Finance Bill (HC Bill 1)

(3) After section 1264 insert—

“1264A Excess profit allocation to non-individual partners etc

(1) Subsection (2) applies in a case in which—

(a) section 850C(4) or 850D(4) of ITTOIA 2005 applies for a
5period of account (“the relevant period of account”), and

(b) the partner who is “B” for the purposes of section 850C or
850D of that Act (as the case may be) is a company.

(2) In applying sections 1262 to 1264 in relation to the company—

(a) for the accounting period of the firm which coincides with
10the relevant period of account, or

(b) if no accounting period of the firm coincides with the relevant
period of account, for accounting periods of the firm in which
the relevant period of account falls,

such adjustments are to be made as are just and reasonable to take
15account of the increase under section 850C(4) of ITTOIA 2005 or A’s
share of the firm’s profit under section 850D(4) of that Act.

(3) Sections 850C(23) and 850E(2) of ITTOIA 2005 apply for corporation
tax purposes as they apply for income tax purposes.”

Commencement

11 (1) 20Subject to sub-paragraph (2), the amendments made by paragraphs 7 and 10
are treated as having come into force on 5 December 2013 and have effect in
accordance with paragraphs 12 and 13.

(2) Section 850C(8)(b), (18)(b) and (19) of ITTOIA 2005 is treated as having come
into force on 6 April 2014.

12 (1) 25Section 850C of ITTOIA 2005 has effect for periods of account beginning on
or after 6 April 2014 (and section 850E of ITTOIA 2005 and section 1264A of
CTA 2009 have effect accordingly).

(2) Sub-paragraphs (3) and (4) apply in relation to a firm where a period of
account (“the straddling period”) begins before 6 April 2014 but ends on or
30after that date.

(3) Assume that the part of the straddling period falling on or after 6 April 2014
is a separate period of account.

(4) If section 850C(4) of ITTOIA 2005 would apply in relation to one or more
partners in the firm for the assumed separate period of account, Part 9 of that
35Act has effect as if that part of the straddling period were a separate period
of account.

13 (1) Section 850D of ITTOIA 2005 has effect for periods of account beginning on
or after 6 April 2014 (and section 850E of ITTOIA 2005 and section 1264A of
CTA 2009 have effect accordingly).

(2) 40Sub-paragraphs (3) and (4) apply in relation to a firm where a period of
account (“the straddling period”) begins before 6 April 2014 but ends on or
after that date.

(3) Assume that the part of the straddling period falling on or after 6 April 2014
is a separate period of account.

(4) If section 850D(4) of ITTOIA 2005 would apply in relation to one or more
individuals for the assumed separate period of account, Part 9 of that Act has
effect as if that part of the straddling period were a separate period of
account.

14 (1) 5The amendments made by paragraphs 8 and 9 have effect in relation to
losses made in the tax year 2014-15 and subsequent tax years.

(2) Sub-paragraphs (3) and (4) apply for the purposes of section 116A or 127C
of ITA 2007 if a loss made by an individual as a partner in a firm arises in a
period of account (“the straddling period”) which begins before 6 April 2014
10but ends on or after that date.

(3) The loss is to be apportioned between the part of the straddling period
falling before 6 April 2014 and the part falling on or after that date—

(a) on a time basis according to the respective lengths of those parts of
the straddling period, or

(b) 15if that method produces a result that is unjust or unreasonable, on a
just and reasonable basis.

(4) Section 116A or 127C of ITA 2007 does not apply in relation to the loss so far
as it is apportioned to the part of the straddling period falling before 6 April
2014.

20Part 3 Alternative investment fund managers: deferred remuneration etc

Main provision

15 At the end of Part 9 of ITTOIA 2005 (partnerships) insert—

“Alternative investment fund managers

863H 25 Election for special provision for alternative investment fund
managers to apply

(1) Section 863I applies in relation to an AIFM trade of an AIFM firm if
the AIFM firm elects for that section to apply.

(2) An election under this section must be made within 6 months after
30the end of the first period of account for which the election is to have
effect.

(3) An “AIFM firm” is a firm—

(a) the regular business of which is managing one or more AIFs,
or

(b) 35which carries out one or more functions of managing one or
more AIFs—

(i) as the delegate of, or

(ii) as the sub-delegate of a delegate of,

a person whose regular business is managing one or more
40AIFs.

(4) An “AIFM trade” is a trade of an AIFM firm which involves the
firm’s activities mentioned in subsection (3)(a) or (b).

(5) Subsection (3)(a) and (b) is to be construed as if it were contained in
regulation 4 of the Alternative Investment Fund Managers
Regulations 2013 (S.I. 2013/1773S.I. 2013/1773).

863I Allocation of profit to the AIFM firm

(1) 5This section applies for a period of account of the AIFM trade if—

(a) the calculation under section 849 in relation to a partner (“P”)
in the AIFM firm produces a profit, and

(b) P’s share of that profit determined under section 850, 850A or
850C would, apart from this section, be a profit consisting
10(wholly or partly) of relevant restricted profit (see
subsections (6) to (9)) chargeable to income tax under
Chapter 2 of Part 2.

(2) P may allocate all or a part of the relevant restricted profit (“the
allocated profit”) to the AIFM firm itself.

(3) 15If P does so—

(a) the allocated profit is to be excluded from P’s share of the
AIFM firm’s profit mentioned in subsection (1)(b),

(b) the AIFM firm is to be treated in accordance with subsection
(4) as if it were itself a person who is a partner in the AIFM
20firm (and for this purpose, in the case of a limited liability
partnership, it is the body corporate which is to be treated as
that person), and

(c) all enactments applying generally to income tax are to apply
accordingly with any necessary modifications (subject to
25subsection (5)).

(4) The AIFM firm is treated on the following basis—

(a) the calculation under section 849 in relation to the AIFM firm
for the period of account produces the profit mentioned in
subsection (1)(a),

(b) 30the AIFM firm’s share of that profit determined under section
850 is the allocated profit (and sections 850A and 850C are to
be ignored),

(c) that share is chargeable to tax under Chapter 2 of Part 2 for
the tax year in which the period of account ends (with the
35person liable for the tax charged being the AIFM firm), and

(d) the tax is charged at the additional rate.

(5) The Commissioners for Her Majesty’s Revenue and Customs may
make regulations modifying any of the following enactments
applying to income tax as they apply by virtue of this section in
40relation to the AIFM firm—

(a) those relating to returns of information and supply of
accounts, statements and reports,

(b) those relating to the assessing, collecting and receiving of
income tax,

(c) 45those conferring or regulating a right of appeal, and

(d) those concerning administration, penalties, interest on
unpaid tax and priority of tax in cases of insolvency under the
law of any part of the United Kingdom.

(6) P’s profit determined under section 850, 850A or 850C is “relevant
restricted profit” so far as it represents variable remuneration
awarded to P—

(a) as deferred remuneration (including deferred remuneration
5which, if it vests in P, will vest in the form of instruments), or

(b) as upfront remuneration which vests in P in the form of
instruments with a retention period of at least 6 months.

(7) In order for any variable remuneration to count for the purposes of
subsection (6) it must be awarded to P in accordance with
10arrangements which are consistent with the AIFMD remuneration
guidelines (see section 863L).

(8) In the case of a firm which is an AIFM firm by virtue of section
863H(3)(b) only, this section applies only in relation to partners who
fall within a category of staff which is classified as identified staff.

(9) 15Terms used in subsections (6) to (8) have the same meaning as in the
AIFMD remuneration guidelines.

863J Vesting of remuneration represented by the allocated profit

(1) Subsection (2) applies if all or a part of the variable remuneration
represented by the allocated profit vests in P at a time when P is
20carrying on the AIFM trade (whether as a partner in the AIFM firm
or otherwise).

(2) The amount given by subsection (5) is treated as a profit of the
relevant tax year (see subsection (7)) made by P in the AIFM trade
chargeable to income tax under Chapter 2 of Part 2.

(3) 25Subsection (4) applies if all or a part of the variable remuneration
represented by the allocated profit vests in P at a time when P is no
longer carrying on the AIFM trade (whether as a partner in the AIFM
firm or otherwise).

(4) If this subsection applies—

(a) 30P is treated as receiving, in the relevant tax year (see
subsection (7)), income of the amount given by subsection (5),

(b) income tax is charged under this subsection on that income,
and

(c) P is the person liable for that tax.

(5) 35The amount to be treated as a profit or as income received by P is—

(a) the amount of the allocated profit, or the part of it
representing the part of the variable remuneration, net of the
income tax for which the AIFM firm is liable by virtue of
section 863I in respect of the allocated profit or the part of it,
40plus

(b) an amount equal to—

(i) so much of the income tax mentioned in paragraph (a)
as is paid by the AIFM firm by the time the vesting
occurs, or

(ii) 45if the vesting occurs in the tax year for which the
allocated profit is chargeable to tax under Chapter 2
of Part 2 by virtue of section 863I, so much of the

income tax mentioned in paragraph (a) as is paid by
the AIFM firm.

(6) Further—

(a) P is treated as paying, when the vesting occurs, an amount of
5income tax equal to the amount given by subsection (5)(b),
and

(b) that amount is accordingly to be taken into account in
determining the income tax payable by, or repayable to, P.

(7) “The relevant tax year” is—

(a) 10if the variable remuneration or the part of it is deferred
remuneration, the tax year in which the vesting occurs, or

(b) if the variable remuneration or the part of it is upfront
remuneration, the tax year for which the allocated profit
would have been chargeable to income tax under Chapter 2
15of Part 2 as mentioned in section 863I(1)(b).

(8) Terms used in this section have the same meaning as in the AIFMD
remuneration guidelines (see section 863L).

(9) Section 850E (payment from B to other persons after application of
section 850C(4) or 850D(4)) is to be ignored for the purposes of this
20section.

863K Vesting statements

(1) This section applies if all or a part of the variable remuneration
represented by the allocated profit vests in P.

(2) If P requests it in writing, the AIFM firm must provide P with a
25statement showing—

(a) the amount of the allocated profit, or the part of it
representing the part of the variable remuneration, gross of
the income tax for which the AIFM firm is liable by virtue of
section 863I in respect of the allocated profit or the part of it,

(b) 30the amount of the income tax for which the AIFM firm is
liable, and

(c) so much of that amount of income tax as is paid by the AIFM
firm by the time the vesting occurs or, if section 863J(5)(b)(ii)
applies, as is paid by the AIFM firm.

(3) 35The duty to comply with a request under this section is enforceable
by P.

(4) In the case of a limited liability partnership, the duty is enforceable
against the body corporate.

863L The AIFMD remuneration guidelines

40In sections 863I to 863K “the AIFMD remuneration guidelines”
means the “Guidelines on Sound Remuneration Policies under the
AIFMD” issued by the European Securities and Markets Authority
on 3 July 2013 (ESMA/2013/232).”

Supplementary provision

16 (1) 45TMA 1970 is amended as follows.

(2) In Part 2 (returns of income and gains) after section 12AD insert—

“12ADA AIFM firms

(1) An officer of Revenue and Customs may by notice require a
partnership which has made an election under section 863H of
5ITTOIA 2005 (whether or not the election has been revoked) to
provide the officer with such information as the officer may
reasonably require for purposes connected with the operation of
sections 863H to 863K of ITTOIA 2005.

(2) The information must be provided within such reasonable time as
10the officer may specify in the notice.”

(3) In column 2 of the Table in section 98 (special returns etc), at the appropriate
place, insert “section 12ADA of this Act”.

17 In Part 3 of TCGA 1992 (which makes special provision about partnerships
etc) after section 59A insert—

“59B 15 Alternative investment fund managers (1)

(1) Subsection (2) applies if—

(a) under section 863I of ITTOIA 2005, a partner (“P”) in a
partnership allocates to the partnership an amount of profit
(“the allocated profit”) representing variable remuneration
20which, if it vests in P, will vest in the form of instruments,

(b) there is a disposal to P of instruments which are partnership
assets of the partnership for the purposes of section 59, and

(c) by virtue of that disposal the variable remuneration vests in
P.

(2) 25Both the persons making the disposal and P are to be treated as if the
instruments were acquired by P from those persons for a
consideration of an amount equal to the allocated profit net of the
income tax for which the partnership is liable by virtue of section
863I of ITTOIA 2005 in respect of the allocated profit.

(3) 30Terms used in this section which are also used in section 863I or 863J
of ITTOIA 2005 have the same meaning as in that section.

59C Alternative investment managers (2)

(1) Subsection (2) applies if—

(a) under section 863I of ITTOIA 2005, a partner (“P”) in a
35partnership allocates to the partnership an amount of profit
(“the allocated profit”) representing variable remuneration
which, if it vests in P, will vest in the form of instruments,

(b) there is a disposal to P of instruments by a company which is
a partner in the partnership,

(c) 40by virtue of that disposal the variable remuneration vests in
P, and

(d) the company would, as a partner in the partnership, have
been charged to tax on the allocated profit but for
adjustments made in the case of the company under section
451264A(2) of CTA 2009 or section 850C(5) of ITTOIA 2005.

(2) Both the company and P are to be treated as if the instruments were
acquired by P from the company for a consideration of an amount
equal to the allocated profit net of the income tax for which the
partnership is liable by virtue of section 863I of ITTOIA 2005 in
5respect of the allocated profit.

(3) Terms used in this section which are also used in section 863I or 863J
of ITTOIA 2005 have the same meaning as in that section.”

18 In Part 4 of FA 2004 (pensions) in section 189 (relevant UK individual) after
subsection (2A) insert—

“(2B) 10The income covered by subsection (2)(b) includes—

(a) an amount treated as a profit under section 863J(2) of ITTOIA
2005, and

(b) income treated as received under section 863J(4) of that Act.”

19 In section 23 of ITA 2007 (calculation of income tax liability) at the end of
15Step 4 insert—

“See also section 863I of ITTOIA 2005 which provides for certain
partnership profits to be charged at the additional rate.”

Power to apply amendments to other types of firms carrying on regulated activities

20 (1) The Commissioners for Her Majesty’s Revenue and Customs may by
20regulations amend any Act—

(a) so as to apply (with or without modifications), in relation to
regulated firms of a specified description, the provision made by the
amendments made by this Part, or

(b) so as to make, in relation to regulated firms of a specified description,
25provision corresponding to the provision made by the amendments
made by this Part.

(2) “Regulated firm” means a firm carrying on a regulated activity within the
meaning of the Financial Services and Markets Act 2000 (see section 22 of
that Act); and “firm” has the same meaning as in ITTOIA 2005 (see section
30847 of that Act) (and includes a limited liability partnership in relation to
which section 863(1) of that Act applies).

(3) Regulations under this paragraph may—

(a) make different provision for different cases or different purposes;

(b) make incidental, consequential, supplementary and transitional
35provision and savings.

Commencement

21 The amendments made by this Part have effect for the tax year 2014-15 and
subsequent tax years.

Part 4 Disposals of assets through partnerships

Income tax

22 Part 13 of ITA 2007 (tax avoidance) is amended as follows.

23 (1) 5In Chapter 5A (transfers of income streams) section 809AZF (partnership
shares) is amended as follows.

(2) In subsection (1) omit “if condition A or B is met”.

(3) Omit subsections (2) and (3).

(4) The amendments made by this paragraph have effect for cases where the
10transfer of a right to relevant receipts occurs on or after 6 April 2014.

24 (1) After Chapter 5A insert—

“Chapter 5AA

Disposals of income streams through partnerships

809AAZA Application of Chapter

(1) This Chapter applies (subject to subsection (2)) if directly or
indirectly in consequence of, or otherwise in connection with,
15arrangements involving a person within the charge to income tax
(“the transferor”) and another person (“the transferee”)—

(a) there is, or is in substance, a disposal of a right to relevant
receipts by the transferor to the transferee,

(b) the disposal is effected (wholly or partly) by or through a
20partnership (“the relevant partnership”),

(c) at any time—

(i) the transferor is a member of the relevant partnership
or of a partnership associated with the relevant
partnership, and

(ii) 25the transferee is a member of the relevant partnership
or of a partnership associated with the relevant
partnership, and

(d) the main purpose, or one of the main purposes, of one or
more steps taken in effecting the disposal is the obtaining of
30a tax advantage for any person.

(2) This Chapter does not apply if—

(a) the transferor is the spouse or civil partner of the transferee
and they are living together, or

(b) the transferor is a brother, sister, ancestor or lineal
35descendant of the transferee.

(3) In subsection (1)(a) the reference to a disposal of a right to relevant
receipts includes anything constituting a disposal of such a right for
the purposes of TCGA 1992.

(4) For the purposes of subsection (1)(b) the disposal might, in
40particular, be effected by an acquisition or disposal of, or an increase

or decrease in, an interest in the relevant partnership (including a
share of the profits or assets of the relevant partnership or an interest
in such a share).

(5) For the purposes of subsection (1)(c) it does not matter if the
5transferor and the transferee are not members of a partnership as
mentioned at the same time.

(6) For the purposes of subsection (1)(c) a partnership is “associated”
with the relevant partnership if—

(a) it is a member of the relevant partnership, or

(b) 10it is a member of a partnership which is associated with the
relevant partnership (whether by virtue of paragraph (a) or
this paragraph).

(7) In subsections (1)(c) and (5) references to the transferor include a
person connected with the transferor and references to the transferee
15include a person connected with the transferee.

(8) In this Chapter—

• “arrangements” includes any agreement, understanding,
  scheme, transaction or series of transactions (whether or not
  legally enforceable),

• 20“partnership” includes a limited liability partnership whether
  or not section 863(1) of ITTOIA 2005 applies in relation to it,

• “relevant receipts” means any income—

  (a)

  which (but for the disposal) would be charged to
  income tax as income of the transferor (whether
  25directly or as a member of a partnership), or

  (b)

  which (but for the disposal) would be brought into
  account as income in calculating profits of the
  transferor (whether directly or as a member of a
  partnership) for income tax purposes, and

• 30“tax advantage” means a tax advantage, as defined in section
  1139 of CTA 2010, in relation to income tax or the charge to
  corporation tax on income.

809AAZB Relevant amount to be treated as income

(1) The relevant amount is to be treated as income of the transferor
35chargeable to income tax in the same way and to the same extent as
that in which the relevant receipts—

(a) would have been chargeable to income tax as income of the
transferor, or

(b) would have been brought into account as income in
40calculating profits of the transferor for income tax purposes,

but for the disposal.

(2) In subsection (1) “the relevant amount” is to be read in accordance
with section 809AZB(2) and section 809AZB(3) to (6) applies for the
purpose of determining when income under subsection (1) is treated
45as arising.

(3) For this purpose, in section 809AZB(2) to (6) references to the transfer
of the right are to be read as references to the disposal of the right.

(4) If, apart from this subsection and section 809DZB(3)—

(a) both this Chapter and Chapter 5D would apply in relation to
the disposal, and

(b) Chapter 5D would give a greater amount of income of the
5transferor chargeable to income tax,

this Chapter is not to apply in relation to the disposal.”

(2) The amendment made by this paragraph has effect for cases where the
arrangements mentioned in section 809AAZA(1) of ITA 2007 are made on or
after 6 April 2014.

25 (1) 10After Chapter 5C insert—

“Chapter 5D

Disposals of assets through partnerships

809DZA Application of Chapter

(1) This Chapter applies if conditions A and B are met.

(2) Condition A is (subject to subsection (3)) that directly or indirectly in
consequence of, or otherwise in connection with, arrangements
15involving a person within the charge to income tax (“the transferor”)
and another person (“the transferee”)—

(a) there is, or is in substance, a disposal of an asset (“the
transferred asset”) by the transferor to the transferee,

(b) the disposal is effected (wholly or partly) by or through a
20partnership (“the relevant partnership”),

(c) at any time—

(i) the transferor is a member of the relevant partnership
or of a partnership associated with the relevant
partnership, and

(ii) 25the transferee is a member of the relevant partnership
or of a partnership associated with the relevant
partnership, and

(d) the main purpose, or one of the main purposes, of one or
more steps taken in effecting the disposal is the obtaining of
30a tax advantage for any person.

(3) Condition A is not met if—

(a) the transferor is the spouse or civil partner of the transferee
and they are living together, or

(b) the transferor is a brother, sister, ancestor or lineal
35descendant of the transferee.

(4) In subsection (2)(a) the reference to a disposal of an asset includes
anything constituting a disposal of an asset for the purposes of
TCGA 1992.

(5) For the purposes of subsection (2)(b) the disposal might, in
40particular, be effected by an acquisition or disposal of, or an increase
or decrease in, an interest in the relevant partnership (including a
share of the profits or assets of the relevant partnership or an interest
in such a share).