Finance (No. 2) Bill (HL Bill 156)

(3) In paragraph 7 (substantial shareholding requirement), for “two” substitute
“six”.

(4) In paragraph 10 (effect of earlier no-gain/no-loss transfer), in sub-paragraph
(2)(b), after “but for” insert “subsection (1A) or”.

(5) 5In paragraph 19 (requirements relating to company invested in)—

(a) in sub-paragraph (1)(b), at the beginning insert “in a case where sub-
paragraph 1A) applies,”;

(b) after sub-paragraph (1) insert—

“(1A) This sub-paragraph applies where—

(a) 10the disposal is a disposal to a person connected with
the investing company, or

(b) the requirement in paragraph 7 is met by virtue of
paragraph 15A.”;”

(c) at the end insert—

“(4) 15Section 1122 of CTA 2010 (meaning of “connected” persons)
applies for the purposes of sub-paragraph (1A)(a).””

(6) The amendments made by this section have effect in relation to disposals made
on or after 1 April 2017.

40 Substantial shareholding exemption: institutional investors

(1) 20Schedule 7AC to TCGA 1992 (exemptions for disposals by companies with
substantial shareholding) is amended as follows.

(2) After paragraph 3 insert—

““Subsidiary exemption: qualifying institutional investors

3A (1) This paragraph applies in relation to a gain or loss accruing to a
25company (“the investing company”) on a disposal of shares or an
interest in shares in another company (“the company invested in”).

(2) This paragraph applies if—

(a) the requirement in paragraph 7 is met (substantial
shareholder requirement),

(b) 30the requirement in paragraph 19 is not met (requirement
relating to company invested in), and

(c) the investing company is not a disqualified listed company.

(3) If, immediately before the disposal, 80% or more of the ordinary
share capital of the investing company is owned by qualifying
35institutional investors, no chargeable gain or loss accrues on the
disposal.

(4) If, immediately before the disposal, at least 25% but less than 80% of
the ordinary share capital of the investing company is owned by
qualifying institutional investors, the amount of the chargeable gain
40or loss accruing on the disposal is reduced by the percentage of the
ordinary share capital of the investing company which is owned by
the qualifying institutional investors.

(5) A company is a “disqualified listed company” for the purposes of
this Part of this Schedule if—

(a) any of the shares forming part of the ordinary share capital of
the company are listed on a recognised stock exchange,

(b) 5the company is not a qualifying institutional investor, and

(c) the company is not a qualifying UK REIT

(6) In sub-paragraph (5)(c) “qualifying UK REIT” means a UK REIT
within the meaning of Part 12 of CTA 2010 which—

(a) meets the condition in section 528(4)(b) of that Act (company
10not a close company by virtue of having an institutional
investor as a participant), or

(b) by virtue of section 443 of that Act (companies controlled by
or on behalf of Crown) is not treated as a close company.

3B (1) This paragraph applies for the purposes of paragraph 3A.

(2) 15A person “owns” ordinary share capital if the person owns it—

(a) directly,

(b) indirectly, or

(c) partly directly and partly indirectly.

(3) Sections 1155 to 1157 of CTA 2010 (meaning of “indirect ownership”
20and calculation of amounts owned indirectly) apply for the purposes
of sub-paragraph (2).

(4) For the purposes of sections 1155 to 1157 of CTA 2010 as applied by
sub-paragraph (3)—

(a) ordinary share capital may not be owned through a
25disqualified listed company;

(b) treat references to a body corporate as including an exempt
unauthorised unit trust (and references to ordinary share
capital, in the case of such a trust, as references to units in the
trust).

(5) 30A person is also to be regarded as owning ordinary share capital in a
company in circumstances where a person would, under paragraphs
12 and 13 of this Schedule, be regarded as holding shares in a
company.

(6) Where the assets of a partnership include ordinary share capital of a
35company, each partner is to be regarded as owning a proportion of
that share capital equal to the partner’s proportionate interest in that
ordinary share capital.

(7) In this Schedule “exempt unauthorised unit trust” has the same
meaning as in the Unauthorised Unit Trusts (Tax) Regulations 2013
40(SI 2013/2819SI 2013/2819).””

(3) After paragraph 8 insert—

“8A (1) This paragraph applies for the purposes of the exemption in
paragraph 3 or 3A in a case where at least 25% of the ordinary share
capital of the investing company is owned by qualifying institutional
45investors.

(2) The investing company also holds a “substantial shareholding” in
the company invested in for the purposes of paragraph 7 if—

(a) the investing company holds shares or interests in shares in
the company invested in the cost of which on acquisition was
5at least £20,000,000, and

(b) by virtue of those shares or interests in shares the investing
company—

(i) is beneficially entitled to not less than a proportionate
percentage of the profits available for distribution to
10equity holders of the company invested in, and

(ii) would be beneficially entitled on a winding up to not
less than a proportionate percentage of the assets of
the company invested in available for distribution to
equity holders.

(3) 15In sub-paragraph (2)—

• “cost” means the amount or value of the consideration, in
  money or money’s worth, given by the investing company or
  on its behalf wholly and exclusively for the acquisition of the
  shares or interests in shares, together with the incidental costs
  20to it of the acquisition;

• “proportionate percentage” means a percentage equal to the
  percentage of the ordinary share capital held by the investing
  company by virtue of the shares and interests in shares
  referred to in sub-paragraph (2)(a).

(4) 25For the purposes of sub-paragraph (2)(a) it does not matter whether
there was a single acquisition or a series of acquisitions.

(5) Paragraph 3B (owning ordinary share capital) applies for the
purposes of sub-paragraph (1).

(6) Paragraph 8(2) applies for the purposes of sub-paragraph (2).””

(4) 30In paragraph 9 (aggregation), in sub-paragraph (1), for “paragraph 7”
substitute “paragraphs 7 and 8A(2)”.

(5) After paragraph 30 insert—

““Meaning of “qualifying institutional investor”

30A (1) In this Schedule “qualifying institutional investor” means a person
35falling within any of A to G below.

“Pension schemes

A The trustee or manager of—

(a) a registered pension scheme, other than an investment-
regulated pension scheme, or

(b) 40an overseas pension scheme, other than one which would
be an investment-regulated pension scheme if it were a
registered pension scheme.

“Investment-regulated pension scheme” has the same meaning as
in Part 1 of Schedule 29A to the Finance Act 2004.

“Overseas pension scheme” has the same meaning as in Part 4 of
that Act.

Life assurance businesses

B A company carrying on life assurance business, if immediately
5before the disposal its interest in the investing company is held for
the purpose of providing benefits to policy holders in the course
of that business.

“Life assurance business” has the meaning given in section 56 of
the Finance Act 2012.

10Sovereign wealth funds etc

C A person who cannot be liable for corporation tax or income tax
(as relevant) on the ground of sovereign immunity.

Charities

D A charity.

15Investment trusts

E An investment trust.

Authorised investment funds

F An authorised investment fund which meets the genuine diversity
of ownership condition throughout the accounting period of the
20fund in which the disposal is made.

“Authorised investment fund” has the same meaning as in the
Authorised Investment Funds (Tax) Regulations 2006 (SI 2006/
964).

Regulation 9A of the Authorised Investment Funds (Tax)
25Regulations 2006 (genuine diversity of ownership) applies for this
purpose.

Exempt unauthorised unit trusts

G The trustees of an exempt unauthorised unit trust, where the trust
meets the genuine diversity of ownership condition throughout
30the accounting period of the trust in which the disposal is made.

Regulation 9A of the Authorised Investment Funds (Tax)
Regulations 2006 (genuine diversity of ownership) applies for this
purpose (treating references to an authorised investment fund as
including an exempt unauthorised unit trust).”

(2) 35The Treasury may by regulations amend this Schedule so as to add
or remove a person as a “qualifying institutional investor” (and may
in particular do so by changing the conditions subject to which a
person is a qualifying institutional investor).””

(6) In paragraph 31 (index), at the appropriate places insert—

(7) The amendments made by this section have effect in relation to disposals made
5on or after 1 April 2017.

CHAPTER 5 Provisions relating to more than one tax

Domicile, overseas property etc

41 Deemed domicile: income tax and capital gains tax

(1) In Chapter 2A of Part 14 of ITA 2007 (income tax liability: domicile), after
10section 835B insert—

“835BA Deemed domicile

(1) This section has effect for the purposes of the provisions of the Income
Tax Acts or TCGA 1992 which apply this section.

(2) An individual not domiciled in the United Kingdom at a time in a tax
15year (“the relevant tax year”) is to be regarded as domiciled in the
United Kingdom at that time if—

(a) condition A is met, or

(b) condition B is met.

(3) Condition A is that—

(a) 20the individual was born in the United Kingdom,

(b) the individual’s domicile of origin was in the United Kingdom,
and

(c) the individual is UK resident for the relevant tax year.

(4) Condition B is that the individual has been UK resident for at least 15
25of the 20 tax years immediately preceding the relevant tax year.

(5) But Condition B is not met if—

(a) the individual is not UK resident for the relevant tax year, and

(b) there is no tax year beginning after 5 April 2017 and preceding
the relevant tax year in which the person was UK resident.””

(2) 30Schedule 13 contains—

(a) provision applying section 835BA of ITA 2007, and

(b) further provision relating to this section.

42 Deemed domicile: inheritance tax

(1) In section 267 of IHTA 1984 (persons treated as domiciled in the United
35Kingdom), in subsection (1)—

(a) in paragraph (a), omit the final “or”;

(b) after that paragraph insert—

“(aa) he is a formerly domiciled resident for the tax year in
which the relevant time falls (“the relevant tax year”),
or”;”

(c) 5for paragraph (b) substitute—

“(b) he was resident in the United Kingdom—

(i) for at least fifteen of the twenty tax years
immediately preceding the relevant tax year,
and

(ii) 10for at least one of the four tax years ending with
the relevant tax year.””

(2) In that section, omit subsection (3).

(3) In that section, in subsection (4), for “in any year of assessment” substitute “for
any tax year”.

(4) 15In section 48 of that Act (settlements: excluded property)—

(a) in subsection (3)(b), for “and (3D)” substitute “to (3E)”;

(b) in subsection (3A)(b), for “subsection (3B)” substitute “subsections (3B)
and (3E)”;

(c) after subsection (3D) insert—

“(3E) 20In a case where the settlor of property comprised in a settlement
is not domiciled in the United Kingdom at the time the
settlement is made, the property is not excluded property by
virtue of subsection (3) or (3A) above at any time in a tax year if
the settlor was a formerly domiciled resident for that tax year.””

(5) 25In section 64 of that Act (charge at ten-year anniversary), in subsection (1B),
after “was made” insert “and is not a formerly domiciled resident for the tax
year in which the ten-year anniversary falls”.

(6) In section 65 of that Act (charge at other times), after subsection (7A) insert—

“(7B) Tax shall not be charged under this section by reason only that property
30comprised in a settlement becomes excluded property by virtue of
section 48(3E) ceasing to apply in relation to it.””

(7) In section 82 of that Act (excluded property)—

(a) for subsection (1) substitute—

“(1) In a case where, apart from this section, property to which
35section 80 or 81 applies would be excluded property by virtue
of section 48(3)(a) above, that property shall not be taken to be
excluded property at any time (“the relevant time”) for the
purposes of this Chapter (except sections 78 and 79) unless
Conditions A and B are satisfied.”;”

(b) 40in subsection (2), for “the condition in subsection (3) below” substitute
“Condition A”;

(c) in subsection (3), for “The condition” substitute “Condition A”;

(d) after subsection (3) insert—

“(4) Condition B referred to in subsection (1) above is—

(a) in the case of property to which section 80 above applies,
that the person who is the settlor in relation to the
settlement first mentioned in that section, and

(b) in the case of property to which subsection (1) or (2) of
5section 81 above applies, that the person who is the
settlor in relation to the first or second of the settlements
mentioned in that subsection,

was not a formerly domiciled resident for the tax year in which
the relevant time falls.””

(8) 10In section 272 of that Act (interpretation)—

(a) for the definition of “foreign-owned” substitute—

• “““foreign-owned”, in relation to property at any time,
  means property—

  (a)

  in the case of which the person beneficially
  15entitled to it is at that time domiciled outside the
  United Kingdom, or

  (b)

  if the property is comprised in a settlement, in
  the case of which the settlor—

  (i)

  is not a formerly domiciled resident for
  20the tax year in which that time falls, and

  (ii)

  was domiciled outside the United
  Kingdom when the property became
  comprised in the settlement;”;”

(b) at the appropriate place insert—

• 25“““formerly domiciled resident”, in relation to a tax year,
  means a person—

  (a)

  who was born in the United Kingdom,

  (b)

  whose domicile of origin was in the United
  Kingdom,

  (c)

  30who was resident in the United Kingdom for
  that tax year, and

  (d)

  who was resident in the United Kingdom for at
  least one of the two tax years immediately
  preceding that tax year;”.”

(9) 35The amendments made by this section have effect in relation to times after 5
April 2017, subject to subsections (10) to (12).

(10) The amendment to section 267(1) of IHTA 1984 made by subsection (1)(c) does
not have effect in relation to a person if—

(a) the person is not resident in the United Kingdom for the relevant tax
40year, and

(b) there is no tax year beginning after 5 April 2017 and preceding the
relevant tax year in which the person was resident in the United
Kingdom.

In this subsection “relevant tax year” is to be construed in accordance with
45section 267(1) of IHTA 1984 as amended by subsection (1).

(11) The amendment to section 267(1) of IHTA 1984 made by subsection (1)(c) also
does not have effect in determining—

(a) whether settled property which became comprised in the settlement on
or before that date is excluded property for the purposes of IHTA 1984;

(b) the settlor’s domicile for the purposes of section 65(8) of that Act in
relation to settled property which became comprised in the settlement
on or before that date;

(c) whether, for the purpose of section 65(8) of that Act, the condition in
5section 82(3) of that Act is satisfied in relation to such settled property.

(12) Despite subsection (2), section 267(1) of IHTA 1984, as originally enacted, shall
continue to be disregarded in determining—

(a) whether settled property which became comprised in the settlement on
or before 9 December 1974 is excluded property for the purposes of
10IHTA 1984;

(b) the settlor’s domicile for the purposes of section 65(8) of that Act in
relation to settled property which became comprised in the settlement
on or before that date;

(c) whether, for the purpose of section 65(8) of that Act, the condition in
15section 82(3) of that Act is satisfied in relation to such settled property.

43 Settlements and transfer of assets abroad: value of benefits

Schedule 14 makes provision about the value of benefits received in relation to
settlements and the transfer of assets abroad.

44 Inheritance tax on overseas property representing UK residential property

20Schedule 15 makes provision about the extent to which overseas property is
excluded property for the purposes of inheritance tax, in cases where the value
of the overseas property is attributable to residential property in the United
Kingdom.

Employee shareholder shares

45 25Employee shareholder shares: amount treated as earnings

(1) In section 226A of ITEPA 2003 (amount treated as earnings)—

(a) in subsection (2), for “calculated in accordance with subsection (3)”
substitute “equal to the market value of the shares”;

(b) omit subsection (3);

(c) 30in subsection (6), omit “and sections 226B to 226D”;

(d) in subsection (7), after “subsection (1)” insert “(but not subsection (2))”.

(2) Omit sections 226B to 226D of ITEPA 2003 (deemed payment).

(3) In consequence of subsection (2), in ITEPA 2003 omit the following—

(a) section 479(3A);

(b) 35section 531(3A);

(c) section 532(4A).

(4) In consequence of subsection (2), in CTA 2009 omit the following—

(a) in section 1005, the definition of “employee shareholder share”;

(b) section 1009(6);

(c) 40in section 1010(1), “and, in the case of employee shareholder shares,
section 1038B”;

(d) in section 1011(4)(b), “(but see also section 1038B of this Act)“;

(e) in sections 1018(1) and 1019(1), “and, in the case of employee
shareholder shares, section 1038B”;

(f) sections 1022(5), 1026(5), 1027(5), 1033(5) and 1034(5);

(g) section 1038B;

(h) 5sections 1292(6ZA) and 1293(5A);

(i) in Schedule 4, the entry relating to “employee shareholder share”.

(5) The amendments made by this section have effect in relation to shares acquired
in consideration of an employee shareholder agreement entered into on or after
the relevant day.

(6) 10The relevant day is 1 December 2016, subject to subsection (7).

(7) Where the individual entering into an employee shareholder agreement
receives the advice referred to in section 205A(6)(a) of the Employment Rights
Act 1996—

(a) on 23 November 2016, but

(b) 15before 1.30 pm on that day,

the relevant day is 2 December 2016.

46 Employee shareholder shares: abolition of CGT exemption

(1) TCGA 1992 is amended as follows.

(2) In section 58 (spouses and civil partners)—

(a) 20in subsection (2)—

(i) at the end of paragraph (a) insert “or”;

(ii) omit paragraph (c) and the preceding “or”;

(b) omit subsections (3) to (5).

(3) In section 149AA (restricted and convertible employment-related securities
25and employee shareholder shares), for subsection (6A) substitute—

“(6A) For the purposes of this section—

• shares are “acquired” by an employee if the employee becomes
  beneficially entitled to them (and they are acquired at the time
  when the employee becomes so entitled);

• 30“employee shareholder share” means a share acquired in
  consideration of an employee shareholder agreement and held
  by the employee;

• “employee shareholder agreement” means an agreement by virtue
  of which an employee is an employee shareholder (see section
  35205A(1)(a) to (d) of the Employment Rights Act 1996);

• “employee” and “employer company”, in relation to an employee
  shareholder agreement, mean the individual and the company
  which enter into the agreement.””

(4) Omit sections 236B to 236F (exemption for employee shareholder shares).

(5) 40In section 236G (relinquishment of employment rights is not disposal of an
asset), in subsection (1), for “employee shareholder agreement” substitute
“agreement by virtue of which the individual is an employee shareholder (see
section 205A(1)(a) to (d) of the Employment Rights Act 1996)”.

(6) The amendments made by this section have effect in relation to shares acquired
in consideration of an employee shareholder agreement entered into on or after
the relevant day.

(7) The relevant day is 1 December 2016, subject to subsection (8).

(8) 5Where the individual entering into an employee shareholder agreement
receives the advice referred to in section 205A(6)(a) of the Employment Rights
Act 1996—

(a) on 23 November 2016, but

(b) before 1.30 pm on that day,

10the relevant day is 2 December 2016.

47 Employee shareholder shares: purchase by company

(1) In ITTOIA 2005, omit section 385A (no charge to income tax on purchase by
company of exempt employee shareholder shares).

(2) The amendment made by this section has effect in relation to the purchase from
15an individual of shares which were acquired in consideration of an employee
shareholder agreement entered into on or after the relevant day.

(3) The relevant day is 1 December 2016, subject to subsection (4).

(4) Where the individual entering into an employee shareholder agreement
receives the advice referred to in section 205A(6)(a) of the Employment Rights
20Act 1996—

(a) on 23 November 2016, but

(b) before 1.30 pm on that day,

the relevant day is 2 December 2016.

Disguised remuneration

48 25Employment income provided through third parties

Schedules 16 and 17 make provision about employment income provided
through third parties.

49 Trading income provided through third parties

(1) ITTOIA 2005 is amended as follows.

(2) 30After section 23 insert—

““Trading income provided through third parties

23A Application of section 23E: conditions

(1) Section 23E (tax treatment of relevant benefits) applies if Conditions A
to E are met.

(2) 35Condition A is that a person (“T”) is or has been carrying on a trade (the
“relevant trade”) alone or in partnership.

(3) Condition B is that—