Finance (No. 2) Bill (HL Bill 156)
SCHEDULE 13 continued PART 2 continued
Contents page 470-479 480-489 490-499 500-509 510-519 520-539 540-549 550-559 560-569 570-579 580-588 590-606 607-609 610-619 620-629 630-639 640-649 650-659 660-669 670-679 680-689 Last page
Finance (No. 2) BillPage 580
(c) a relevant event occurs,
the principal of the loan is to be regarded as having been provided
to the trustees at the time of that event (despite sub-paragraph (2)).
(4) In sub-paragraph (3) “relevant event” means—
(a) 5capitalisation of interest payable under the loan,
(b)
any other failure to pay interest in accordance with the
terms of the loan, or
(c)
variation of the terms of the loan such that they cease to be
arm’s length terms.
(5) 10Sub-paragraph (6) applies (subject to sub-paragraph (7)) where—
(a)
the settlor becomes deemed domiciled in the United
Kingdom on or after 6 April 2017,
(b)
before the date on which the settlor becomes deemed
domiciled in the United Kingdom (“the deemed domicile
15date”), a loan has been made to the trustees of the
settlement by—
(i) the settlor, or
(ii)
the trustees of a settlement connected with the
settlor,
(c) 20the loan is not entered into on arm’s length terms, and
(d)
any amount that is outstanding under the loan on the
deemed domicile date (“the outstanding amount”) is
payable or repayable on demand on or after that date.
(6)
Where this sub-paragraph applies, the outstanding amount is to
25be regarded as property directly provided on the deemed
domicile date by the lender for the purposes of the settlement
(despite sub-paragraph (2)).
(7)
But if the deemed domicile date is 6 April 2017, sub-paragraph (6)
does not apply if—
(a)
30the principal of the loan is repaid, and all interest payable
under the loan is paid, before 6 April 2018, or
(b)
the loan becomes a loan on arm’s length terms before 6
April 2018 and—
(i)
before that date interest is paid to the lender in
35respect of the period beginning with 6 April 2017
and ending with 5 April 2018 as if those arm’s
length terms had been terms of the loan in relation
to that period, and
(ii)
interest continues to be payable from 6 April 2018
40in accordance with those terms.
(8)
For the purposes of this paragraph a loan is on “arm’s length
terms”—
(a)
in the case of a loan made to the trustees of a settlement,
only if interest at the official rate or more is payable at least
45annually under the loan;
(b)
in the case of a loan made by the trustees of a settlement,
only if any interest payable under the loan is payable at no
more than the official rate.
Finance (No. 2) BillPage 581
(9) For the purposes of this paragraph—
-
a settlement is “connected” with a person if the person is the
settlor or a beneficiary of it; -
“deemed domiciled” has the same meaning as in paragraph
55A; -
“official rate”, in relation to interest, means the rate of interest
applicable from time to time under section 178 of the
Finance Act 1989 for the purposes of Chapter 7 of Part 3 of
ITEPA 2003.””
10ITTOIA 2005
19 Chapter 5 of Part 5 of ITTOIA 2005 (settlements) is amended as follows.
20
In section 624 (income under a settlement where settlor retains an interest),
in subsection (3) (which lists provisions containing exceptions)—
(a) omit the “and” at the end of the entry for section 627, and
(b) 15after the entry for section 628 insert “, and
-
section 628A (exception for protected foreign-source
income).””
21 After section 628 insert—
“628A Exception for protected foreign-source income
(1)
20The rule in section 624(1) does not apply to income which arises
under a settlement if it is protected foreign-source income for a tax
year.
(2)
For this purpose, income arising under a settlement in a tax year is
“protected foreign-source income” for the tax year if Conditions A to
25F are met.
(3)
Condition A is that the income would be relevant foreign income if
it were income of a UK resident individual.
(4)
Condition B is that the income is from property originating from the
settlor (see section 645).
(5) 30Condition C is that when the settlement is created the settlor—
(a) is not domiciled in the United Kingdom, and
(b)
if the settlement is created on or after 6 April 2017, is not
deemed domiciled in the United Kingdom.
(6)
Condition D is that there is no time in the tax year when the settlor
35is—
(a) domiciled in the United Kingdom, or
(b)
deemed domiciled in the United Kingdom by virtue of
Condition A in section 835BA of ITA 2007.
(7)
Condition E is that the trustees of the settlement are not UK resident
40for the tax year.
(8)
Condition F is that no property or income is provided directly or
indirectly for the purposes of the settlement by the settlor, or by the
trustees of any other settlement of which the settlor is a beneficiary
or settlor, at a time in the relevant period when the settlor is—
Finance (No. 2) BillPage 582
(a) domiciled in the United Kingdom, or
(b) deemed domiciled in the United Kingdom.
(9) In subsection (8) “relevant period” means the period—
(a)
beginning with the start of 6 April 2017 or, if later, the
5creation of the settlement, and
(b) ending with the end of the tax year.
(10)
For the purposes of Condition F, the addition of value to property
comprised in the settlement is to be treated as the direct provision of
property for the purposes of the settlement.
(11)
10Section 628B (tainting) contains further provision for the purposes of
Condition F.
(12)
In this section “deemed domiciled” means regarded for the purposes
of section 809(1)(b) of ITA 2007 as domiciled in the United Kingdom
as a result of section 835BA of ITA 2007 having effect.
628B 15Section 628A: tainting
(1) This section applies for the purposes of Condition F in section 628A.
(2) Ignore—
(a)
property or income provided under a transaction, other than
a loan, where the transaction is entered into on arm’s length
20terms,
(b)
property or income provided, otherwise than under a loan,
without any intention by the person providing it to confer a
gratuitous benefit on any person,
(c)
the principal of a loan which is made to the trustees of the
25settlement on arm’s length terms,
(d)
the payment of interest to the trustees of the settlement under
a loan made by them on arm’s length terms,
(e)
repayment to the trustees of the settlement of the principal of
a loan made by them,
(f)
30property or income provided in pursuance of a liability
incurred by any person before 6 April 2017, and
(g)
where the settlement’s expenses relating to taxation and
administration for a tax year exceed its income for that year,
property or income provided towards meeting that excess if
35the value of any such property and income is not greater than
the amount of—
(i) the excess, or
(ii)
if greater, the amount by which such expenses exceed
the amount of such expenses which may be paid out
40of the settlement’s income.
(3) Where—
(a)
a loan is made to the trustees of the settlement by the settlor
or the trustees of a settlement connected with the settlor, and
(b) the loan is on arm’s length terms, but
(c) 45a relevant event occurs,
the principal of the loan is to be regarded as having been provided to
the trustees at the time of that event (despite subsection (2)).
Finance (No. 2) BillPage 583
(4) In subsection (3) “relevant event” means—
(a) capitalisation of interest payable under the loan,
(b)
any other failure to pay interest in accordance with the terms
of the loan, or
(c)
5variation of the terms of the loan such that they cease to be
arm’s length terms.
(5) Subsection (6) applies (subject to subsection (7)) where—
(a)
the settlor becomes deemed domiciled in the United
Kingdom on or after 6 April 2017,
(b)
10before the date on which the settlor becomes deemed
domiciled in the United Kingdom (“the deemed domicile
date”), a loan has been made to the trustees of the settlement
by—
(i) the settlor, or
(ii) 15the trustees of a settlement connected with the settlor,
(c) the loan is not entered into on arm’s length terms, and
(d)
any amount that is outstanding under the loan on the
deemed domicile date (“the outstanding amount”) is payable
or repayable on demand on or after that date.
(6)
20Where this subsection applies, the outstanding amount is to be
regarded as property directly provided on the deemed domicile date
by the lender for the purposes of the settlement (despite subsection
(2)).
(7)
But if the deemed domicile date is 6 April 2017, subsection (6) does
25not apply if—
(a)
the principal of the loan is repaid, and all interest payable
under the loan is paid, before 6 April 2018, or
(b)
the loan becomes a loan on arm’s length terms before 6 April
2018 and—
(i)
30before that date interest is paid to the lender in respect
of the period beginning with 6 April 2017 and ending
with 5 April 2018 as if those arm’s length terms had
been terms of the loan in relation to that period, and
(ii)
interest continues to be payable from 6 April 2018 in
35accordance with those terms.
(8) For the purposes of this section, a loan is on “arm’s length terms”—
(a)
in the case of a loan made to the trustees of a settlement, only
if interest at the official rate or more is payable at least
annually under the loan;
(b)
40in the case of a loan made by the trustees of a settlement, only
if any interest payable under the loan is payable at no more
than the official rate.
(9) For the purposes of this section—
-
a settlement is “connected” with a person if the person is the
45settlor or a beneficiary of it; -
“deemed domiciled” has the same meaning as in section 628A;
-
“official rate”, in relation to interest, means the rate of interest
applicable from time to time under section 178 of FA 1989 for
the purposes of Chapter 7 of Part 3 of ITEPA 2003.””
Finance (No. 2) BillPage 584
22
(1)
In section 629(5) (list of exceptions), at the end insert “or section 630A
(exception for protected foreign-source income).”
(2) After section 630 insert—
“630A Exception for protected foreign-source income
(1)
5The rule in section 629(1) does not apply to income which arises
under a settlement if it is protected foreign-source income for a tax
year.
(2)
Sections 628A(2) to (12) and 628B (meaning of “protected foreign-
source income”) have effect also for this purpose.””
23
(1)
10Section 635 (capital sums treated under section 633 as income: meaning of
“available income”) is amended as follows.
(2) In subsection (2), before “income” insert “unprotected”.
(3) After subsection (4) insert—
“(5)
In subsection (2) “unprotected income” means income which is not
15protected foreign-source income, and sections 628A(2) to (12) and
628B (meaning of “protected foreign-source income”) have effect also
for this purpose.””
24
In section 636(1) (meaning in section 635 of “undistributed”), before
“income”, in both places it occurs, insert “unprotected”.
25
20In section 645(1) (meaning of property originating from the settlor), for
“section” substitute “sections 628A and”.
ITA 2007
26
Chapter 2 of Part 13 of ITA 2007 (transfer of assets abroad) is amended as
follows.
27
25In section 721 (income of a person abroad that is treated as arising to a UK
resident individual), for subsection (3B) (amount treated as arising)
substitute—
“(3B)
The amount of the income treated as arising under subsection (1) is
(subject to sections 724 and 725) given by the following rules—
30Rule 1
The amount is equal to the amount of the income of the person
abroad if the individual—
-
is domiciled in the United Kingdom at any time in the tax
year, or -
35is at any time in the tax year regarded for the purposes of
section 718(1)(b) as domiciled in the United Kingdom as a
result of section 835BA having effect because of Condition A
in that section being met.
Rule 2”
Finance (No. 2) BillPage 585
28 After section 721 insert—
“721A Meaning of “protected foreign-source income” in section 721
(1)
This section has effect for the purposes of rule 2 of section 721(3B)
(cases where the individual is not UK domiciled and is not deemed
5domiciled by virtue of Condition A in section 835BA).
(2)
Income of the person abroad is “protected foreign-source income”
if—
(a)
it would be relevant foreign income if it were the
individual’s,
(b) 10it is from property originating from the individual,
(c) the person abroad is the trustees of a settlement,
(d) the trustees are non-UK resident for the tax year,
(e) when the settlement is created, the individual is—
(i) not domiciled in the United Kingdom, and
(ii)
15if the settlement is created on or after 6 April 2017, not
deemed domiciled in the United Kingdom, and
(f)
no property or income is provided directly or indirectly for
the purposes of the settlement by the individual, or by the
trustees of any other settlement of which the individual is a
20beneficiary or settlor, at a time in the period—
(i)
beginning with the start of 6 April 2017 or, if later, the
creation of the settlement, and
(ii) ending with the end of the tax year,
when the individual is domiciled or deemed domiciled in the
25United Kingdom.
(3)
Income of the person abroad is “protected foreign-source income”
if—
(a)
it would be relevant foreign income if it were the
individual’s,
(b) 30it is from property originating from the individual,
(c) the person abroad is a company,
(d) the trustees of a settlement—
(i) are participators in the person abroad, or
(ii)
are participators in the first in a chain of two or more
35companies where the last company in the chain is the
person abroad and where each company in the chain
(except the last) is a participator in the next company
in the chain,
(e)
the income is retained by the person abroad but, if not
40retained, would be paid out in respect of the trustees’ direct
or indirect participation in the person abroad,
(f) the trustees are not UK resident for the tax year,
(g) when the settlement is created, the individual is—
(i) not domiciled in the United Kingdom, and
(ii)
45if the settlement is created on or after 6 April 2017, not
deemed domiciled in the United Kingdom, and
(h)
no property or income is provided directly or indirectly for
the purposes of the settlement by the individual, or by the
Finance (No. 2) BillPage 586
trustees of any other settlement of which the individual is a
beneficiary or settlor, at a time in the period—
(i)
beginning with the start of 6 April 2017 or, if later, the
creation of the settlement, and
(ii) 5ending with the end of the tax year,
when the individual is domiciled or deemed domiciled in the
United Kingdom.
(4)
Section 645(1), (3) and (4) of ITTOIA 2005 (meaning of property
originating from a settlor) have effect for the purposes of subsections
10(2)(b) and (3)(b) as for the purposes of section 644 of that Act, but as
if references to the settlor concerned were references to the
individual.
(5)
For the purposes of subsections (2)(f) and (3)(h), the addition of value
to property comprised in the settlement is to be treated as the direct
15provision of property for the purposes of the settlement.
(6)
Section 721B (tainting) contains further provision for the purposes of
subsections (2)(f) and (3)(h).
(7) In this section—
-
“participator”, in relation to a company, has the meaning given
20by section 454 of CTA 2010; -
“deemed domiciled” means regarded for the purposes of
section 718(1)(b) as domiciled in the United Kingdom as a
result of section 835BA of ITA 2007 having effect.
721B Section 721A: tainting
(1)
25This section applies for the purposes of subsections (2)(f) and (3)(h)
of section 721A.
(2) Ignore—
(a)
property or income provided under a transaction, other than
a loan, where the transaction is entered into on arm’s length
30terms,
(b)
property or income provided, otherwise than under a loan,
without any intention by the person providing it to confer a
gratuitous benefit on any person,
(c)
the principal of a loan which is made to the trustees of the
35settlement on arm’s length terms,
(d)
the payment of interest to the trustees of the settlement under
a loan made by them on arm’s length terms,
(e)
repayment to the trustees of the settlement of the principal of
a loan made by them,
(f)
40property or income provided in pursuance of a liability
incurred by any person before 6 April 2017, and
(g)
where the settlement’s expenses relating to taxation and
administration for a tax year exceed its income for that year,
property or income provided towards meeting that excess if
45the value of any such property and income is not greater than
the amount of—
(i) the excess, or
Finance (No. 2) BillPage 587
(ii)
if greater, the amount by which such expenses exceed
the amount of such expenses which may be paid out
of the settlement’s income.
(3) Where—
(a)
5a loan is made to the trustees of the settlement by the settlor
or the trustees of a settlement connected with the settlor, and
(b) the loan is on arm’s length terms, but
(c) a relevant event occurs,
the principal of the loan is to be regarded as having been provided to
10the trustees at the time of that event (despite subsection (2)).
(4) In subsection (3) “relevant event” means—
(a) capitalisation of interest payable under the loan,
(b)
any other failure to pay interest in accordance with the terms
of the loan, or
(c)
15variation of the terms of the loan such that they cease to be
arm’s length terms.
(5) Subsection (6) applies (subject to subsection (7)) where—
(a)
the settlor becomes deemed domiciled in the United
Kingdom on or after 6 April 2017,
(b)
20before the date on which the settlor becomes deemed
domiciled in the United Kingdom (“the deemed domicile
date”), a loan has been made to the trustees of the settlement
by—
(i) the settlor, or
(ii) 25the trustees of a settlement connected with the settlor,
(c) the loan is not entered into on arm’s length terms, and
(d)
any amount that is outstanding under the loan on the
deemed domicile date (“the outstanding amount”) is payable
or repayable on demand on or after that date.
(6)
30Where this subsection applies, the outstanding amount is to be
regarded as property directly provided on the deemed domicile date
by the lender for the purposes of the settlement (despite subsection
(2)).
(7)
But if the deemed domicile date is 6 April 2017, subsection (6) does
35not apply if—
(a)
the principal of the loan is repaid, and all interest payable
under the loan is paid, before 6 April 2018, or
(b)
the loan becomes a loan on arm’s length terms before 6 April
2018 and—
(i)
40before that date interest is paid to the lender in respect
of the period beginning with 6 April 2017 and ending
with 5 April 2018 as if those arm’s length terms had
been terms of the loan in relation to that period, and
(ii)
interest continues to be payable from 6 April 2018 in
45accordance with those terms.
(8) For the purposes of this section, a loan is on “arm’s length terms”—
Finance (No. 2) BillPage 588
(a)
in the case of a loan made to the trustees of a settlement, only
if interest at the official rate or more is payable at least
annually under the loan;
(b)
in the case of a loan made by the trustees of a settlement, only
5if any interest payable under the loan is payable at no more
than the official rate.
(9) For the purposes of this section—
-
a settlement is “connected” with a person if the person is the
settlor or a beneficiary of it; -
10“deemed domiciled” has the same meaning as in section 721A;
-
“official rate”, in relation to interest, means the rate of interest
applicable from time to time under section 178 of FA 1989 for
the purposes of Chapter 7 of Part 3 of ITEPA 2003.””
29
In section 726 (individuals to whom remittance basis applies), after
15subsection (5) insert—
“(6)
In addition, where the tax year in which any foreign deemed income
arises is earlier than the tax year 2017-18, section 832 of ITTOIA 2005
does not apply to the foreign deemed income so far as it—
(a)
is remitted to the United Kingdom in the tax year 2017-18 or
20a later tax year, and
(b) is transitionally protected income.
(7) In subsection (6)—
-
“remitted to the United Kingdom” is to be read in accordance
with Chapter A1 of Part 14, and -
25“transitionally protected income” means any foreign deemed
income where the income mentioned in section 721(2)—(a)arises in a tax year earlier than the tax year 2017-18,
(b)would be protected foreign-source income as defined
by section 721A if section 721A—(i)30had effect for tax years earlier than the tax
year 2017-18, and(ii)so had effect with the omission of its
subsections (2)(f), (3)(h), (5) and (6), and(c)has not prior to 6 April 2017 been distributed by the
35trustees of the settlement concerned.””
30
In section 728 (income of a person abroad that is treated as arising to a UK
resident individual), for subsection (1A) (amount treated as arising)
substitute—
“(1A)
The amount of the income treated as arising under subsection (1) is
40(subject to subsection (2)) given by the following rules—
Rule 1
The amount is equal to the amount of the income of the person
abroad if the individual—
-
is domiciled in the United Kingdom at any time in the tax
45year, or -
is at any time in the tax year regarded for the purposes of
section 718(1)(b) as domiciled in the United Kingdom as aFinance (No. 2) BillPage 589
result of section 835BA having effect because of Condition A
in that section being met.
Rule 2”
31 After section 729 insert—
“729A 5 Meaning of “protected foreign-source income” in section 728
(1)
This section has effect for the purposes of rule 2 of section 728(1A)
(cases where the individual: is not UK domiciled; and is not a non-
UK domiciled person who is regarded as UK domiciled as a result of
condition A in section 835BA).
(2)
10Income of the person abroad is “protected foreign-source income”
if—
(a)
it would be relevant foreign income if it were the
individual’s,
(b) it is from property originating from the individual,
(c) 15the person abroad is the trustees of a settlement,
(d) the trustees are non-UK resident for the tax year,
(e) when the settlement is created, the individual is—
(i) not domiciled in the United Kingdom, and
(ii)
if the settlement is created on or after 6 April 2017, not
20deemed domiciled in the United Kingdom, and
(f)
no property or income is provided directly or indirectly for
the purposes of the settlement by the individual, or by the
trustees of any other settlement of which the individual is a
beneficiary or settlor, at a time in the period—
(i)
25beginning with the start of 6 April 2017 or, if later, the
creation of the settlement, and
(ii) ending with the end of the tax year,
when the individual is domiciled or deemed domiciled in the
United Kingdom.
(3)
30Income of the person abroad is “protected foreign-source income”
if—
(a)
it would be relevant foreign income if it were the
individual’s,
(b) it is from property originating from the individual,
(c) 35the person abroad is a company,
(d) the trustees of a settlement—
(i) are participators in the person abroad, or
(ii)
are participators in the first in a chain of two or more
companies where the last company in the chain is the
40person abroad and where each company in the chain
(except the last) is a participator in the next company
in the chain,
(e)
the income is retained by the person abroad but, if not
retained, would be paid out in respect of the trustees’ direct
45or indirect participation in the person abroad,