Finance (No. 2) Bill (HC Bill 190)

Finance (No. 2) BillPage 570

(c) any company which is a 51% subsidiary of, controlled by or
connected or associated with, any person within paragraph
(a) or (b).

(b)(b)a person who, or two or more persons who together, at any
5time before the time the payment is made—

(i) employed all or a majority of the employees of SC, or

(ii) employed all or a majority of the employees of SC and
other companies which are members of the same
group as SC at the time the payment is made (taken
10together), and

Finance (No. 2) BillPage 571

(c) any company which is a 51% subsidiary of, controlled by or
connected or associated with, any person within paragraph
(a) or (b).

(5) For the purposes of subsection (4)—

(a) 5a partnership is to be treated as a single person, and

(b) where a partner (alone or together with others) has control of
a company, the partnership is to be treated as having (in the
same way) control of that company.

(6) The following provisions apply for the purposes of this section—

(a) 10section 449 of CTA 2010 (“associated company”);

(b) section 995 of ITA 2007 (meaning of “control”);

(c) section 286 of TCGA 1992 (connected persons:
interpretation).

312H Excluded payments

(1) 15For the purposes of section 312B, a payment is “excluded” if the
employee is a party to arrangements (whether made before or after
the beginning of the employee’s employment) under which—

(a) the employee gives up the right to receive an amount of
general earnings or specific employment income in return for
20the provision of the payment, or

(b) the employee and employer agree that the employee is to
receive the payment rather than receive some other
description of employment income.

(2) In this section references to an employee include a former employee.

312I 25Interpretation of Chapter 10A

(1) In this Chapter—

  • “company” has the meaning given by section 170(9) of TCGA
    1992;

  • “trade” means any trade which is conducted on a commercial
    30basis and with a view to the realisation of profits.

(2) In this Chapter—

(a) references to a group, to membership of a group, to the
principal company of a group or to being members of the
same group, are to be construed in accordance with section
35170 of TCGA 1992, and

(b) references to a group are to be construed with any necessary
modifications where applied to a company incorporated
under the law of a country or territory outside the United
Kingdom.

(3) 40For the purposes of this Chapter, a payment is treated as made when
it would be treated as received for the purposes of Chapter 4 of Part
2 if it were not a qualifying bonus payment (see section 18).

(4) In this Chapter references to a payment to an employee or former
employee include a payment to the personal representatives of an
45employee or former employee who has died if the payment is made
within the period of 12 months beginning with the date of death.

Finance (No. 2) BillPage 572

5 In section 717 (orders and regulations made by Treasury etc), in subsection
(4) (instruments not subject to negative resolution procedure), after “to
which” insert “section 312A(10) (reduction of tax-exempt amount in respect
of certain bonus payments) or”.

6 5In Part 2 of Schedule 1 (index of defined expressions), at the appropriate
places insert—

company (in
Chapter 10A
of Part 4)
10section 312I”;
“trade (in
Chapter 10A
of Part 4)
section 312I.

7 15The amendment made by paragraph 4 has effect in relation to payments
received on or after 1 October 2014.

Part 3 Inheritance tax relief

8 IHTA 1984 is amended as follows.

9 (1) 20After section 13 insert—

13A Dispositions by close companies to employee-ownership trusts

(1) A disposition of property made to trustees by a close company (“C”)
whereby the property is to be held on trusts of the description
specified in section 86(1) is not a transfer of value if—

(a) 25C meets the trading requirement,

(b) the trusts are of a settlement which meets the all-employee
benefit requirement, and

(c) the settlement does not meet the controlling interest
requirement immediately before the beginning of the tax year
30in which the disposition of property occurs but does meet it
at the end of that year.

(2) Sections 236I, 236J, 236K, 236M and 236R (but not 236L) of the 1992
Act apply to determine whether—

(a) C meets the trading requirement;

(b) 35the settlement meets the all-employee benefit requirement;

(c) the settlement meets the controlling interest requirement;

with references in those sections to “C” being read accordingly.

(3) In this section—

  • “close company” has the same meaning as in Part 4 of this Act;

  • 40“tax year” means a year beginning on 6 April and ending on the
    following 5 April.

(2) The amendment made by this paragraph has effect in relation to dispositions
of property made on or after 6 April 2014.

Finance (No. 2) BillPage 573

10 (1) After section 28 insert—

28A Employee-ownership trusts

(1) A transfer of value made by an individual who is beneficially
entitled to shares in a company (“C”) is an exempt transfer to the
5extent that the value transferred is attributable to shares in or
securities of C which become comprised in a settlement if—

(a) C meets the trading requirement,

(b) the settlement meets the all-employee benefit requirement,
and

(c) 10the settlement does not meet the controlling interest
requirement immediately before the beginning of the tax year
in which the transfer of value is made but does meet it at the
end of that year.

(2) Sections 236I, 236J, 236K, 236M and 236R (but not 236L) of the 1992
15Act apply to determine whether—

(a) C meets the trading requirement;

(b) the settlement meets the all-employee benefit requirement;

(c) the settlement meets the controlling interest requirement;

with references in those sections to “C” being read accordingly.

(3) 20In this section “tax year” means a year beginning on 6 April and
ending on the following 5 April.

(2) The amendment made by this paragraph has effect in relation to transfers of
value made on or after 6 April 2014.

11 (1) In section 29A (abatement of exemption where claim settled out of
25beneficiary’s own resources), in subsection (6)—

(a) for “to 28” substitute “to 28A”, and

(b) for “or 28” substitute “, 28 or 28A”.

(2) The amendment made by this paragraph has effect in relation to transfers of
value made on or after 6 April 2014.

12 (1) 30Section 72 (property leaving employee trusts and newspaper trusts) is
amended as follows.

(2) In subsection (2), after “Subject to subsections” insert “(3A),”.

(3) After subsection (3) insert—

(3A) Where settled property ceases to be property to which this section
35applies because paragraph (d) of section 86(3) no longer applies, tax
is not chargeable under this section by virtue of subsection (2)(a) if
the only reason that paragraph no longer applies is that one or both
of the trading requirement and the controlling interest requirement
mentioned in that paragraph are no longer met with respect to the
40company so mentioned.

(4) The amendments made by this paragraph are treated as having come into
force on 6 April 2014.

Finance (No. 2) BillPage 574

13 (1) After section 75 insert—

75A Property becoming subject to employee-ownership trust

(1) Tax is not charged under section 65 in respect of shares in or
securities of a company (“C”) which cease to be relevant property on
5becoming held on trusts of the description specified in section 86(1)
if the conditions in subsection (2) are satisfied.

(2) The conditions referred to in subsection (1) are—

(a) that C meets the trading requirement,

(b) that the trusts are of a settlement which meets the all-
10employee benefit requirement, and

(c) that the settlement does not meet the controlling interest
requirement immediately before the beginning of the tax year
in which the shares or securities cease to be relevant property
but does meet it at the end of that year.

(3) 15Sections 236I, 236J, 236K, 236M and 236R (but not 236L) of the 1992
Act apply to determine whether—

(a) C meets the trading requirement;

(b) the settlement meets the all-employee benefit requirement;

(c) the settlement meets the controlling interest requirement;

20with references in those sections to “C” being read accordingly.

(4) In this section “tax year” means a year beginning on 6 April and
ending on the following 5 April.

(2) The amendment made by this paragraph is treated as having come into force
on 6 April 2014.

14 (1) 25Section 86 (trusts for benefit of employees) is amended as follows.

(2) In subsection (3), after paragraph (c) insert “, or

(d) the settled property consists of or includes ordinary share
capital of a company which meets the trading requirement
and the trusts on which the settled property is held are those
30of a settlement which—

(i) meets the controlling interest requirement with
respect to the company, and

(ii) meets the all-employee benefit requirement with
respect to the company.

(3) 35After that subsection insert—

(3A) For the purpose of determining whether subsection (3)(d) is satisfied
in relation to settled property which consists of or includes ordinary
share capital of a company—

(a) section 236I of the 1992 Act applies to determine whether the
40company meets the trading requirement (with references to
“C” being read as references to that company),

(b) sections 236J, 236K, 236M and 236R (but not 236L) of the 1992
Act apply to determine whether the settlement meets the all-
employee benefit requirement and the controlling interest
45requirement (with references in those sections to “C” being
read as references to that company), and

Finance (No. 2) BillPage 575

(c) “ordinary share capital” has the meaning given by section
1119 of the Corporation Tax Act 2010.

(4) The amendments made by this paragraph are treated as having come into
force on 6 April 2014.

15 (1) 5In section 144 (distribution etc from property settled by will), in subsection
(1)(b), after “section 75” insert “, 75A”.

(2) The amendment made by this section is treated as having come into force on
6 April 2014.

Part 4 10Miscellaneous amendments

Finance Act 1986

16 (1) In section 102 of FA 1986 (gifts with reservation), in subsection (5) omit the
“and” after paragraph (h) and after paragraph (i) insert “; and

(j) section 28A (employee-ownership trusts).

(2) 15The amendment made by this paragraph has effect in relation to disposals
made on or after 6 April 2014.

Taxation of Chargeable Gains Act 1992

17 (1) In section 104 of TCGA 1992 (share pooling: general interpretative
provisions), after subsection (4) insert—

(4A) 20For the purposes of this Chapter, securities of a company which are
held by the trustees of a settlement, having been last acquired or
deemed to be acquired by them in circumstances where section 236H
or 236P applied, shall (notwithstanding that they would otherwise
fall to be treated as of the same class) be treated as of a different class
25from any other securities of the company acquired by those trustees.

(2) The amendment made by this paragraph has effect in relation to any
disposal on or after 6 April 2014 of any securities (whenever acquired).

Income Tax (Earnings and Pensions) Act 2003

18 (1) Paragraph 27 of Schedule 2 to ITEPA 2003 (share incentive plans:
30requirement as to listing etc) is amended as follows.

(2) In sub-paragraph (1), omit the “or” at the end of paragraph (b) and after that
paragraph insert—

(ba) shares in a company which is subject to an employee-
ownership trust, or.

(3) 35After sub-paragraph (2) insert—

(3) But a company is not a close company for the purposes of sub-
paragraph (2) if it is subject to an employee-ownership trust.

(4) A company (“C”) is “subject to an employee-ownership trust” if—

(a) C meets the trading requirement set out in section 312D,

(b) 40C meets the indirect employee-ownership requirement,

Finance (No. 2) BillPage 576

(c) neither C, nor any other company which is a member of the
same group of companies as C, is a service company, and

(d) C is not under the control of another company (ignoring
for this purpose another company acting in its capacity as
5the trustee of the settlement by virtue of which C meets the
indirect employee-ownership requirement).

(5) Section 312E (the indirect employee-ownership requirement)
applies for the purposes of sub-paragraph (4), subject to the
following modifications—

(a) 10subsection (3) of that section has effect as if—

(i) the words “during the qualifying period” were
omitted, and

(ii) in paragraph (a) for “10 December 2013” there were
substituted “1 October 2014”, and

(b) 15subsection (4) has effect as if for paragraph (b) there were
substituted—

(b) section 236L of that Act applies as if the reference in
subsection (1)(c) of that section to the period of 12
months ending with the date of the disposal
20mentioned in section 236H(1) were a reference to any
time on or after 1 October 2014.

(6) Section 312G (meaning of “service company”) applies for the
purposes of sub-paragraph (4)(c), subject to the following
modifications—

(a) 25in subsection (3)(b), the reference to the company which
makes the payment is to be read as a reference to C,

(b) in subsection (4)(a), the reference to the time the payment
is made is to be read as a reference to any time, and

(c) in subsection (4)(b), the reference to any time before the
30time the payment is made is to be read as a reference to any
time.

(4) The amendments made by this paragraph come into force on 1 October 2014.

19 (1) Paragraph 19 of Schedule 3 to ITEPA 2003 (SAYE option schemes:
requirements as to listing) is amended as follows.

(2) 35In sub-paragraph (1), omit the “or” at the end of paragraph (b) and after that
paragraph insert—

(ba) shares in a company which is subject to an employee-
ownership trust (within the meaning of paragraph 27(4) to
(6) of Schedule 2), or.

(3) 40After sub-paragraph (2) insert—

(3) But a company is not a close company for the purposes of sub-
paragraph (2) if it is subject to an employee-ownership trust
(within the meaning of paragraph 27(4) to (6) of Schedule 2).

(4) The amendments made by this paragraph come into force on 1 October 2014.

20 (1) 45In paragraph 17 of Schedule 4 to ITEPA 2003 (CSOP schemes: requirements
as to eligible shares), in sub-paragraph (1), omit the “or” after paragraph (a)

Finance (No. 2) BillPage 577

and after paragraph (b) insert “, or

(ba) shares in a company which is subject to an employee-
ownership trust (within the meaning of paragraph 27(4) to
(6) of Schedule 2).

(2) The amendment made by this paragraph come into force on 1 October 2014.

21 (1) 5In paragraph 9 of Schedule 5 to ITEPA 2003 (enterprise management
incentives: the independence requirement), after sub-paragraph (4) insert—

(5) But the independence requirement is treated as met if the
company is subject to an employee-ownership trust (within the
meaning of paragraph 27(4) to (6) of Schedule 2).

(2) 10The amendment made by this paragraph comes into force in accordance
with provision contained in an order made by the Treasury.

(3) Section 1014(4) of ITA 2007 (orders etc subject to annulment) does not apply
in relation to an order under sub-paragraph (2).

Corporation Tax Act 2009

22 (1) 15In section 1292 of CTA 2009 (employee benefit contributions: provision of
qualifying benefits), after subsection (6A) insert—

(6B) For those purposes qualifying benefits are also provided, where a
payment of money is made to a person, if and to the extent that the
payment is exempt from income tax by virtue of section 312A of
20ITEPA 2003.

(2) The amendment made by this paragraph has effect in relation to payments
made on or after 1 October 2014.

Section 289

SCHEDULE 34 Scottish basic, higher and additional rates of income tax

25Part 1 Amendments of ITA 2007

1 ITA 2007 is amended as follows.

2 In section 6 (the basic rate, higher rate and additional rate)—

(a) omit subsections (2A) to (2C), and

(b) 30in subsection (3), after “see—” insert—

(za) section 6A (Scottish basic, higher and additional
rates),.

3 After section 6 insert—

6A The Scottish basic, higher and additional rates

(1) 35The Scottish basic rate, the Scottish higher rate and the Scottish
additional rate for a tax year are calculated as follows.

Step 1

Finance (No. 2) BillPage 578

Take the basic rate, higher rate or additional rate.

Step 2

Deduct 10 percentage points.

Step 3

5Add the Scottish rate (if any) set by the Scottish Parliament for that
year.

Add the Scottish rate (if any) set by the Scottish Parliament for that
year.

(2) For provision about the setting of the Scottish rate, see Chapter 2 of
10Part 4A of the Scotland Act 1998.

4 In section 10 (income charged at the basic, higher and additional rates:
individuals)—

(a) omit subsections (3B) and (3C), and

(b) in subsection (4), at the appropriate place, insert—

15section 11A (income charged at the Scottish basic, higher
and additional rates),.

5 After section 11 insert—

11A Income charged at the Scottish basic, higher and additional rates

(1) Income tax is charged at the Scottish basic rate on the income of a
20Scottish taxpayer which—

(a) is non-savings income, and

(b) would otherwise be charged at the basic rate.

(2) Income tax is charged at the Scottish higher rate on the income of a
Scottish taxpayer which—

(a) 25is non-savings income, and

(b) would otherwise be charged at the higher rate.

(3) Income tax is charged at the Scottish additional rate on the income of
a Scottish taxpayer which—

(a) is non-savings income, and

(b) 30would otherwise be charged at the additional rate.

(4) For the purposes of this section, “non-savings income” means
income which is not savings income.

(5) This section is subject to—

  • section 13 (income charged at the dividend ordinary, upper and
    35additional rates: individuals), and

  • any provisions of the Income Tax Acts (apart from section 10)
    which provide for income of an individual to be charged at
    different rates of income tax in some circumstances.

(6) Section 16 has effect for determining the extent to which the non-
40savings income of a Scottish taxpayer would otherwise be charged at
the basic, higher or additional rate.

6 In section 13 (income charged at the dividend ordinary, upper and
additional rates)—

(a) in subsection (1)(b), after “the basic rate,” insert “or the Scottish basic
45rate,”,

(b) in subsection (2)(b), after “the higher rate,” insert “or the Scottish
higher rate,”,

Finance (No. 2) BillPage 579

(c) in subsection (2A)(b), after “the additional rate,” insert “or the
Scottish additional rate,”,

(d) in subsection (3), after “section 10” insert “or 11A”, and

(e) in subsection (4), after “the basic, higher or additional rate” insert “or
5the Scottish basic, higher or additional rate”.

7 In section 16 (savings and dividend income to be treated as highest part of
total income), in subsection (1), for paragraph (za) substitute—

(za) the rate at which income tax would be charged on the non-
savings income of a Scottish taxpayer apart from section
1011A,.

8 In section 809H (charge on nominated income of long-term UK resident), for
subsection (3A) substitute—

(3A) If the individual is a Scottish taxpayer for the relevant tax year, the
individual is to be treated for the purpose of calculating income tax
15charged by virtue of subsection (2) as if the individual were not a
Scottish taxpayer for that year.

9 In section 828B (conditions to be met for exemption where individual
resident but not domiciled in the UK), in subsection (5), after “the basic rate”
insert “, the Scottish basic rate”.

10 20In section 989 (definitions for the purposes of the Income Tax Acts)—

(a) in the definitions of “additional rate”, “basic rate” and “higher rate”,
omit “or (2B)”, and

(b) at the appropriate place, insert—

  • “Scottish additional rate” means the rate of income tax
    25of that name calculated in accordance with section
    6A,”,

  • ““Scottish basic rate” means the rate of income tax of
    that name calculated in accordance with section 6A,”,

  • ““Scottish higher rate” means the rate of income tax of
    30that name calculated in accordance with section 6A,”,

  • ““Scottish taxpayer” has the same meaning as in
    Chapter 2 of Part 4A of the Scotland Act 1998.

11 In Schedule 4 (index of defined expressions), at the appropriate place,
insert—

35Scottish additional rate section 6A (as applied by
section 989)”
“Scottish basic rate section 6A (as applied by
40section 989)”
“Scottish higher rate section 6A (as applied by
section 989)”
“Scottish taxpayer 45section 989

12 The amendments made by this Part have effect in relation to the tax year
appointed by the Treasury under section 25(5) of the Scotland Act 2012 and
subsequent tax years.