Finance (No. 2) Bill (HC Bill 155)

(i) chargeable to capital gains tax at the rate in section
169N(3), or

(ii) chargeable to capital gains tax at the rate in section
169VC(2).

(6A) 5Where this subsection applies—

(a) if the total amount of the special rate gains exceeds the unused
part of the individual’s basic rate band, the higher-rate excess is
to be treated as reduced by the amount by which the special rate
gains exceed that unused part;

(b) 10if not, the higher-rate excess is to be treated as consisting of
gains other than the special rate gains.”

(6B)(a)if the total amount of the special rate gains exceeds the unused
part of the individual’s basic rate band, the higher-rate excess is
to be treated as reduced by the amount by which the special rate
15gains exceed that unused part;

(b) if not, the higher-rate excess is to be treated as consisting of
gains other than the special rate gains.”

(9) In subsection (7) for “The reference in subsection (5)” substitute “Any reference
in this section”.

(10) 20In subsection (9) after “this section” insert “and section 4BA”.

(11) In subsection (10) after “and (5)” insert “and section 4BA(1)”.

(12) In section 4A of TCGA 1992 (special cases), in subsection (5) after “and (5)”
insert “and section 4BA(1)”.

(13) After section 4B of TCGA 1992 insert—

“4BA 25Rates, and use of unused basic rate band, in certain cases

(1) This section applies where an individual is chargeable to capital gains
tax in respect of gains accruing in a tax year and—

(a) no income tax is chargeable at the higher rate, the Welsh higher
rate or the dividend upper rate in respect of the income of the
30individual for the tax year,

(b) the amount on which the individual is chargeable to capital
gains tax for the tax year (“the chargeable gains amount”)
exceeds the unused part of the individual’s basic rate band, and

(c) all or part of the chargeable gains amount consists of upper rate
35gains.

(2) In the following provisions of this section “the available gains” means
the gains on which the individual is chargeable to capital gains tax for
the tax year, excluding any special rate gains.

(3) The available gains not used by the individual under subsection (4) are
40to be charged to capital gains tax—

(a) to the extent that they consist of upper rate gains, at the rate in
section 4(4)(a);

(b) to the extent that they consist of gains which are not upper rate
gains, at the rate in section 4(5).

(4) 45The individual may, subject to subsection (5) (which limits the overall
amount that can be used under this subsection)—

(a) use any of the available gains that are upper rate gains to be
charged at the rate in section 4(2)(a);

(b) use any of the available gains that are not upper rate gains to be
50charged at the rate in section 4(2)(b).

(5) The total amount of gains used under subsection (4) must equal the
qualifying amount.

(6) The “qualifying amount” is the unused part of the individual’s basic
rate band less the total amount of any special rate gains.

(7) 5If special rate gains are included in the chargeable gains amount,
subsection (4) applies only if the unused part of the individual’s basic
rate band exceeds the total amount of the special rate gains.

(8) In this section—

• “upper rate gains” has the same meaning as in section 4;

• 10“special rate gains” has the same meaning as in section 4(6);

• “the unused part of the individual’s basic rate band” has the same
  meaning as in section 4.

4BB Residential property gain or loss

(1) For the purposes of the charge to capital gains tax, a residential
15property gain or loss is a gain or loss which accrues on the disposal of
a residential property interest.

(2) But a residential property gain or loss does not accrue on a non-resident
CGT disposal.

(3) In this Act “disposal of a residential property interest” means—

(a) 20a disposal of a UK residential property interest, or

(b) a disposal of a non-UK residential property interest.

(4) Schedule B1 gives the meaning in this Act of “disposal of a UK
residential property interest”.

(5) Schedule BA1 gives the meaning in this Act of “disposal of a non-UK
25residential property interest”.

(6) See section 57C and Schedule 4ZZC for how to compute—

(a) the residential property gain or loss accruing on the disposal of
a residential property interest, and

(b) the gain or loss accruing on the disposal of a residential
30property interest which is not a residential property gain or
loss.”

(14) Schedule 11 inserts Schedule BA1 in TCGA 1992 and makes related
amendments.

(15) Schedule 12 inserts section 57C and Schedule 4ZZC in TCGA 1992 and makes
35related amendments.

(16) The amendments made by this section and Schedules 11 and 12 have effect in
relation to gains accruing on or after 6 April 2016.

(17) In relation to a time before the tax year appointed under section 14(3)(b) of the
Wales Act 2014 in relation to the provision inserted by section 9(14) of that Act,
40subsection (1) of section 4BA of TCGA 1992 (inserted by subsection (13) of this
section) has effect as if the words “, the Welsh higher rate” were omitted.

(18) In relation to a time before the tax year appointed under section 13(15) of the
Scotland Act 2016, subsection (1) of section 4BA of TCGA 1992 (inserted by

subsection (13) of this section) has effect as if before “or the dividend upper
rate” there were inserted “, the Scottish higher rate”.

Entrepreneurs' relief

73 Entrepreneurs’ relief: associated disposals

(1) 5Section 169K of TCGA 1992 (disposal associated with relevant material
disposal) is amended as follows.

(2) In subsection (1)—

(a) in paragraph (a), before “A1” insert “ZA1,”, and

(b) in paragraph (b), for “and C” substitute “, C and D”.

(3) 10After subsection (1) insert—

“(1ZA) Condition ZA1 is that an individual (“P”) makes a material disposal of
business assets which consists of the disposal of the whole of P’s
interest in the assets of a partnership, and—

(a) P holds at least a 5% interest in the partnership’s assets
15throughout a continuous period of at least 3 years in the 8 years
ending with the date of the disposal, and

(b) at the date of the disposal, no partnership purchase
arrangements exist.”

(4) In subsection (1A), in the words before paragraph (a)—

(a) 20for “an individual (“P”)” substitute “P”, and

(b) omit “the whole or”.

(5) After subsection (1A) insert—

“(1AA) Subject to subsection (6A), for the purposes of conditions ZA1 and A1,
in relation to the disposal of an interest in the assets of a partnership,
25“partnership purchase arrangements” means arrangements (other than
the material disposal itself) under which P or a person connected with
P is entitled to acquire any interest in, or increase that person’s interest
in, the partnership (including a share of the profits or assets of the
partnership or an interest in such a share).”

(6) 30In subsection (1E), in the words before paragraph (a)—

(a) at the beginning insert “Subject to subsection (6A),”, and

(b) after “means arrangements” insert “(other than the material disposal
itself)”.

(7) After subsection (3A) insert—

“(3AA) 35Subject to subsection (6A), for the purposes of condition B, in relation
to a disposal mentioned in that condition and a partnership,
“partnership purchase arrangements” means arrangements under
which P or a person connected with P is entitled to acquire any interest
in, or increase that person’s interest in, the partnership (including a
40share of the profits or assets of the partnership or an interest in such a
share), but does not include any arrangements in connection with a
material disposal in relation to which condition ZA1 or A1 is met.”

(8) In subsection (3B), for “arrangements” to the end substitute “share purchase
arrangements”.

(9) After subsection (3B) insert—

“(3BA) Subject to subsection (6A), for the purposes of condition B, in relation
5to a disposal mentioned in that condition and company A, “share
purchase arrangements” means arrangements under which P or a
person connected with P is entitled to acquire shares in or securities
of—

(a) company A, or

(b) 10a company which is a member of a trading group of which
company A is a member,

but does not include any arrangements in connection with a material
disposal in relation to which condition A2 or A3 is met.”

(10) In subsection (3C), for “(3B)” substitute “(3BA)”.

(11) 15After subsection (4) insert—

“(4A) Condition D is that the disposal mentioned in condition B is of an asset
which P owns throughout the period of 3 years ending with the date of
that disposal.”

(12) Omit subsection (6).

(13) 20Before subsection (7) insert—

“(6A) For the purposes of this section, in relation to a material disposal of
business assets and a disposal mentioned in condition B, arrangements
are not partnership purchase arrangements or share purchase
arrangements if they were made before both disposals and without
25regard to either of them.”

(14) In subsection (9), after “entitled to share in the” insert “capital”.

(15) The amendments made by this section have effect in relation to disposals made
on or after 18 March 2015.

74 Entrepreneurs’ relief: disposal of goodwill

(1) 30Section 169LA of TCGA 1992 (relevant business assets: goodwill transferred to
a related party etc) is amended as follows.

(2) In subsection (1)—

(a) at the beginning insert “Subject to subsection (1A),”,

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

(c) 35after paragraph (a) insert—

“(aa) immediately after the disposal—

(i) P and any relevant connected person together
own 5% or more of the ordinary share capital of
C or of any company which is a member of a
40group of companies of which C is a member, or

(ii) P and any relevant connected person together
hold 5% or more of the voting rights in C or in
any company which is a member of a group of
companies of which C is a member.”, and”

(d) omit paragraphs (b) and (c).

(3) After subsection (1) insert—

“(1A) Where—

(a) subsection (1)(aa) applies by virtue of P’s ownership, or any
5relevant connected person’s ownership, of C’s ordinary share
capital, and

(b) the conditions mentioned in subsection (1B) are met,

subsection (4) does not apply.

(1B) The conditions referred to in subsection (1A)(b) are—

(a) 10P and any relevant connected person dispose of C’s ordinary
share capital to another company (“A”) such that, immediately
before the end of the relevant period, neither P nor any relevant
connected person own any of C’s ordinary share capital, and

(b) where A is a close company, immediately before the end of the
15relevant period—

(i) P and any relevant connected person together own less
than 5% of the ordinary share capital of A or of any
company which is a member of a group of companies of
which A is a member, and

(ii) 20P and any relevant connected person together hold less
than 5% of the voting rights in A or in any company
which is a member of a group of companies of which A
is a member.

(1C) In subsection (1B) “the relevant period” means the period of 28 days
25beginning with the date of the qualifying business disposal, or such
longer period as the Commissioners for Her Majesty’s Revenue and
Customs may by notice allow.”

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

(5) In subsection (5), omit the words from “(including” to the end.

(6) 30In subsection (7), omit paragraph (b) and the “or” at the end of paragraph (a).

(7) In subsection (8)—

(a) after the definition of “arrangements” insert—

• “““group” is to be construed in accordance with section
  170;”, and”

(b) 35for the definition of “associate”, “control”, “major interest” and
“participator” substitute—

• “““relevant connected person” means—

  (a)

  a company connected with P, and

  (b)

  trustees connected with P.”

(8) 40In the heading, for “related party etc” substitute “close company”.

(9) The amendments made by this section have effect in relation to disposals made
on or after 3 December 2014.

75 Entrepreneurs’ relief: “trading company” and “trading group”

Schedule 13 contains provision about the meaning of “trading company” and
“trading group” for the purposes of Chapter 3 of Part 5 of TCGA 1992
(entrepreneurs’ relief).

5Investors' relief

76 Investors’ relief

Schedule 14 contains provision relating to investors’ relief.

Employee shareholder shares

77 Employee shareholder shares: limit on exemption

(1) 10Section 236B of TCGA 1992 (exemption for employee shareholder shares) is
amended in accordance with subsections (2) and (3).

(2) After subsection (1) insert—

“(1A) Where a gain accrues to a person (“P”) on the first disposal of a post-16
March 2016 exempt employee shareholder share (the “relevant
15disposal”), subsection (1) applies only to so much of the gain as, when
added to the total amount of previous potentially chargeable gains,
does not exceed £100,000.

(1B) For the purposes of subsection (1A), “previous potentially chargeable
gain” means a gain accruing to P on the first disposal of a post-16 March
202016 exempt employee shareholder share at any time before the
relevant disposal.

(1C) Where a single transaction disposes of more than one post-16 March
2016 exempt employee shareholder share, the reference in subsection
(1A) to the first disposal of a share is to be treated as a reference to the
25disposal of all of the post-16 March 2016 exempt employee shareholder
shares first disposed of by that transaction.”

(3) After subsection (3) insert—

“(3A) In this section, “post-16 March 2016 exempt employee shareholder
share” means an exempt employee shareholder share acquired in
30consideration of an employee shareholder agreement entered into after
16 March 2016.”

(4) Section 58 of TCGA 1992 (spouses and civil partners) is amended in accordance
with subsections (5) and (6).

(5) In subsection (2)(c) after “disposal is” insert “a relevant disposal”.

(6) 35After subsection (2) insert—

“(3) For the purposes of subsection (2) a disposal of exempt employee
shareholder shares is a “relevant disposal” if (apart from this section)—

(a) a gain would accrue on the disposal, and

(b) no part of the gain would be a chargeable gain.

(4) Subsection (5) applies where the disposal is of exempt employee
shareholder shares and (apart from this section)—

(a) a gain would accrue on the disposal, and

(b) part (but not the whole) of the gain would be a chargeable gain
5by virtue of section 236B(1A).

(5) Where this subsection applies, subsection (1) has effect in relation to the
disposal as if—

(a) for “such amount as” there were substituted “the maximum
amount, not exceeding the market value of the asset, that”, and

(b) 10for “neither a gain nor a loss” there were substituted “no
chargeable gain”.”

(7) The amendments made by this section have effect in relation to disposals made
after 16 March 2016.

78 Employee shareholder shares: disguised fees and carried interest

(1) 15In section 236B of TCGA 1992 (exemption for employee shareholder shares),
after subsection (2) insert—

“(2A) Subsection (1) does not apply in relation to a gain accruing on a
disposal where the proceeds of the disposal, in relation to any
individual, constitute—

(a) 20a disguised fee for the purposes of Chapter 5E of Part 13 of ITA
2007 (see section 809EZA(3) of that Act), or

(b) carried interest within the meaning given by section 809EZC of
that Act.”

(2) The amendment made by this section has effect in relation to gains accruing on
25or after 6 April 2016.

Other provisions

79 Disposals of UK residential property by non-residents etc

(1) In Schedule 4ZZA to TCGA 1992 (relevant high value disposals: gains and
losses), in paragraph 2(1), for “paragraph 6” substitute “paragraph 6A”.

(2) 30In Schedule 4ZZB to TCGA 1992 (non-resident CGT disposals: gains and
losses), in paragraph 17—

(a) omit sub-paragraph (2), and

(b) in sub-paragraph (3), omit the words from “If” to “applies”.

(3) The amendment made by subsection (1) has effect in relation to disposals made
35on or after 6 April 2015.

(4) The amendment made by subsection (2) has effect in relation to disposals made
on or after 26 November 2015.

80 NRCGT returns

In TMA 1970, after section 12ZB (NRCGT return) insert—

“12ZBA Elective NRCGT return

(1) A person is not required to make and deliver an NRCGT return under
5section 12ZB(1), but may do so, in circumstances to which this section
applies.

(2) The circumstances to which this section applies are where the disposal
referred to in section 12ZB(1) is—

(a) a disposal on or after 6 April 2015 where, by virtue of any of the
10no gain/no loss provisions, neither a gain nor a loss accrues, or

(b) the grant of a lease on or after 6 April 2015 which is—

(i) for no premium,

(ii) to a person who is not connected with the grantor, and

(iii) under a bargain made at arm’s length.

(3) 15For the purposes of subsection (2)—

• “connected” is to be construed in accordance with section 286 of
  1992 Act;

• “no gain/no loss provisions” has the meaning given by section
  288(3A) of the 1992 Act;

• 20“lease” and premium” have the meanings given by paragraph 10
  of Schedule 8 to the 1992 Act.

(4) The Treasury may by regulations made by statutory instrument add or
remove circumstances to which this section applies.

(5) Regulations under subsection (4) may—

(a) 25amend this section or any other enactment;

(b) make consequential provision.

(6) A statutory instrument containing regulations under subsection (4) is
subject to annulment in pursuance of a resolution of the House of
Commons.

(7) 30Paragraph 1 of Schedule 55 to the Finance Act 2009 (penalty for late
returns) does not apply in relation to an NRCGT return which is made
and delivered by virtue of this section.”

81 Addition of CGT to Provisional Collection of Taxes Act 1968

In section 1 of the Provisional Collection of Taxes Act 1968 (temporary
35statutory effect of House of Commons resolutions affecting income tax etc), in
subsection (1), after “income tax,” insert “capital gains tax,”.

Part 5 Inheritance tax etc

82 Inheritance tax: increased nil-rate band

Schedule 15 contains provision in connection with the increased nil-rate band
5provided for by section 8D of IHTA 1984 (extra nil-rate band on death if
interest in home goes to descendants etc).

83 Inheritance tax: pension drawdown funds

(1) IHTA 1984 is amended as follows.

(2) In the italic heading before section 10, at the end insert “(and omissions that do
10not give rise to deemed dispositions)”.

(3) In section 12(2G) (interpretation of section 12(2ZA)), in the definition of
“entitled”, for “166(2)” substitute “167(1A), or section 166(2),”.

(4) After section 12 insert—

“12A Pension drawdown fund not used up: no deemed disposition

(1) 15Where a person has a drawdown fund, section 3(3) above does not
apply in relation to any omission that results in the fund not being used
up in the person’s lifetime.

(2) For the purposes of subsection (1) above, a person has a drawdown
fund if the person has—

(a) 20a member’s drawdown pension fund,

(b) a member’s flexi-access drawdown fund,

(c) a dependant’s drawdown pension fund,

(d) a dependant’s flexi-access drawdown fund,

(e) a nominee’s flexi-access drawdown fund, or

(f) 25a successor’s flexi-access drawdown fund, and

in respect of a money purchase arrangement under a registered
pension scheme.

(3) For the purposes of subsection (1) above, a person also has a drawdown
fund if sums or assets held for the purposes of a money purchase
30arrangement under a corresponding scheme would, if that scheme
were a registered pension scheme, be the person’s—

(a) member’s drawdown pension fund,

(b) member’s flexi-access drawdown fund,

(c) dependant’s drawdown pension fund,

(d) 35dependant’s flexi-access drawdown fund,

(e) nominee’s flexi-access drawdown fund, or

(f) successor’s flexi-access drawdown fund,

in respect of the arrangement.

(4) In this section—

• 40“corresponding scheme” means—

  (a)

  a qualifying non-UK pension scheme (see section 271A
  below), or

  Finance (No. 2) BillPage 139

  (b)

  a section 615(3) scheme that is not a registered pension
  scheme;

• “money purchase arrangement” has the same meaning as in Part 4
  of the Finance Act 2004 (see section 152 of that Act);

• 5“member’s drawdown pension fund”, “member’s flexi-access
  drawdown fund”, “dependant’s drawdown pension fund”,
  “dependant’s flexi-access drawdown fund”, “nominee’s flexi-
  access drawdown fund” and “successor’s flexi-access
  drawdown fund” have the meaning given, respectively, by
  10paragraphs 8, 8A, 22, 22A, 27E and 27K of Schedule 28 to that
  Act.”

(5) The amendment made by subsection (4)—

(a) so far as relating to a fund within the new section 12A(2)(a) or (c)
(drawdown pension funds), or to a fund within the new section 12A(3)
15that corresponds to a fund within the new section 12A(2)(a) or (c)—

(i) has effect where the person who has the fund dies on or after 6
April 2011, and

(ii) is to be treated as having come into force on 6 April 2011, and

(b) so far as relating to a fund mentioned in the new section 12A(2)(b), (d),
20(e) or (f) (flexi-access drawdown funds), or to a fund within the new
section 12A(3) that corresponds to a fund within the new section
12A(2)(b), (d), (e) or (f)—

(i) has effect where the person who has the fund dies on or after 6
April 2015, and

(ii) 25is to be treated as having come into force on 6 April 2015.

(6) Where an amount paid by way of—

(a) inheritance tax, or

(b) interest on inheritance tax,

is repayable as a result of the amendment made by subsection (4), section
30241(1) of IHTA 1984 applies as if the last date for making a claim for repayment
of the amount were 5 April 2020 if that is later than what would otherwise be
the last date for that purpose.

84 Inheritance tax: victims of persecution during Second World War era

(1) After section 153 of IHTA 1984 insert—

35““Payments to victims of persecution during Second World War era

153ZA Qualifying payments

(1) This section applies where a qualifying payment has at any time been
received by a person (“P”), or by the personal representatives of P.

(2) The tax chargeable on the value transferred by the transfer made on P’s
40death (the “value transferred”) is to be reduced by an amount equal
to—

(a) the relevant percentage of the amount of the qualifying
payment, or

(b) if lower, the amount of tax that would, apart from this section,
45be chargeable on the value transferred.