Finance Bill (HC Bill 57)

Ireland or any country or territory outside the United Kingdom,
as guardian (however styled) of another person, and

(b) the appointment takes effect at a time when the other person
(“C”) is under the age of 18 years,

5C is to be treated, at all times after the appointment takes effect, as if C
was G’s child.

(7) Where—

(a) an individual (“SG”) is appointed as a special guardian
(however styled) of another person (“C”) by an order of a
10court—

(i) that is a special guardianship order as defined by section
14A of the Children Act 1989, or

(ii) that is a corresponding order under legislation having
effect in Scotland or Northern Ireland or any country or
15territory outside the United Kingdom, and

(b) the appointment takes effect at a time when C is under the age
of 18 years,

C is to be treated, at all times after the appointment takes effect, as if C
was SG’s child.

(8) 20In particular, where under any of subsections (3) to (7) one person is to
be treated at any time as the child of another person, that first person’s
lineal descendants (even if born before that time) are accordingly to be
treated at that time (and all subsequent times) as lineal descendants of
that other person.

(9) 25In subsection (4) “adopted person” means—

(a) an adopted person within the meaning of Chapter 4 of Part 1 of
the Adoption and Children Act 2002, or

(b) a person who would be an adopted person within the meaning
of that Chapter if, in section 66(1)(e) of that Act and section
3038(1)(e) of the Adoption Act 1976, the reference to the law of
England and Wales were a reference to the law of any part of the
United Kingdom.

(10) In subsection (5) “foster parent” means—

(a) someone who is approved as a local authority foster parent in
35accordance with regulations made by virtue of paragraph 12F of
Schedule 2 to the Children Act 1989,

(b) a foster parent with whom the person is placed by a voluntary
organisation under section 59(1)(a) that Act,

(c) someone who looks after the person in circumstances in which
40the person is a privately fostered child as defined by section 66
of that Act, or

(d) someone who, under legislation having effect in Scotland or
Northern Ireland or any country or territory outside the United
Kingdom, is a foster parent corresponding to a foster parent
45within paragraph (a) or (b).

8L Claims for brought-forward allowance

(1) A claim for brought-forward allowance for a person (see section 8G)
may be made—

(a) by the person’s personal representatives within the permitted
period, or

(b) (if no claim is so made) by any other person liable to the tax
chargeable on the person’s death within such later period as an
5officer of Revenue and Customs may in the particular case
allow.

(2) In subsection (1)(a) “the permitted period” means—

(a) the period of 2 years from the end of the month in which the
person dies or (if it ends later) the period of 3 months beginning
10with the date on which the personal representatives first act as
such, or

(b) such longer period as an officer of Revenue and Customs may
in the particular case allow.

(3) A claim under subsection (1) made within either of the periods
15mentioned in subsection (2)(a) may be withdrawn no later than one
month after the end of the period concerned.

(4) Subsection (5) applies if—

(a) no claim under this section has been made for brought-forward
allowance for a person (“P”),

(b) 20the amount of the charge to tax under section 4 on the death of
another person (“A”) would be different if a claim under
subsection (1) had been made for brought-forward allowance
for P, and

(c) the amount of the charge to tax under section 4 on the death of
25P, and the amount of the charge to tax under section 4 on the
death of any person who is neither P nor A, would not have
been different if a claim under subsection (1) had been made for
brought-forward allowance for P.

(5) A claim for brought-forward allowance for P may be made—

(a) 30by A’s personal representatives within the allowed period, or

(b) (if no claim is so made) by any other person liable to the tax
chargeable on A’s death within such later period as an officer of
Revenue and Customs may in the particular case allow.

(6) In subsection (5)(a) “the allowed period” means—

(a) 35the period of 2 years from the end of the month in which A dies
or (if it ends later) the period of 3 months beginning with the
date on which the personal representatives first act as such, or

(b) such longer period as an officer of Revenue and Customs may
in the particular case allow.

(7) 40A claim under subsection (5) made within either of the periods
mentioned in subsection (6)(a) may be withdrawn no later than one
month after the end of the period concerned.

8M Residence nil-rate amount: cases involving conditional exemption

(1) This section applies where—

(a) 45the estate of a person (“D”) immediately before D’s death
includes a qualifying residential interest,

(b) D dies on or after 6 April 2017, and

(c) some or all of the transfer of value under section 4 on D’s death
is a conditionally exempt transfer of property consisting of, or
including, some or all of the qualifying residential interest.

(2) For the purposes of sections 8E and 8F, but subject to subsection (3), the
5exempt percentage of the qualifying residential interest is treated as
being not closely inherited; and for this purpose “the exempt
percentage” is given by—

(3) For the purposes of calculating tax chargeable under section 32 or 32A
by reference to a chargeable event related to the qualifying residential
interest where D is the relevant person for the purposes of section 33—

(a) in subsection (2), X is calculated as if the property forming the
20subject-matter of the conditionally exempt transfer had not
included the property on which the tax is chargeable,

(b) section 33 has effect as if for subsection (1)(b)(ii) there were
substituted—

“(“ii) if the relevant person is dead, the rate or rates
25that would have applied to that amount in
accordance with section 8D(2) and (3) above and
the appropriate provision of section 7 above if—

(a) that amount had been added to the value
transferred on the relevant person’s
30death, and

(b) the unrelieved portion of that amount
had formed the highest part of that
value.”, and”

(c) for the purposes of that substituted section 33(1)(b)(ii) “the
35unrelieved portion” of the amount on which tax is chargeable is
that amount itself less the amount (if any) by which—

(i) D’s residence nil-rate amount for the purposes of the
particular calculation under section 33, exceeds

(ii) D’s residence nil-rate amount for the purposes of the
40charge to tax under section 4 on D’s death.

(4) The following provisions of this section apply if immediately before
D’s death there is a person (“P”) who is D’s spouse or civil partner.

(5) For the purposes of calculating tax chargeable under section 32 or 32A
by reference to a chargeable event related to the qualifying residential
45interest which occurs after P’s death, the amount that would otherwise
be D’s residence nil-rate amount for those purposes is reduced by the
amount (if any) by which P’s residence nil-rate amount, or the
residence nil-rate amount of any person who dies after P but before the

chargeable event occurs, was increased by reason of an amount being
available for carry-forward from D’s death.

(6) Where tax is chargeable under section 32 or 32A by reference to a
chargeable event related to the qualifying residential interest which
5occurs before P’s death, section 8G(3) has effect for the purpose of
calculating P’s brought-forward allowance as if—

(a) before the “and” at the end of paragraph (c) there were
inserted—

“(ca) reduce that total (but not below nil) by deducting from
10it the recapture percentage,”,”

(b) in paragraph (d), before “total”, in both places, there were
inserted “reduced”, and

(c) the reference to the recapture percentage were to the percentage
given by—

15

where—

• REE is the residential enhancement at the time of the
  chargeable event, and

• 20TA is the amount on which tax is chargeable under section
  32 or 32A.

(7) If subsection (6) has applied by reason of a previous event or events
related to the qualifying residential interest, the reference in subsection
(6)(c) to the fraction—

25

is to the aggregate of that fraction in respect of the current event and the
previous event (or each of the previous events).””

10 Rate bands for tax years 2018-19, 2019-20 and 2020-21

Section 8 of IHTA 1984 (indexation) does not have effect by virtue of any
30difference between—

(a) the consumer prices index for the month of September in 2017, 2018 or
2019, and

(b) that index for the previous September.

Settlements

11 35Calculation of rate of inheritance tax on settled property

Schedule 1 contains provision about calculating the rate at which inheritance
tax is charged under Chapter 3 of Part 3 of IHTA 1984.

12 Exemption from ten-yearly charge for heritage property

(1) Section 79 of IHTA 1984 (exemption from ten-yearly charge) is amended as
40follows.

(2) In subsection (3)—

(a) for “then, if” substitute “subsection (3A) below applies if”,

(b) in paragraph (a), for “has, on a claim made for the purpose, been”
substitute “is, on a claim made for the purpose,”,

(c) 5after that paragraph insert—

“(aa) that claim is made during the period beginning with the
date of a ten-year anniversary of the settlement (“the
relevant ten-year anniversary”) and ending—

(i) two years after that date, or

(ii) 10on such later date as the Board may allow,”,”

(d) in paragraph (b)—

(i) for “that section has been given” substitute “section 31 is given”,
and

(ii) for “have been given” substitute “are given”, and

(e) 15omit the words from “section 64” to the end.

(3) After that subsection insert—

“(3A) Tax is not chargeable under section 64 above in relation to the property
by reference to the relevant ten-year anniversary concerned or any
subsequent ten-year anniversaries; but on the first occurrence of an
20event which, if there had been a conditionally exempt transfer of the
property immediately before that relevant ten-year anniversary, would
be a chargeable event with respect to the property—

(a) there is a charge to tax under this subsection, and

(b) on any ten-year anniversary falling after that event, tax is
25chargeable under section 64 above in relation to the property.””

(4) In subsection (4), for the words from “subsection (3)” to “mentioned” substitute
“subsection (3A) above in respect of property if, after the occasion mentioned
in subsection (3) above and before the occurrence mentioned in subsection
(3A)”.

(5) 30In subsections (5), (5A), (6), (8)(a) and (9A)(a) for “subsection (3)” substitute
“subsection (3A)”.

(6) In subsection (7A), in paragraph (c), for the words from “day” to “section”
substitute “relevant ten-year anniversary”.

(7) In subsection (8)—

(a) 35in paragraph (a), for the words from “on the first” to the end substitute
“by reference to the relevant ten-year anniversary of the settlement”,
and

(b) in paragraph (c), omit “, and the claim was made and the undertaking
was given,”.

(8) 40Accordingly, in that Act—

(a) in section 207 (liability: conditional exemption), in subsection (3), for
“section 79(3)” substitute “section 79(3A)”,

(b) in section 233 (interest on unpaid tax), in subsection (1)(c), for “79(3)”
substitute “79(3A)”,

(c) 45in section 237 (imposition of charge), in subsection (3B)(a), for “or 79(3)”
substitute “or 79(3A)”, and

(d) in Schedule 4 (maintenance funds for historic buildings), in paragraph
3(2)(c), for “or 79(3)” substitute “or 79(3A)”.

(9) The amendments made by this section have effect in relation to occasions on
which tax would (ignoring the effect of the amendments) fall to be charged
5under section 64 of IHTA 1984 on or after the day on which this Act is passed.

13 Settlements with initial interest in possession

(1) In section 80 of IHTA 1984 (initial interest of settlor or spouse or civil partner),
for “an interest in possession”, in each place it appears, substitute “a qualifying
interest in possession”.

(2) 10The amendments made by this section come into force on the day after the day
on which this Act is passed subject to the saving provision in subsections (3) to
(7).

(3) Subsections (4) to (7) apply where—

(a) the occasion first referred to in subsection (1) of section 80 of IHTA 1984
15occurred before 22 March 2006,

(b) on that occasion the settlor, or the settlor’s spouse or civil partner,
became beneficially entitled to an interest in possession in property
which, as a result of that subsection, was treated as not becoming
comprised in a settlement for the purposes of Chapter 3 of Part 3 of
20IHTA 1984 on that occasion, and

(c) at all times in the relevant period that property, or some particular part
of it, has been property in which the settlor, or the settlor’s spouse or
civil partner, has been beneficially entitled to an interest in possession,

and in subsections (4) to (7) “the protected property” means that property or,
25as the case may be, that particular part of it.

(4) The amendments made by subsection (1) do not have effect in relation to any
particular part of the protected property for so long as the subsisting interest
in possession continues to subsist in that part (but see subsections (5) and (6)
for what happens afterwards).

(5) 30As from immediately before the time when the subsisting interest in
possession comes to an end so far as subsisting in any particular part of the
protected property (whether or not it also comes to an end at the same time so
far as subsisting in some or all of the rest of the protected property), section
80(1) of IHTA 1984 has effect in relation to that part as if the second appearance
35of “an interest in possession” were “a qualifying interest in possession”.

(6) If (ignoring this subsection), subsection (5) would have the consequence that a
particular part of the protected property is treated as becoming comprised in a
separate settlement at a time earlier than the time at which the subsisting
interest in possession comes to an end so far as subsisting in that part, that part
40is to be treated as becoming comprised in a separate settlement at that later
time.

(7) In this section—

(a) “the relevant period” means the period beginning with the occasion
first mentioned in section 80(1) of IHTA 1984 and ending with the day
45on which this Act is passed,

(b) “qualifying interest in possession” has the same meaning as in section
80(1) of IHTA 1984,

(c) “subsisting interest in possession”, in relation to a part of the protected
property, means the interest in possession which subsisted in that part
immediately before the end of the relevant period, and

(d) the reference in subsection (3)(c) to the spouse or civil partner of a
5settlor includes a reference to the widow or widower or surviving civil
partner of the settlor.

14 Distributions etc from property settled by will

(1) In section 144 of IHTA 1984 (distributions etc from property settled by will), in
subsection (1)(b), after “section” insert “65(4),”.

(2) 10The amendment made by this section has effect in cases where the testator’s
death occurs on or after 10 December 2014.

Interest

15 Inheritance tax: interest

(1) In section 107 of FA 1986 (changes in financial institutions: interest)—

(a) 15in subsection (4), for the words from “section 234(4)” to “above)”
substitute “paragraph 7(8) of Schedule 53 to the Finance Act 2009 (late
payment interest: inheritance tax payable by instalments)”;

(b) in subsection (5), for the words from “amend” to “section 234(3)(c)”
substitute “set out one or more descriptions of company for the
20purposes of paragraph 7(7) of Schedule 53 to the Finance Act 2009”.

(2) In Schedule 53 to FA 2009 (special provision: late payment interest start date)—

(a) in paragraph 7 (inheritance tax payable by instalments) for sub-
paragraph (7) substitute—

“(7) A company falls within this sub-paragraph if—

(a) 25its business is carried on in the United Kingdom and
is—

(i) wholly that of a market maker, or

(ii) that of a discount house, or

(b) it is of a description set out in regulations under
30section 107(5) of FA 1986.”;”

(b) in paragraph 9 (certain other amounts of inheritance tax), for “date of
the testator’s death” substitute “end of the month in which the testator
died”.

(3) The amendments made by this section come into force on such day or days as
35the Treasury may by regulations made by statutory instrument appoint.

(4) Regulations under subsection (3) may—

(a) appoint different days for different purposes;

(b) make transitional or saving provision.

Part 3 Banking

Bank levy

16 Bank levy rates for 2016 to 2021

5Schedule 2 contains provision for a reduction in bank levy rates in 2016 and
further reductions each year from 2017 to 2021.

Banking companies

17 Banking companies: surcharge

Schedule 3 contains provision for, and in connection with, a surcharge on
10banking companies.

18 Banking companies: expenses relating to compensation

(1) In CTA 2009, after section 133 insert—

““Banking companies

133A Compensation payments: restriction of deductions

(1) 15In calculating the profits of a trade carried on by a company (“company
A”) no deduction is allowed for expenses incurred by the company if
and so far as—

(a) the expenses are in respect of amounts of relevant
compensation (see subsection (3)), and

(b) 20the disclosure condition is met in relation to the expenses (see
section 133C).

(2) Subsection (1) does not apply to expenses which are excluded by
section 133D.

(3) In relation to company A, “relevant compensation” means
25compensation which is paid or payable—

(a) to or for the benefit of a customer of company A in respect of
relevant conduct (see subsection (6)) of company A, or

(b) to or for the benefit of a customer of a qualifying company in
respect of relevant conduct of that qualifying company (but see
30subsection (4)).

(4) Compensation paid or payable as mentioned in subsection (3)(b) is not
relevant compensation so far as it is paid or payable under
arrangements entered into between company A and the qualifying
company on arm’s length terms.

(5) 35“Qualifying company”, in relation to company A, means a company
which is associated with company A (see section 133L) at the time when
the expenses in question are recognised for accounting purposes.

(6) For the purposes of this section conduct of a company is “relevant
conduct” if the conduct occurs—

(a) on or after 29 April 1988, and

(b) at a time when the company is a banking company (see section
5133E).

(7) For the purposes of subsection (1) it does not matter whether the
compensation is paid, or to be paid, by company A or another person.

(8) In this section—

• “compensation”, “payment” and references to compensation
  10“paid or payable” in respect of relevant conduct of a company,
  are to be read in accordance with section 133K;

• “conduct” includes any act or omission;

• “customer” has the meaning given by section 133J.

133B Companies affected by section 133A: amounts treated as received

(1) 15This section applies where a company incurs in an accounting period
expenses which would, but for section 133A, be deductible in
calculating the profits of a trade carried on by that company.

(2) An amount equal to 10% of the relevant sum is to be brought into
account as a receipt in calculating the profits of the trade.

(3) 20The amount is treated as arising at the end of the accounting period.

(4) In this section “the relevant sum” means the total amount of the
expenses which as a result of section 133A are not deductible in
calculating the profits of the trade for the accounting period.

133C The disclosure condition

(1) 25In relation to expenses incurred by a company (“company A”) in
respect of amounts of relevant compensation, the “disclosure
condition” is met if—

(a) a relevant document indicates that the company—

(i) is or has been, or

(ii) 30will or may become,

liable to pay compensation in respect of a particular matter and
the relevant compensation can reasonably be regarded as
relating to that matter, or

(b) a relevant document refers to disciplinary action taken or to be
35taken by a regulator in respect of a particular matter and the
relevant compensation can reasonably be regarded as relating
to that matter.

(2) For the purposes of subsection (1)(a) it does not matter whether the
indication is express or implicit (or how it is expressed or conveyed)
40provided that it is reasonably clear from the relevant document that the
company is or has been, or will or may become, liable to pay
compensation in respect of the matter concerned.

(3) In this section “a relevant document” means—

(a) relevant accounts,

(b) 45a relevant statutory report, or

(c) a relevant listing disclosure.

(4) For the purposes of this section the following are “relevant accounts” in
relation to expenses incurred by company A—

(a) company A’s statutory accounts for a relevant period, and

(b) relevant consolidated accounts for a relevant period.

(5) 5For the purposes of this section, any of the following is a “relevant
statutory report” in relation to company A if the report in question is
prepared for a relevant period—

(a) any published report prepared by the directors of the company
for the purposes of any provision of the legislation under which
10company A is registered or, as the case may be, established;

(b) any published consolidated report prepared for such purposes,
if the company is included in the consolidation.

(6) In this section “relevant listing disclosure” means a disclosure
required—

(a) 15by rules under section 73A of FISMA 2000, or

(b) by virtue of a requirement imposed by or under a
corresponding provision of the law of a territory outside the
United Kingdom,

if the disclosure is made not later than the end of the period of account
20in which the expenses are recognised for accounting purposes.

(7) In this section “relevant period”, in relation to expenses incurred by
company A, means—

(a) the period of account in which the expenses are recognised for
accounting purposes, or

(b) 25any period which ends not later than the end of that period.

(8) In this section, in relation to a company—

• “relevant compensation” has the meaning given by section
  133A(3);

• “statutory accounts” means accounts prepared for the purposes of
  30any provision of the legislation under which the company is
  registered or, as the case may be, established;

• “relevant consolidated accounts” means consolidated accounts
  prepared for any such purposes, if the company is included in
  the consolidation.

133D 35Excluded expenses

(1) Expenses in respect of relevant compensation are excluded by this
section if the compensation is in respect of—

(a) an administrative error,

(b) the failure of a computer or electronic system, or

(c) 40loss or damage which is wholly or mainly attributable to an
unconnected third party.

(2) In subsection (1) “third party” means a person who is neither the
company mentioned in section 133A(1) nor (if different) the company
in respect of whose conduct the compensation is paid or payable (see
45section 133A(3)(b)).

(3) For the purposes of this section a third party (“TP”) is an “unconnected
third party” unless—