809EZC Meaning of “carried interest” in section 809EZB

(1) For the purposes of section 809EZB “carried interest” means a sum
which arises to the individual under the arrangements by way of profit-
related return.

5This is subject to subsections (3) to (8) (sums where no significant risk
of not arising); and see also section 809EZD (sums treated as carried
interest).

(2) A sum which arises to the individual under the arrangements does so
by way of “profit-related return” if under the arrangements—

(a) 10the sum is to, or may, arise only if—

(i) there are profits for a period on the investments, or on
particular investments, made for the purposes of the
scheme, or

(ii) there are profits arising from a disposal of the
15investments, or of particular investments, made for
those purposes,

(b) the amount of the sum which is to, or may, arise is variable, to a
substantial extent, by reference to those profits, and

(c) returns to external investors are also determined by reference to
20those profits;

but where any part of the sum does not meet these conditions, that part
is not to be regarded as arising by way of “profit-related return”.

(3) Where—

(a) one or more sums (“actual sums”) arise to the individual under
25the arrangements by way of profit-related return in a tax year,
and

(b) there was no significant risk that a sum of at least a certain
amount (“the minimum amount”) would not arise to the
individual,

30so much of the actual sum, or of the aggregate of the actual sums, as is
equal to the minimum amount is not “carried interest”.

(See subsections (7) and (8) as to how the minimum amount is to be
apportioned between the actual sums where more than one actual sum
arises in the tax year.)

(4) 35For the purposes of subsection (3)(b) assess the risk both—

(a) in relation to each actual sum (and the investments to which it
relates) individually, taking into account also any other sums
that might have arisen to the individual under the
arrangements instead of that sum, and

(b) 40in relation to the actual sum or sums and any other sums that
might have arisen to the individual under the arrangements by
way of profit-related return in the tax year (and the investments
to which all those sums relate) taken as a whole;

(so that, in a particular case, some of the minimum amount may arise
45by assessing the risk in accordance with paragraph (a) and some by
assessing it in accordance with paragraph (b)).

(5) For the purposes of subsection (3)(b) assess the risk as at the later of—

(a) the time when the individual becomes party to the
arrangements,

(b) the time when the individual begins to perform investment
management services directly or indirectly in respect of the
scheme under the arrangements, and

(c) the time when a material change is made to the arrangements so
5far as relating to the sums which are to, or may, arise to the
individual.

(6) For the purposes of subsection (3)(b) ignore any risk that a sum is
prevented from arising to the individual (by reason of insolvency or
otherwise).

(7) 10Where more than one actual sum arises in the tax year, the minimum
amount is to be apportioned between the actual sums as follows for the
purposes of subsection (3)—

(a) so much of the minimum amount as is attributable to a
particular actual sum is to be apportioned to that actual sum,
15and

(b) so much of the minimum amount as is not attributable to any
particular actual sum is to be apportioned between the actual
sums on a just and reasonable basis.

(8) For the purpose of subsection (7) any part of the minimum amount is
20attributable to a particular actual sum to the extent that there was no
significant risk that that part would not arise to the individual in
relation to that actual sum, assessing the risk in accordance with
subsection (4)(a).

809EZD Sums treated as “carried interest” for purposes of section 809EZB

(1) 25A sum falling within subsection (2) or (3)—

(a) is to be assumed to meet the requirements of section 809EZC,
and

(b) accordingly, is to be treated as constituting “carried interest” for
the purposes of section 809EZB.

(2) 30A sum falls within this subsection if, under the arrangements, it is to, or
may, arise to the individual out of profits on the investments made for
the purposes of the scheme, but only after—

(a) all, or substantially all, of the investments in the scheme made
by the participants have been repaid to the participants, and

(b) 35each external investor has received a preferred return on all, or
substantially all, of the investor’s investments in the scheme.

(3) A sum falls within this subsection if, under the arrangements, it is to, or
may, arise to the individual out of profits on a particular investment
made for the purposes of the scheme, but only after—

(a) 40all, or substantially all, of the relevant investments made by
participants have been repaid to those participants, and

(b) each of those participants who is an external investor has
received a preferred return on all, or substantially all, of the
investor’s relevant investments;

45and for this purpose “relevant investments” means those investments
in the scheme to which the particular investment made for the purposes
of the scheme is attributable.

(4) In this section “preferred return” means a return of not less than the
amount that would be payable on the investment by way of interest if—

(a) compound interest were payable on the investment for the
whole of the period during which it was invested in the scheme,
5and

(b) the interest were calculated at a rate of 6% per annum, with
annual rests.

809EZE Interpretation of Chapter

(1) In this Chapter—

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

• “collective investment scheme” has the meaning given by
  section 235 of FISMA 2000;

• 15“external investor”, in relation to an investment scheme and any
  arrangements, means a participant in the scheme other than—

  (a)

  an individual who performs investment management
  services directly or indirectly in respect of the scheme, or

  (b)

  a person through whom sums are to, or may, arise
  20directly or indirectly to such an individual from the
  scheme under the arrangements;

• “investment management services”, in relation to an investment
  scheme, includes—

  (a)

  seeking funds for the purposes of the scheme from
  25participants or potential participants,

  (b)

  researching potential investments to be made for the
  purposes of the scheme,

  (c)

  acquiring, managing or disposing of property for the
  purposes of the scheme, and

  (d)

  30acting for the purposes of the scheme with a view to
  assisting a body in which the scheme has made an
  investment to raise funds;

• “investment trust” means a company in relation to which
  conditions A to C in section 1158 of CTA 2010 are met (or
  35treated as met); and for this purpose “company” has the
  meaning given by section 1121 of CTA 2010;

• “market value” has the same meaning as in TCGA 1992 (see
  sections 272 and 273 of that Act);

• “participant”—

  (a)

  40in relation to a collective investment scheme, is
  construed in accordance with section 235 of FISMA
  2000;

  (b)

  in relation to an investment trust, means a member of
  the investment trust;

• 45“profits”, in relation to an investment made for the purposes of an
  investment scheme, means profits (including unrealised
  profits) arising from the acquisition, holding, management or
  disposal of the investment (taking into account items of a
  revenue nature and items of a capital nature).

(2) In this Chapter a reference to an investment made by a person in an
investment scheme is a reference to a contribution by the person
(whether by way of capital, loan or otherwise) towards the property
subject to the scheme (but does not include a sum committed but not
5yet invested).

(3) For the purposes of subsection (2) a person who holds a share in an
investment scheme which is a company limited by shares and who
acquired the share from a person other than the scheme is to be taken
to have made a contribution towards the property subject to the scheme
10equal to—

(a) the consideration given by the person for the acquisition of the
share, or

(b) if less, the market value of the share at the time of the
acquisition.

(4) 15In this Chapter, in relation to an investment scheme which is a
company limited by shares—

(a) references to a repayment of, or a return on, an investment in
the scheme include a repayment of, or a return on, an
investment represented by a share in the scheme resulting
20from—

(i) the purchase of the share by the scheme,

(ii) the redemption of the share by the scheme,

(iii) the distribution of assets in respect of the share on the
winding up of the scheme, or

(iv) 25any similar process;

(b) references to a return on an investment in the scheme include a
dividend or similar distribution in respect of a share in the
scheme representing the investment.

809EZF Disguised investment management fees: anti-avoidance

30In determining whether section 809EZA applies in relation to an
individual, no regard is to be had to any arrangements the main
purpose, or one of the main purposes, of which is to secure that that
section does not apply in relation to—

(a) the individual, or

(b) 35the individual and one or more other individuals.

809EZG Disguised investment management fees: avoidance of double
taxation

(1) This section applies where—

(a) income tax is charged on an individual by virtue of section
40809EZA in respect of a disguised fee, and

(b) at any time, a tax (whether income tax or another tax) is charged
on the individual otherwise than by virtue of section 809EZA in
relation to the disguised fee.

(2) This section also applies where—

(a) 45income tax is charged on an individual by virtue of
section 809EZA in respect of a disguised fee which arises to the
individual under the arrangements by way of a loan or advance,

(b) at any time, a tax (whether income tax or another tax) is charged
on the individual in relation to another sum which arises to the
individual under the arrangements, and

(c) some or all of the loan or advance has to be repaid as a result of
5the other sum having arisen to the individual.

(3) In order to avoid a double charge to tax, the individual may make a
claim for one or more consequential adjustments to be made in respect
of the tax charged as mentioned in subsection (1)(b) or (2)(b).

(4) On a claim under this section an officer of Revenue and Customs must
10make such of the consequential adjustments claimed (if any) as are just
and reasonable.

(5) The value of any consequential adjustments must not exceed the lesser
of the income tax charged on the individual as mentioned in
subsection (1)(a) or (2)(a) and—

(a) 15where subsection (1) applies, the tax charged as mentioned in
subsection (1)(b);

(b) where subsection (2) applies, the tax charged as mentioned in
subsection (2)(b) in relation to so much of the other sum as does
not exceed the amount of the loan or advance that has to be
20repaid as mentioned in subsection (2)(c).

(6) Consequential adjustments may be made—

(a) in respect of any period,

(b) by way of an assessment, the modification of an assessment, the
amendment of a claim, or otherwise, and

(c) 25despite any time limit imposed by or under any enactment.

809EZH Powers to amend Chapter

(1) The Treasury may by regulations amend this Chapter—

(a) so as to change the definition of “investment scheme” for the
purposes of this Chapter;

(b) 30so as to change the definition of “participant” for those
purposes;

(c) so as to change what is “carried interest” for the purposes of
section 809EZB.

(2) Regulations under this section may—

(a) 35make different provision for different purposes, and

(b) contain incidental, supplemental, consequential and
transitional provision and savings.

(3) A statutory instrument containing regulations under this section to
which subsection (4) applies may not be made unless a draft of the
40instrument has been laid before and approved by a resolution of the
House of Commons.

(4) This subsection applies if the regulations contain any provision which
has or may have the effect of increasing any person’s liability to tax.

(5) Any other statutory instrument containing regulations under this
45section is subject to annulment in pursuance of a resolution of the
House of Commons.”

(2) In section 2 of ITA 2007 (overview of Act), in subsection (13)—

(a) after paragraph (h) insert—

“(ha) disposals of assets through partnerships (Chapter 5D),”;

(b) after paragraph (ha) insert—

“(hb) 5disguised investment management fees (Chapter 5E),”.

(3) In Schedule 4 to ITA 2007 (index of defined expressions), at the appropriate
places insert—

(4) The amendments made by subsections (1), (2)(b) and (3) have effect in relation
to sums arising on or after 6 April 2015 (whenever the arrangements under
which the sums arise were made).

22 Miscellaneous loss relief

(1) 30Chapter 7 of Part 4 of ITA 2007 (losses from miscellaneous transactions) is
amended as follows.

(2) In section 152 (losses from miscellaneous transactions)—

(a) for subsection (1) substitute—

“(1) If in a tax year (“the loss-making year”) a person makes a loss in
35a relevant transaction, the person may make a claim for loss
relief against relevant miscellaneous income.”;

(b) in subsection (2)(a), for “section 1016 income” substitute “income on
which income tax is charged under, or by virtue of, a relevant section
1016 provision (“the relevant provision”)”;

(c) after subsection (2) insert—

“(2A) 5A relevant section 1016 provision” means a provision to which
section 1016 applies, other than—

(a) regulation 17 of the Offshore Funds (Tax) Regulations
2009 (S.I. 2009/3001S.I. 2009/3001) (treatment of participants in non-
reporting funds: charge to tax on disposal of asset), or

(b) 10Chapter 9 of Part 4 of ITTOIA 2005 (gains from contracts
for life insurance etc).”;

(d) in subsection (4), after “person’s” insert “relevant”;

(e) in subsection (5), for “A person’s miscellaneous income” substitute
“The person’s “relevant miscellaneous income”, in relation to the loss,”;

(f) 15for paragraph (b) of that subsection substitute—

“(b) income on which income tax is charged under, or by
virtue of, the relevant provision.”;

(g) in subsection (7), before “miscellaneous”, in both places it appears,
insert “relevant”;

(h) 20omit subsection (8);

(i) in subsection (9), omit the “and” at the end of paragraph (b) and after
that paragraph insert—

“(ba) section 154A (anti-avoidance), and”.

(3) In section 153 (how relief works), before “miscellaneous”, in each place it
25appears, insert “relevant”.

(4) In section 154 (transactions in deposit rights), in subsection (3)—

(a) after “against” insert “relevant”, and

(b) for the words from the second “miscellaneous” to the end substitute
“relevant miscellaneous income, for the tax year, in relation to the loss.”

(5) 30Before section 155 (time limit for claiming relief), but after the italic heading
before that section (supplementary), insert—

“154A Anti-avoidance

(1) Subsection (2) applies if—

(a) a person makes a loss in a relevant transaction, and

(b) 35that loss arises directly or indirectly in consequence of, or
otherwise in connection with, relevant tax avoidance
arrangements.

(2) The person is not to be given loss relief under section 152 for the loss.

(3) Subsection (4) applies if—

(a) 40a person has income on which income tax is chargeable under,
or by virtue of, a relevant section 1016 provision, and

(b) that income arises directly or indirectly in consequence of, or
otherwise in connection with, relevant tax avoidance
arrangements.

(4) 45The person is not to be given loss relief against that income under
section 152.

(5) In this section “relevant tax avoidance arrangements” means
arrangements—

(a) to which the person is party, and

(b) the main purpose, or one of the main purposes, of which is to
5obtain a reduction in tax liability by means of loss relief under
section 152.

(6) In subsection (5) “arrangements” includes any agreement,
understanding, scheme, transaction or series of transactions (whether
or not legally enforceable).”

(6) 10In section 155 (time limit for claiming relief), in subsections (1) and (2), before
“miscellaneous” insert “relevant”.

(7) In consequence of subsection (2)(h), in FA 2009, omit section 69.

(8) The amendments made by subsections (2)(a) to (h), (3), (4), (6) and (7)—

(a) have effect for the tax year 2015-16 and subsequent tax years, and

(b) 15apply in relation to a loss whether it is made before, during or after that
tax year.

(9) The amendments made by subsections (2)(i) and (5) have effect in relation to
losses and income arising on or after 3 December 2014 directly or indirectly in
consequence of, or otherwise in connection with, relevant tax avoidance
20arrangements (whenever the arrangements are made).

(10) Subsection (4) of section 154A of ITA 2007 (inserted by subsection (5) of this
section) applies in relation to loss relief, under section 152 of that Act, for losses
whenever made.

(11) In relation to income arising on or after 3 December 2014 but before the
25beginning of the tax year 2015-16, section 154A of ITA 2007 has effect as if for
paragraph (a) of subsection (3) of that section there were substituted—

“(a) a person has section 1016 income (within the meaning of section
152), and”.

23 Exceptions from duty to deduct tax: qualifying private placements

(1) 30In Chapter 3 of Part 15 of ITA 2007 (deduction of tax from certain payments of
yearly interest), after section 888 insert—

“888A Qualifying private placements

(1) The duty to deduct a sum representing income tax under section 874
does not apply to a payment of interest on a qualifying private
35placement.

(2) “Qualifying private placement” means a security—

(a) which represents a loan relationship to which a company is a
party as debtor,

(b) which is not listed on a recognised stock exchange, and

(c) 40in relation to which such other conditions as the Treasury may
specify by regulations are met.

(3) The conditions which may be specified under subsection (2)(c) include
conditions relating to—

(a) the security itself,

(b) the loan relationship represented by the security,

(c) the terms on which, or circumstances under which, the security
or loan relationship is entered into,

(d) the company which is party to the loan relationship as debtor,

(e) 5any person by or through whom a payment of interest on the
security is made, or

(f) the holder of the security.

(4) Regulations under this section may make provision about the
consequences of failing to make a deduction under section 874, in
10respect of a payment of interest on a security, in cases where the person
required to make the deduction had a reasonable, but mistaken, belief
that the security was a qualifying private placement.

(5) Regulations under this section may—

(a) make different provision for different cases;

(b) 15contain incidental, supplemental, consequential and
transitional provision and savings.

(b)(b)contain incidental, supplemental, consequential and
transitional provision and savings.

(6) In this section “loan relationship” has the same meaning as in Part 5 of
20CTA 2009.”

(2) Any power conferred on the Treasury by virtue of subsection (1) to make
regulations comes into force on the day on which this Act is passed.

(3) So far as not already brought into force by subsection (2), the amendment made
by this section comes into force on such day as the Treasury may by regulations
25appoint.

(4) Section 1014(4) of ITA 2007 (regulations etc subject to annulment) does not
apply to regulations under subsection (3).

24 Increased remittance basis charge

(1) Chapter A1 of Part 14 of ITA 2007 (remittance basis) is amended as follows.

(2) 30In section 809C (claim for remittance basis by long-term UK resident:
nomination of foreign income and gains to which section 809H(2) is to apply)—

(a) in subsection (1)(b), after “meets” insert “the 17-year residence test,”;

(b) after subsection (1) insert—

“(1ZA) An individual meets the 17-year residence test for a tax year if
35the individual has been UK resident in at least 17 of the 20 tax
years immediately preceding that year.”;

(c) in subsection (1A), after “the individual” insert—

“(a) does not meet the 17-year residence test for that year,
but

(b)”;

(d) in subsection (1B)(a), after “meet” insert “the 17-year residence test or”;

(e) in subsection (4)—

(i) before paragraph (a) insert—

“(za) for an individual who meets the 17-year residence test
45for that year, £90,000;”;

(ii) in paragraph (a), for “£50,000” substitute “£60,000”.

(3) In section 809H (claim for remittance basis by long-term UK resident:
charge)—

(a) in subsection (1)(c), after “meets” insert “the 17-year residence test,”;

(b) in subsection (1A)—

(i) 5for “809C(1A)” substitute “809C(1ZA), (1A)”;

(ii) after “meets” insert “the 17-year residence test,”;

(c) in subsection (5B)—

(i) before paragraph (a) insert—

“(za) if the individual meets the 17-year residence test for the
10relevant tax year, £90,000;”;

(ii) in paragraph (a), for “£50,000” substitute “£60,000”.

(4) The amendments made by this section have effect for the tax year 2015-16 and
subsequent tax years.

CHAPTER 3 Corporation tax: general

25 15Loan relationships: repeal of certain provisions relating to late interest etc

(1) Part 5 of CTA 2009 (loan relationships) is amended as follows.

(2) Omit the following provisions—

(a) section 374 (connection between debtor and person standing in
position of creditor),

(b) 20section 377 (party to loan relationship having major interest in other
party),

(c) section 407 (postponement until redemption of debits for connected
companies’ deeply discounted securities), and

(d) section 408 (companies connected for section 407).

(3) 25In section 372 (introduction to Chapter 8), in subsection (3)—

(a) omit paragraph (a),

(b) at the end of paragraph (b), insert “and”, and

(c) omit paragraph (c) (including the “and” at the end).

(4) In section 373 (late interest treated as not accruing until paid in some cases), in
30subsection (1)(b), for “374, 375, 377” substitute “375”.

(5) In section 406 (introduction to provisions dealing with deeply discounted
securities)—

(a) omit subsection (1)(a), and

(b) in subsections (2), (3) and (4), for “407” substitute “409”.

(6) 35Subsections (2)(a) and (b), (3) and (4) have effect—

(a) in relation to debtor relationships entered into by a company on or after
3 December 2014, and

(b) in relation to debtor relationships entered into by a company before 3
December 2014, where the actual accrual period (within the meaning of
40Chapter 8 of Part 5 of CTA 2009) begins on or after 1 January 2016.

(7) Subsections (2)(c) and (d) and (5) have effect—