Finance Bill

House of Commons

Session 2013 - 14
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Finance Bill

Finance Bill
Schedule 43 — Statutory residence test
Part 4 — Anti-avoidance
560

(b)
the individual’s liability to income tax for a tax year is limited
under section 811,
(c)
that tax year (“the non-resident year”) falls within the
temporary period of non-residence, and
(d)
the individual’s income for that tax year includes relevant
5
investment income.
(2)
The total income (see Step 1 of the calculation in section 23) on which
the individual is charged to income tax for the year of return is to be
increased by an amount equal to the amount of that relevant
investment income.
10
(3)
But the notional UK tax on that relevant investment income is to be
allowed as a credit against the individual’s liability to income tax for
the year of return under Step 6 of the calculation in section 23.
(4)
Income is “relevant investment income” if—
(a)
it is chargeable under Chapter 3 or 5 of Part 4 of ITTOIA 2005
15
(dividends etc from UK resident companies and stock
dividends from UK resident companies),
(b)
the distributing company is a close company, and
(c)
the income arises or is treated as arising to the individual
because the individual was at a relevant time—
20
(i)
a material participator in that company, or
(ii)
an associate of a material participator in the company.
(5)
But income within subsection (4) in the form of a cash or stock
dividend is not “relevant investment income” to the extent that the
dividend is paid, or the share capital is issued, in respect of post-
25
departure trade profits.
(6)
“Post-departure trade profits” are—
(a)
trade profits of the distributing company arising in an
accounting period that begins after the start of the temporary
period of non-residence, and
30
(b)
so much of any trade profits of the distributing company
arising in an accounting period that straddles the start of that
temporary period as is attributable (on a just and reasonable
basis) to a time after the start of that temporary period.
(7)
The “notional UK tax” on relevant investment income is—
35
(a)
the total of any sums in respect of that income that were
included within amount A in determining the limit under
section 811, less
(b)
any credit for foreign tax paid in respect of that income that
was allowed under Chapter 2 of Part 2 of TIOPA 2010 against
40
the individual’s liability to income tax for the non-resident
year.
(8)
The following matters are to be determined on a just and reasonable
basis—
(a)
the extent to which a dividend is paid, or share capital is
45
issued, in respect of post-departure trade profits, and
(b)
the extent to which a sum included within amount A is a sum
in respect of relevant investment income.

Finance Bill
Schedule 43 — Statutory residence test
Part 4 — Anti-avoidance
561

(9)
Nothing in any double taxation arrangements is to be read as
preventing the individual from being chargeable to income tax by
virtue of this section (or as preventing a charge to that tax from
arising as a result).
(10)
Part 4 of Schedule 43 to FA 2013 (statutory residence test: anti-
5
avoidance) explains—
(a)
when an individual is to be regarded as “temporarily non-
resident”, and
(b)
what “the temporary period of non-residence”, “the year of
departure” and “the period of return” mean.
10
(11)
In this section—
“associate” and “participator” have the same meanings as in
Part 10 of CTA 2010 (see sections 448 and 454);
“the distributing company” means the UK resident company
mentioned in section 383(1) or, as the case may be, 410(1) of
15
ITTOIA 2005;
“material participator” means a participator who has a material
interest in the company, as defined in section 457 of CTA
2010;
“relevant time” means—
20
(a)
any time in the year of departure or, if the year of
departure is a split year as respects the individual, the
UK part of that year, or
(b)
any time in one or more of the 3 tax years preceding
that year;
25
“trade profits of the distributing company” means the profits of
any trade carried on by the distributing company, as
calculated in accordance with Part 3 of CTA 2009 (trading
income);
“year of return” means the tax year consisting of or including
30
the period of return.”
New special rule: chargeable event gains
139
Chapter 9 of Part 4 of ITTOIA 2005 (gains from contracts for life insurance
etc) is amended as follows.
140
After section 465A insert—
35
“465B
Temporary non-residents
(1)
This section applies if an individual is temporarily non-resident.
(2)
The individual is liable for tax under this Chapter for the year of
return in respect of any gain that meets the conditions in subsection
(3).
40
(3)
The conditions are—
(a)
the gain arose in the temporary period of non-residence,
(b)
it arose from a policy issued in respect of an insurance made,
or from a contract made, before the start of that period,
(c)
the chargeable event giving rise to it was neither a death nor
45
a chargeable event treated as occurring under section 525(2),

Finance Bill
Schedule 43 — Statutory residence test
Part 4 — Anti-avoidance
562

(d)
no-one is liable under section 466 or 467 in respect of the gain,
(e)
no-one is liable by virtue of section 468 for either the year of
return or an earlier tax year as a result of the gain, and
(f)
the individual would have been liable under section 465 in
respect of the gain, applying the assumptions in subsection
5
(4).
(4)
The assumptions are—
(a)
the individual was UK resident for the tax year in which the
gain arose, and
(b)
that tax year was not a split year as respects the individual.
10
(5)
If the individual is liable by virtue of subsection (2) in respect of a
gain—
(a)
the amount of the gain in respect of which he or she is liable
is the amount on which tax would have been charged under
this Chapter applying the assumptions in subsection (4), but
15
(b)
in determining that amount, section 528 must be applied
ignoring those assumptions.
(6)
That amount is treated as income of the individual for the year of
return.
(7)
If the gain arises from a policy or contract treated under section 473A
20
as a single policy or contract, the date, for the purposes of subsection
(3)(b), on which the insurance or contract is made is the date on
which the first insurance is made in respect of which the connected
policies were issued or, as the case may be, the date on which the first
of the connected contracts is made.
25
(8)
This section does not apply to a gain if—
(a)
in relation to the policy or contract from which the gain
arises, a terminal event occurs in the temporary period of
non-residence or in the period of return,
(b)
the chargeable event giving rise to the gain occurred before
30
that terminal event,
(c)
the chargeable event giving rise to the gain is one that is
treated as occurring under section 509(1) as a result of the
application of section 498(1)(a),
(d)
section 498(1)(a) applies other than by virtue of section 500,
35
and
(e)
a person (whether or not the individual) is liable for tax under
this Chapter (including by virtue of this section) in respect of
any gain resulting from the terminal event.
(9)
Nothing in any double taxation relief arrangements is to be read as
40
preventing the individual from being liable for tax under this
Chapter in respect of any gain in respect of which the individual is
liable for tax by virtue of subsection (2) (or as preventing a charge to
tax on that gain from arising under this Chapter).
(10)
Part 4 of Schedule 43 to FA 2013 (statutory residence test: anti-
45
avoidance) explains—
(a)
when an individual is to be regarded as “temporarily non-
resident”, and

Finance Bill
Schedule 43 — Statutory residence test
Part 5 — Miscellaneous
563

(b)
what “the temporary period of non-residence” and “the
period of return” mean.
(11)
In this section—
“terminal event” means an event mentioned in section 499(3);
“year of return” means the tax year that consists of or includes the
5
period of return.”
141
In section 468 (non-UK resident trustees and foreign institutions), after
subsection (6) insert—
“(7)
This section does not apply if someone is liable under section 465B in
respect of the gain.”
10
142
In section 514 (chargeable events where transaction-related calculations
show gains), after subsection (4) insert—
“(4A)
Subsection (3)(b) includes a case where a person would be liable to
tax on the gain under section 465B for the tax year in which the
transaction occurs (because the transaction occurs in the year of
15
return, as defined in that section).”
143
In section 541 (calculation of deficiencies), in subsection (4)(b), after “that
section” insert “or formed part of the total income of that individual by
virtue of section 465B for the tax year mentioned in section 539(1)”.
144
In section 552 of ICTA (information: duties of insurers), in subsection (13),
20
for “section 541A” substitute “section 465B or 541A”.
Part 5
Miscellaneous
Interpretation
145
In this Schedule—
25
“corporation tax” includes any amount assessable or chargeable as if it
were corporation tax;
“country” includes a state or territory;
“cross-border trip” is defined in paragraph 30;
“double taxation arrangements” means arrangements that have effect
30
under section 2(1) of TIOPA 2010;
“employment”—
(a)
has the meaning given in section 4 of ITEPA 2003, and
(b)
includes an office within the meaning of section 5(3) of that
Act;
35
“enactment” means an enactment whenever passed (including this Act)
and includes—
(a)
an Act of the Scottish Parliament,
(b)
a Measure or Act of the National Assembly for Wales,
(c)
any Northern Ireland legislation as defined by section 24(5)
40
of the Interpretation Act 1978, and
(d)
any Orders in Council, orders, rules, regulations, schemes
warrants, byelaws and other instruments made under an

Finance Bill
Schedule 43 — Statutory residence test
Part 5 — Miscellaneous
564

enactment (including anything mentioned in paragraphs (a)
to (c) of this definition);
“home” is to be construed in accordance with paragraph 25;
“individual” means an individual acting in any capacity (including as
trustee or personal representative);
5
“overseas” means anywhere outside the UK;
“parenting leave” means maternity leave, paternity leave, adoption
leave or parental leave (whether statutory or otherwise);
“relevant job on board a vehicle, aircraft or ship” is defined in
paragraph 30;
10
“ship” includes any kind of vessel (including a hovercraft);
“significant break from overseas work” is defined in paragraph 29;
“significant break from UK work” is defined in paragraph 29;
“split year”, as respects an individual, means a tax year that is, as
respects that individual, a split year within the meaning of Part 3 of
15
this Schedule;
“trade” also includes—
(a)
a profession or vocation,
(b)
anything that is treated as a trade for income tax purposes,
and
20
(c)
the commercial occupation of woodlands (within the
meaning of section 11(2) of ITTOIA 2005);
“work” is defined in paragraph 26;
“UK” means the United Kingdom, including the territorial sea of the
United Kingdom;
25
“UK tie” is defined in paragraph 31;
“whole month” means the whole of January, the whole of February and
so on, except that the period from the start of a tax year to the end of
April is to count as a whole month.
146
In relation to an individual who carries on a trade—
30
(a)
a reference in this Schedule to annual leave or parenting leave is to
reasonable amounts of time off from work for the same purposes as
the purposes for which annual leave or parenting leave is taken, and
(b)
what are “reasonable amounts” is to be assessed having regard to the
annual leave or parenting leave to which an employee might
35
reasonably expect to be entitled if doing similar work.
147
A reference in this Schedule to a number of days being less than a specified
number includes a case where the number of days is zero.
Consequential amendments
148   (1)
TCGA 1992 is amended as follows.
40
      (2)
Omit section 9.
      (3)
In section 288 (interpretation)—
(a)
in subsection (1), insert the following definition at the appropriate
place—
““resident” means resident in accordance with the
45
statutory residence test in Part 1 of Schedule 43 to the
Finance Act 2013;”, and

Finance Bill
Schedule 43 — Statutory residence test
Part 5 — Miscellaneous
565

(b)
in the Table in subsection (8), omit the entry for the expressions
“resident” and “ordinarily resident”.
149
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”.
150
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”.
151   (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).
152   (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 Bill
Schedule 43 — Statutory residence test
Part 5 — Miscellaneous
566

      (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
153   (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
154   (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, 2015-16, 2016-17 or 2017-18, 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,
45