Finance Bill (HC Bill 47)

Finance BillPage 530

(b) at any time in the control period (see paragraph 21), or

(c) in pursuance of, or in connection with, arrangements made
before the end of the control period,

then, subject to sub-paragraph (2), the relief, or an appropriate
5proportion of it, is withdrawn, and tax is chargeable in accordance
with this paragraph.

(2) Relief is withdrawn only if, at the time when the purchaser ceases
to be a co-ownership authorised contractual scheme, the
purchaser holds—

(a) 10the chargeable interest that was acquired by the purchaser
under the relevant transaction, or

(b) a chargeable interest that is derived from that interest.

(3) The amount chargeable is the amount that would have been
chargeable in respect of the relevant transaction but for COACS
15seeding relief or, as the case may be, an appropriate proportion of
the tax that would have been so chargeable.

(4) In sub-paragraphs (1) and (3) an “appropriate proportion” means
an appropriate proportion having regard to the subject-matter of
the relevant transaction and what is held by the purchaser at the
20time it ceases to be a co-ownership authorised contractual scheme.

Withdrawal of relief: genuine diversity of ownership condition not met

14 (1) Where COACS seeding relief has been allowed in respect of a
transaction (“the relevant transaction”), and the genuine diversity
of ownership condition (see paragraph 15) is not met—

(a) 25immediately before the end of the seeding period,

(b) at a time in the control period, or

(c) at a time after the end of the control period, where the
failure is pursuant to or in connection with arrangements
made before the end of that period,

30then, subject to sub-paragraph (2), the relief, or an appropriate
proportion of it, is withdrawn, and tax is chargeable in accordance
with this paragraph.

(2) The requirement to meet the genuine diversity of ownership
condition at a time mentioned in sub-paragraph (1) applies only to
35times when the co-ownership authorised contractual scheme
holds—

(a) the chargeable interest that was acquired by the scheme
under the relevant transaction, or

(b) a chargeable interest that is derived from that interest.

(3) 40The amount chargeable is the amount that would have been
chargeable in respect of the relevant transaction but for COACS
seeding relief or, as the case may be, an appropriate proportion of
the tax that would have been so chargeable.

(4) In sub-paragraphs (1) and (3) an “appropriate proportion” means
45an appropriate proportion having regard to the subject-matter of
the relevant transaction and what is held by the scheme at the time
when the genuine diversity of ownership condition is not met.

Finance BillPage 531

(5) For the purposes of this paragraph, the operator of a co-ownership
authorised contractual scheme may apply to HMRC in writing for
clearance that the scheme meets the genuine diversity of
ownership condition, and where an application is made, HMRC
5must notify the scheme of its decision within 28 days of the receipt
of all the information that is needed to make the decision.

(6) Any such clearance has effect only for so long as the information
on which HMRC relies in granting clearance is materially
unchanged and the scheme is operated in accordance with it
10(including, in particular, continuing to operate in accordance with
condition C of the genuine diversity of ownership condition).

Genuine diversity of ownership condition

15 (1) This paragraph has effect for the purposes of paragraphs 14 and
18(4).

(2) 15A co-ownership authorised contractual scheme meets the genuine
diversity of ownership condition at any time when it meets
conditions A to C.

(3) Condition A is that the scheme documents, which are available to
investors and to HMRC, contain—

(a) 20a statement specifying the intended categories of investor,

(b) an undertaking that units in the scheme will be widely
available, and

(c) an undertaking that units in the scheme will be marketed
and made available in accordance with the requirements of
25sub-paragraph (6)(a).

(4) Condition B is that—

(a) the specification of the intended categories of investor does
not have a limiting or deterrent effect, and

(b) any other terms or conditions governing participation in
30the scheme do not have a limiting or deterrent effect.

(5) In sub-paragraph (4) “limiting or deterrent effect” means an effect
which—

(a) limits investors to a limited number of specific persons or
specific groups of connected persons, or

(b) 35deters a reasonable investor falling within one of (what are
specified as) the intended categories of investor from
investing in the scheme.

(6) Condition C is that—

(a) units in the scheme are marketed and made available—

(i) 40sufficiently widely to reach the intended categories
of investors, and

(ii) in a manner appropriate to attract those categories
of investors, and

(b) a person who falls within one of the intended categories of
45investors can, upon request to the operator of the scheme,
obtain information about the scheme and acquire units in
it.

Finance BillPage 532

(7) A scheme is not regarded as failing to meet condition C at any time
by reason of the scheme’s having, at that time, no capacity to
receive additional investments, unless—

(a) the capacity of the scheme to receive investments in it is
5fixed by the scheme documents (or otherwise), and

(b) a pre-determined number of specific persons or specific
groups of connected persons make investments in the
scheme which collectively exhaust all, or substantially all,
of that capacity.

(8) 10A co-ownership authorised contractual scheme also meets the
genuine diversity of ownership condition at any time when—

(a) there is a feeder fund in relation to the scheme (see
paragraph 20), and

(b) conditions A to C are met in relation to the scheme after
15taking into account—

(i) the scheme documents relating to the feeder fund,
and

(ii) the intended investors in the feeder fund.

(9) Section 1122 of CTA 2010 (connected persons) has effect for the
20purposes of this paragraph.

Withdrawal of relief: portfolio test not met

16 (1) Where COACS seeding relief has been allowed in respect of a
transaction, and the portfolio test is not met immediately before
the end of the seeding period, the relief is withdrawn and tax is
25chargeable in accordance with sub-paragraph (2).

See sub-paragraph (7) for the meaning of “portfolio test”.

(2) The amount chargeable is the amount that would have been
chargeable in respect of the transaction but for COACS seeding
relief.

(3) 30Where COACS seeding relief has been allowed in respect of a
transaction (“the relevant transaction”), and the portfolio test is
met immediately before the end of the seeding period, but is not
met—

(a) at a time in the control period, or

(b) 35at a time after the end of the control period, where the
failure is pursuant to or in connection with arrangements
made before the end of that period,

then, subject to sub-paragraph (4), the relief, or an appropriate
proportion of it, is withdrawn, and tax is chargeable in accordance
40with sub-paragraph (5).

(4) The requirement to meet the portfolio test at a time mentioned in
sub-paragraph (3)(a) or (b) applies only to times when the co-
ownership authorised contractual scheme holds—

(a) the chargeable interest that was acquired by the scheme
45under the relevant transaction, or

(b) a chargeable interest that is derived from that interest.

Finance BillPage 533

(5) The amount chargeable is the amount that would have been
chargeable in respect of the relevant transaction but for COACS
seeding relief or, as the case may be, an appropriate proportion of
the tax that would have been so chargeable.

(6) 5In sub-paragraphs (3) and (5) an “appropriate proportion” means
an appropriate proportion having regard to the subject-matter of
the relevant transaction and what is held by the scheme at the time
when the portfolio test is not met.

(7) The portfolio test is a requirement that the scheme meets—

(a) 10the non-residential portfolio test (see sub-paragraph (8)),
or

(b) the residential portfolio test (see sub-paragraph (9)).

(8) The “non-residential portfolio test” is met at any time if—

(a) the scheme holds at least 10 seeded interests at that time,

(b) 15so much of the total chargeable consideration as is
attributable to all the seeded interests held by the scheme
at that time (“the seeded portfolio”) is at least £100 million,
and

(c) so much of the total chargeable consideration as is
20attributable to so many of those seeded interests as are
interests in or over residential property (if any) does not
exceed 10% of the seeded portfolio.

(9) The “residential portfolio test” is met at any time if—

(a) so much of the total chargeable consideration as is
25attributable to all the seeded interests held by the scheme
at that time is at least £100 million, and

(b) at least 100 of the seeded interests held by the scheme at
that time are interests in or over residential property.

(10) In sub-paragraphs (8) and (9)—

  • 30“seeded interest” means a chargeable interest acquired by the
    scheme in a transaction for which COACS seeding relief is
    allowed (whether or not relief is subsequently withdrawn
    to any extent) (a “seeding transaction”), and

  • “total chargeable consideration” means the total of the
    35chargeable consideration for all seeding transactions.

(11) For the purposes of this paragraph, section 116(7) does not apply
(modification of what counts as residential property).

Withdrawal of relief: units disposed of

17 (1) This paragraph applies where—

(a) 40a person (“V”) makes a relevant disposal of one or more
units in a co-ownership authorised contractual scheme—

(i) at any time in the seeding period,

(ii) at any time in the control period, or

(iii) in pursuance of, or in connection with,
45arrangements made before the end of the control
period, and

Finance BillPage 534

(b) there is, in relation to that disposal, a relevant seeding
transaction (see sub-paragraph (6)).

(2) In respect of a transaction which is, in relation to the relevant
disposal, a relevant seeding transaction—

(a) 5COACS seeding relief is withdrawn to the extent set out in
this paragraph, and

(b) tax is chargeable in accordance with this paragraph.

(3) V’s disposal of units in a scheme is a “relevant disposal” for the
purposes of this paragraph if, in relation to the disposal, A exceeds
10B.

(4) In this paragraph—

  • “A” means—

    (a)

    where the value of V’s investment in the scheme
    immediately before the disposal is equal to or greater
    15than the total of the chargeable consideration for all
    relevant seeding transactions, the total of the
    chargeable consideration for all relevant seeding
    transactions, or

    (b)

    where the value of V’s investment in the scheme
    20immediately before the disposal is less than the total
    of the chargeable consideration for all relevant
    seeding transactions, the value of V’s investment in
    the scheme immediately before the disposal, and

  • “B” means the value of V’s investment in the scheme
    25immediately after the disposal.

(5) The amount chargeable in respect of a relevant seeding transaction
(“RST”) is—


where—

  • 30“C” means the difference between A and B;

  • “CCRST” means the total of the chargeable consideration for
    all relevant seeding transactions;

  • SDLT” means the amount of tax that would have been
    chargeable in respect of RST but for COACS seeding relief,
    35ignoring any amount of tax that has been charged under
    this paragraph in respect of RST in relation to an earlier
    disposal of units by V.

(6) In this paragraph—

  • “group company” means (where V is a company) a company
    40which is a member of the same group of companies as V
    for the purposes mentioned in paragraph 1(2) of Schedule
    7 (group relief);

  • “relevant seeding transaction”, in relation to a disposal of
    units by V in a co-ownership authorised contractual
    45scheme, means a seeding transaction—

    Finance BillPage 535

    (a)

    the effective date of which is, or is before, the date of
    the disposal,

    (b)

    in which that scheme is the purchaser, and

    (c)

    in which a vendor is—

    (i)

    5V, or

    (ii)

    (where V is a company) a company which is a
    group company at the time of the disposal;

  • “seeding transaction” means a transaction in respect of which
    COACS seeding relief is allowed (whether or not relief is
    10subsequently withdrawn to any extent);

  • “the value of V’s investment in the scheme” at a particular
    time means the market value of all units in the co-
    ownership authorised contractual scheme held at that time
    by—

    (a)

    15V, and

    (b)

    (where V is a company) a company which—

    (i)

    is a group company at that time, and

    (ii)

    before that time, has been a vendor in one or
    more seeding transactions in which the
    20scheme was the purchaser.

(7) For the purposes of this paragraph, the “market value” on a
particular date of units in the scheme is an amount equal to the
buying price (that is, the lower price) published by the operator on
that date (or, if no such price is published on that date, on the latest
25date before).

Withdrawal of relief: dwelling occupied by non-qualifying individual

18 (1) This paragraph applies to a transaction (“the relevant
transaction”) if—

(a) COACS seeding relief has been allowed in respect of the
30transaction,

(b) the main subject-matter of the transaction consists of a
chargeable interest in or over land which is or includes a
dwelling, and

(c) a non-qualifying individual (see paragraph 19) is
35permitted to occupy the dwelling at any time on or after
the effective date of the transaction.

The dwelling which a non-qualifying individual is permitted to
occupy is referred to as “the disqualifying dwelling”.

(2) The relief, or an appropriate proportion of it, is withdrawn, and
40tax is chargeable in accordance with this paragraph.

This is subject to sub-paragraphs (3) and (4).

(3) Relief is withdrawn only if, at the time a non-qualifying individual
is permitted to occupy the disqualifying dwelling, the co-
ownership authorised contractual scheme holds a chargeable
45interest in or over that dwelling—

(a) that was acquired by the scheme under the relevant
transaction, or

(b) that is derived from an interest so acquired.

Finance BillPage 536

(4) Where a non-qualifying individual is first permitted to occupy the
disqualifying dwelling at a time after the end of the control period,
relief is withdrawn only if, at that time, the scheme fails to meet
the genuine diversity of ownership condition (see paragraph 15).

(5) 5The amount chargeable is the amount that would have been
chargeable in respect of the relevant transaction but for COACS
seeding relief or, as the case may be, an appropriate proportion of
the tax that would have been so chargeable.

(6) In sub-paragraphs (2) and (5), an “appropriate proportion” means
10an appropriate proportion having regard to the extent to which
the subject-matter of the relevant transaction was an interest in or
over land other than the disqualifying dwelling.

19 (1) In paragraph 18 “non-qualifying individual”, in relation to a land
transaction and a co-ownership authorised contractual scheme,
15means any of the following—

(a) an individual who is a major participant in the scheme;

(b) an individual who is connected with a major participant in
the scheme;

(c) an individual who is connected with the operator of the
20scheme (see section 102A) or the depositary of the scheme;

(d) a relevant settlor;

(e) the spouse or civil partner of an individual falling within
paragraph (b), (c) or (d);

(f) a relative of an individual falling within paragraph (b), (c)
25or (d), or the spouse or civil partner of a relative of an
individual falling within paragraph (b), (c) or (d);

(g) a relative of the spouse or civil partner of an individual
falling within paragraph (b), (c) or (d);

(h) the spouse or civil partner of an individual falling within
30paragraph (g).

(2) An individual who participates in a scheme is a “major
participant” in it if the individual—

(a) is entitled to a share of at least 50% either of all the profits
or income arising from the scheme or of any profits or
35income arising from it that may be distributed to
participants, or

(b) would in the event of the winding up of the scheme be
entitled to 50% or more of the assets of the scheme that
would then be available for distribution among the
40participants.

(3) The reference in sub-paragraph (2)(a) to profits or income arising
from the scheme is to profits or income arising from the
acquisition, holding, management or disposal of the property
subject to the scheme.

(4) 45In this paragraph—

  • “depositary”, in relation to a co-ownership authorised
    contractual scheme, means the person to whom the
    property subject to the scheme is entrusted for
    safekeeping;

  • Finance BillPage 537

  • “relative” means brother, sister, ancestor or lineal
    descendant;

  • “relevant settlor”, in relation to a land transaction, means an
    individual who is a settlor in relation to a relevant
    5settlement (as defined in sub-paragraph (5));

  • “settlement” has the same meaning as in Chapter 5 of Part 5
    of ITTOIA 2005 (see section 620 of that Act).

(5) Where a person, in the capacity of trustee of a settlement, is
connected with a person who is the purchaser under a land
10transaction, that settlement is a “relevant settlement” in relation to
the transaction.

(6) In sub-paragraph (5) “trustee” is to be read in accordance with
section 1123(3) of CTA 2010 (“connected” persons:
supplementary).

(7) 15Section 1122 of CTA 2010 (connected persons) has effect for the
purposes of this paragraph, but for those purposes, subsections (7)
and (8) of that section (application of rules about connected
persons to partnerships) are to be disregarded.

Part 3 20Interpretation

“Feeder fund” and “units”

20 In this Schedule—

  • a “feeder fund” of a property AIF means a unit trust
    scheme—

    (a)

    25one of the main objects of which is investment in the
    property AIF, and

    (b)

    which is managed by the same person as the property
    AIF;

  • a “feeder fund” of a co-ownership authorised contractual
    30scheme means an open-ended investment company, an
    offshore fund or a unit trust scheme—

  • (a)

    one of the main objects of which is investment in the
    co-ownership authorised contractual scheme, and

    (b)

    which is managed by the same person as the scheme;

  • 35“units in the property AIF” means—

    (a)

    units in the property AIF (and, where the property
    AIF is a part of an umbrella company as mentioned in
    regulation 7(1) and (2) of the AIF (Tax) Regulations,
    this means units in the separate pool to which that
    40part of the umbrella company relates), and

    (b)

    units in a feeder fund of the property AIF;

  • “units in the co-ownership authorised contractual scheme”
    means—

    (a)

    units in the co-ownership authorised contractual
    45scheme (and, where the co-ownership authorised
    contractual scheme is a sub-scheme of an umbrella
    COACS (see section 102A(3) and (4)), this means units

    Finance BillPage 538

    in the separate pool to which that sub-scheme relates),
    and

    (b)

    units in a feeder fund of the scheme;

  • “units” means the rights or interests (however described) of
    5the participants in the property AIF or the co-ownership
    authorised contractual scheme.

Interpretation of other terms

21 In this Schedule—

  • the “AIF (Tax) Regulations” means the Authorised
    10Investment Funds (Tax) Regulations 2006 (S.I. 2006/964S.I. 2006/964);

  • “arrangements” includes any scheme, agreement or
    understanding, whether or not legally enforceable;

  • “attributable” means attributable on a just and reasonable
    basis;

  • 15“authorised corporate director”, in relation to a property AIF,
    has the same meaning as in regulation 8 of the AIF (Tax)
    Regulations;

  • “COACS seeding relief” means relief under paragraph 10;

  • “control period” means the period of 3 years beginning with
    20the day following the last day of the seeding period;

  • “co-ownership authorised contractual scheme” is to be
    construed in accordance with section 102A (see in
    particular subsections (2), (5), (7) and (8) of that section);

  • “CTA 2010” means the Corporation Tax Act 2010;

  • 25“FSMA 2000” means the Financial Services and Markets Act
    2000;

  • the “genuine diversity of ownership condition”, in relation to
    a co-ownership authorised contractual scheme, has the
    meaning given by paragraph 15;

  • 30ITTOIA 2005” means the Income Tax (Trading and Other
    Income) Act 2005;

  • “non-qualifying individual” has the meaning given by
    paragraph 9 (in relation to a property AIF) and paragraph
    19 (in relation to a co-ownership authorised contractual
    35scheme);

  • “offshore fund” has the meaning given by section 355 of the
    Taxation (International and Other Provisions) Act 2010;

  • “open-ended investment company” has the meaning given
    by section 236 of FSMA 2000;

  • 40“operator”, in relation to a co-ownership authorised
    contractual scheme, has the same meaning as in section
    102A;

  • “PAIF seeding relief” means relief under paragraph 1;

  • “participant” is to be read in accordance with section 235 of
    45FSMA 2000;

  • “portfolio test” has the meaning given by paragraph 6(7) (in
    relation to a property AIF) and paragraph 16(7) (in relation
    to a co-ownership authorised contractual scheme);

  • Finance BillPage 539

  • “property AIF” is to be construed in accordance with
    paragraph 2 (see in particular sub-paragraphs (2), (3) and
    (5) of that paragraph);

  • “relevant disposal” has the meaning given by paragraph 7(3)
    5(in relation to a property AIF) and paragraph 17(3) (in
    relation to a co-ownership authorised contractual scheme);

  • “seeding period” has the meaning given by paragraph 3 (in
    relation to a property AIF) and paragraph 11 (in relation to
    a co-ownership authorised contractual scheme);

  • 10“unit trust scheme” has the meaning given by section 237(1)
    of FSMA 2000.”

Part 3 Consequential amendments

5 FA 2003 is amended in accordance with this Part.

6 15In section 75C (anti-avoidance: supplemental), in subsection (4), after
“Schedule 6A” insert “, 7A”.

7 (1) Section 81 (further return where relief withdrawn) is amended as follows.

(2) In subsection (1)—

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

(b) 20after paragraph (b) insert—

(ba) paragraph 5, 7 or 8 of Schedule 7A (PAIF seeding
relief),

(bb) paragraph 13, 17 or 18 of Schedule 7A (COACS
seeding relief), or”.

(3) 25In subsection (1A), after “transactions)” insert “, or under paragraph 6 of
Schedule 7A (PAIF seeding relief) or paragraph 14 or 16 of Schedule 7A
(COACS seeding relief),”.

(4) In subsection (1B), after paragraph (e) insert—

(f) in the case of relief under paragraph 6 of Schedule 7A (PAIF
30seeding relief: portfolio test)—

(i) where relief is withdrawn under paragraph 6(1), the
last day of the seeding period (see paragraph 3 of that
Schedule), or

(ii) where relief is withdrawn under paragraph 6(3), the
35first time mentioned in paragraph 6(3)(a) or (b) at
which the portfolio test was not met;

(g) in the case of relief under paragraph 14 of Schedule 7A
(COACS seeding relief: genuine diversity of ownership
condition), the first time mentioned in paragraph 14(1) at
40which the genuine diversity of ownership condition was not
met;

(h) in the case of relief under paragraph 16 of Schedule 7A
(COACS seeding relief: portfolio test)—

(i) where relief is withdrawn under paragraph 16(1), the
45last day of the seeding period (see paragraph 11 of
that Schedule), or