
20loan relationship credits which arise in the relevant period
from—

(i) loan B (see section 371IG(3)(b)), or

(ii) loans out of which loan B is wholly or partly funded
(directly or indirectly).

(2) 25So far as any credit allowed under section 18(2) to the relevant UK
company is referable to loan relationship credits falling within
subsection (1)(c) which arise in an accounting period of the relevant
UK company, the credit must not exceed—


R × S

30where—

  • R has the same meaning as in section 42(2), and

  • S is—

    (a)

    the relevant UK company’s share of the relevant
    profit amount (see subsection (4)), or

    (b)

    35if only X% of the total amount of the loan relationship
    credits falling within subsection (1)(c) arises in the
    accounting period, X% of the relevant UK company’s
    share of the relevant profit amount.

(If the amount given by the formula above is nil, no credit is
40allowed.)

(3) The limit on credit contained in subsection (2) is in addition to the
limit given by section 42(2).

(4) Take the following steps to determine the relevant profit amount and
the relevant UK company’s share of that amount.

45Step 1

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Determine the total amount of the loan relationship credits which
arise in the relevant period from loan B to the person who made loan
B.

5Step 2

Deduct from the amount determined at step 1 above the credits from
the creditor CFC’s qualifying loan relationship determined at step 1
in section 371IF for the relevant period.

The result is the relevant profit amount.

10Step 3

On a just and reasonable basis, apportion the relevant profit amount
amongst all the persons falling within subsection (5) (although the
amount apportioned to a person may be nil).

The relevant UK company’s share of the relevant profit amount is the
15amount apportioned to it (and is nil if no amount is apportioned to
it).

(5) The following persons (apart from the creditor CFC) fall within this
subsection—

(a) the person who made loan B, and

(b) 20any person who has made or received a loan out of which
loan B is wholly or partly funded (directly or indirectly).

(6) In this section—

(a) references to loan B do not include any part of loan B—

(i) which loan A (see section 371IG(3)(a)) is not made
25and used to fund, or

(ii) in relation to which the requirement of section
371IG(3)(c) is not met,

(b) “loan relationship credit” means, in relation to a person, a
credit which the person has under Part 5 of CTA 2009 or
30would have were the person a UK resident company within
the charge to corporation tax, and

(c) “loan” has the same meaning as it has in Chapter 9 of Part
9A.

14 (1) In Chapter 3 (miscellaneous provisions), section 112 (deduction from
35income for foreign tax (instead of credit against UK tax)) is amended as
follows.

(2) After subsection (3) insert—

(3A) Subsection (3B) applies if—

(a) the requirements of section 49A(1)(a) to (c) are met,

(b) 40amounts have been paid in respect of non-UK tax on loan
relationship credits falling within section 49A(1)(c) which
arise in an accounting period of the relevant UK company,
and

(c) apart from subsection (3B), Z would exceed
45R × S, where—

  • Z is—

    (i)

    the total amount of any reductions under
    subsection (1) for amounts paid in respect of
    that non-UK tax, less

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    (ii)

    the total amount of any increases under
    subsection (3) for payments made by
    reference to that non-UK tax, and

  • R and S have the same meaning as in section 49A(2).

(3B) 5The total amount of the reductions under subsection (1) is to be
reduced so that Z equals
R × S.

(3) In subsection (6), for “subsection (1)” substitute “this section”.

Miscellaneous

15 10In Part 6 of TIOPA 2010 (tax arbitrage), in section 236 (deduction schemes
involving hybrid entities) for subsection (4) substitute—

(4) Condition B is not met just because the party’s profits or gains are
subject to a charge under the law of a territory outside the United
Kingdom (by whatever name known) which is similar to the CFC
15charge (see Part 9A).

16 Part 9A of TIOPA 2010 (controlled foreign companies) is amended as
follows.

17 In Chapter 3 (the CFC charge gateway: determining which (if any) of
Chapters 4 to 8 applies) in section 371CE (does Chapter 6 apply?) for
20subsections (4) and (5) substitute—

(4) The CFC is a “group treasury company” in the accounting period if,
assuming the relevant period were the accounting period—

(a) the CFC would be a group treasury company in the relevant
period in accordance with section 316(2) (group treasury
25companies), and

(b) throughout the relevant period, the requirements of section
316(3)(a) and (b) would be met in relation to the CFC as a
group treasury company.

(5) For the purpose of applying section 316 in accordance with
30subsection (4)

(a) section 316(2) applies with the omission of paragraph (d),
and

(b) section 337(1) (definition of “the worldwide group”) applies
with the omission of paragraph (a).

18 35Chapter 9 (exemptions for profits from qualifying loan relationships) is
amended as follows.

19 In section 371IB (loans funded out of qualifying resources) after subsection
(9) insert—

(9A) Subsection (9) does not apply if the debt incurred by the member of
40the CFC group as mentioned in subsection (8) represents the
principal on a loan made to the member to which subsection (9B) or
(9D) applies.

(9B) This subsection applies to a loan if the member repays it within 48
hours of the loan being made.

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(9C) But subsection (9B) does not apply to a loan if the repayment of the
loan within the 48 hours occurs under, or is connected (directly or
indirectly) with, an arrangement the main purpose, or one of the
main purposes, of which is to ensure that subsection (9) does not
5apply because of—

(a) the loan, or

(b) any other debt which a member of the CFC group incurs (or
is expected to incur) in the United Kingdom.

(9D) This subsection applies to a loan if—

(a) 10there is an issue of shares which meets the requirements of
subsection (7)(c)(i) to (iii),

(b) the loan was made before the issue of shares but with the
expectation that it would be repaid by the member out of
funds deriving (directly or indirectly) from the issue of
15shares,

(c) the loan is repaid by the member out of such funds within the
period of 6 months beginning with the day on which the loan
was made, and

(d) the loan—

(i) 20was made by a person who was not a member of the
CFC group, and

(ii) was not made (wholly or partly nor directly or
indirectly) out of funds or other assets provided by a
member of the CFC group.

20 (1) 25Section 371IE (matched interest) is amended as follows.

(2) In subsection (1)(d)(ii) after “include” insert “some or all of”.

(3) After subsection (7) insert—

(7A) In subsection (6) the reference to the leftover profits is to those profits
so far as they would be included in the relevant finance profits (see
30section 314A(1)(d)).

Commencement and transitional provision

21 The amendments made by this Schedule are treated as having come into
force on 1 January 2013.

22 (1) Section 371CE of TIOPA 2010 (as amended by paragraph 17 above) applies
35for accounting periods of CFCs beginning before 20 March 2013 with the
modifications set out in this paragraph.

Accounting periods ending before 20 March 2013

(2) For accounting periods ending before 20 March 2013, subsection (4) applies
as if paragraph (b) were omitted.

40Accounting periods ending on or after 20 March 2013

(3) The following sub-paragraphs apply for accounting periods ending on or
after 20 March 2013.