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

(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) if the settlement is created on or after 6 April 2017, not
5deemed 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
trustees of any other settlement of which the individual is a
beneficiary or settlor, at a time in the period—

(i) 10beginning with 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.

(4) 15Section 645(1), (3) and (4) of ITTOIA 2005 (meaning of property
originating from a settlor) have effect for the purposes of subsections
(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) 20For 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
provision of property for the purposes of the settlement.

(6) Section 721B (tainting) applies for the purposes of subsections (2)(f)
and (3)(h) as it applies for the purposes of section 721A(2)(f) and
25(3)(h).

(7) In this section—

• “participator”, in relation to a company, has the meaning given
  by section 454 of CTA 2010;

• “deemed domiciled” means regarded for the purposes of
  30section 718(1)(b) as domiciled in the United Kingdom as a
  result of section 835BA of ITA 2007 having effect.””

32 In section 730 (individuals to whom remittance basis applies), after
subsection (5) insert—

“(6) In addition, where the tax year in which any foreign deemed income
35arises 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
a later tax year, and

(b) is transitionally protected income.

(7) 40In subsection (6)—

• “remitted to the United Kingdom” is to be read in accordance
  with Chapter A1 of Part 14, and

• “transitionally protected income” means any foreign deemed
  income where the income mentioned in section 728(1)(a)—

  (a)

  45arises in a tax year earlier than the tax year 2017-18,

  (b)

  would be protected foreign-source income as defined
  by section 729A if section 729A—

  Finance (No. 2) BillPage 591

  (i)

  had 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)

  5has not prior to 6 April 2017 been distributed by the
  trustees of the settlement concerned.””

33 (1) Section 731 (charge to tax on income treated as arising under section 732) is
amended as follows.

(2) In subsection (1), for “non-transferors” substitute “individuals”.

(3) 10After subsection (1) insert—

“(1A) But where the individual is non-UK resident for the tax year, there is
a charge to tax under this section on any income only if section 733A
provides for the liability for the tax under this section on that income
to be the liability of someone other than the individual.””

(4) 15In subsection (3) (person liable for tax is person to whom income is treated
as arising), at the end insert “, but this is subject to section 733A.”

34 (1) Section 732 (when income is treated as arising for the purposes of the charge
under section 731) is amended in accordance with sub-paragraphs (2) to (4).

(2) In subsection (1) (cases in which tax can be charged under section 731)—

(a) 20in paragraph (b), for “who is UK resident for a tax year receives a
benefit in that tax year” substitute “receives a benefit in a tax year”,
and

(b) for paragraph (d) substitute—

“(d) where there is a time in the year when the individual
25is relevantly domiciled, the individual is not liable to
income tax under section 720 or 727 by reference to
the transfer, and”.”

(3) After subsection (3) insert—

“(4) For the purposes of subsection (1)(d), the individual is “relevantly
30domiciled” at any time if at that time—

(a) the individual is domiciled in the United Kingdom, or

(b) the individual is 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
35section being met.””

(4) In the heading, for “Non-transferors” substitute “Individuals”.

(5) In section 733(1) (income charged under section 731), in the first sentence of
Step 2, at the end insert “, except that the deduction as respects an earlier
year for which the individual was non-UK resident is to be limited to income
40on which the tax under section 731 was as a result of section 733A the
liability of someone other than the individual.”

35 After section 733 insert—

“733A Settlor liable for section 731 charge on closely-related beneficiary

(1) Subsections (2) and (3) apply if—

(a) an amount of income is treated as arising to an individual
under section 732 for a tax year,

(b) under section 735A (if it applied also for this purpose) that
amount would be matched—

(i) 5with an amount of relevant income that is protected
foreign-source income for the purposes of rule 2 of
section 721(3B) or 728(1A), and

(ii) with a benefit received by the individual at a time
when the individual was a close member (see
10subsection (7)) of the family of the settlor of the
settlement concerned,

(c) there is no time in the year when the trustees of the settlement
are resident in the United Kingdom,

(d) there is a time in the year when the settlor is resident in the
15United Kingdom,

(e) there is no time in the year when the settlor is domiciled in
the United Kingdom, and

(f) there is no time in the year when the settlor is regarded for
the purposes of section 718(1)(b) as domiciled in the United
20Kingdom as a result of section 835BA having effect because
of Condition A in that section being met.

(2) If—

(a) the individual is not resident in the United Kingdom at any
time in the year, or

(b) 25section 809B, 809D or 809E (remittance basis) applies to the
individual for the year and none of the amount mentioned in
subsection (1)(a) of this section is remitted to the United
Kingdom in the year,

the settlor is liable for the tax charged under section 731 on that
30amount as if that amount were income arising to the settlor in the
year (and the individual is not liable in any later year for income tax
on that amount).

(3) If—

(a) section 809B, 809D or 809E (remittance basis) applies to the
35individual for the year, and

(b) part only of the amount mentioned in subsection (1)(a) of this
section is remitted to the United Kingdom in the year,

the settlor is liable for the tax charged under section 731 on the
remainder of that amount as if that remainder were income arising
40to the settlor in the year (and the individual is not liable in any later
year for income tax on that remainder).

(4) The amount mentioned in subsection (1)(a) may be the whole, or part
only, of the amount treated as arising to the individual under section
732 for the year in the case of the relevant transfer and its associated
45operations.

(5) Where any tax for which the settlor is liable as a result of subsection
(2) or (3) is paid, the settlor is entitled to recover the amount of the
tax from the individual.

(6) For the purpose of recovering that amount, the settlor is entitled to
require an officer of Revenue and Customs to give the settlor a
certificate specifying—

(a) the amount of the income concerned, and

(b) 5the amount of tax paid,

and any such certificate is conclusive evidence of the facts stated in it.

(7) For the purposes of subsection (1)(b)(ii), a person is a close member
of the family of the settlor if the person is—

(a) the settlor’s spouse or civil partner, or

(b) 10a child of the settlor, or of a person within paragraph (a), if
the child has not reached the age of 18.

(8) For the purposes of subsection (7)—

(a) two people living together as if they were spouses of each
other are treated as if they were spouses of each other, and

(b) 15two people of the same sex living together as if they were civil
partners of each other are treated as if they were civil partners
of each other.

(9) Sections 809L to 809Z6 (remittance basis: rules about when income is
remitted, including rule treating pre-arising remittances of deemed
20income as made when the income arises) apply for the purposes of
this section, but need to be read with section 735.””

36 In section 735A(6) (matching of income on which individual charged under
section 731), after “individual” insert “, or as a result of section 733A another
person,”.

37 25After section 735A insert—

“735B Settlor liable under section 733A and remittance basis applies

(1) This section applies in relation to income if—

(a) the income is treated by section 732 as arising to an individual
(“the beneficiary”) for a tax year,

(b) 30another individual (“the settlor”) is under section 733A(2) or
(3) liable for tax on the income, and

(c) section 809B, 809D or 809E (remittance basis) applies to the
settlor for that year.

(2) The income (“the transferred-liability deemed income”) is treated as
35relevant foreign income of the settlor.

(3) If, for the purposes of section 735 as it applies in relation to the
beneficiary, any benefit or relevant income relates to any part of the
transferred-liability deemed income then, for the purposes of
Chapter A1 of Part 14 as it applies in relation to the settlor, that
40benefit or relevant income is to be treated as deriving from that part
of the transferred-liability deemed income.

(4) In the application of section 832 of ITTOIA 2005 in relation to the
income, subsection (2) of that section has effect with the omission of
its paragraph (b).””

Commencement of amendments in ITTOIA 2005 and ITA 2007

38 The amendments made by paragraphs 19 to 37 have effect for the tax year
2017-18 and subsequent tax years.

FA 2008

39 5In Part 2 of Schedule 7 to FA 2008 (remittance basis: trusts etc), after
paragraph 171 insert—

“172 (1) Sub-paragraph (2) has effect for the purposes of—

• paragraphs 100(1)(b), 101(1)(c) and 102(1)(e),

• paragraph (b) of paragraph 118(3) so far as having effect for
  10the purposes of paragraph 118(1)(d), and

• paragraphs 124(1)(b), 126(7)(b), 127(1)(e) and 151(1)(b).

(2) An individual not domiciled in the United Kingdom at a time in
the tax year 2017-18, or a later tax year, is to be regarded as
domiciled in the United Kingdom at that time if—

(a) 15the individual was born in the United Kingdom,

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

(c) the individual is resident in the United Kingdom for the
tax year concerned.””

20Part 3 Capital gains tax rebasing

40 (1) This paragraph applies to the disposal of an asset by an individual (“P”)
where—

(a) the asset was held by P on 5 April 2017,

(b) 25the disposal is made on or after 6 April 2017,

(c) the asset was not situated in the United Kingdom at any time in the
relevant period, and

(d) P is a qualifying individual.

(2) The relevant period is the period which—

(a) 30begins with 16 March 2016 or, if later, the date on which P acquired
the asset, and

(b) ends with 5 April 2017.

(3) P is a qualifying individual if—

(a) section 809H of ITA 2007 (claim for remittance basis by long-term UK
35resident: charge) applied in relation to P for any tax year before the
tax year 2017-18,

(b) P is not an individual—

(i) who was born in the United Kingdom, and

(ii) whose domicile of origin was in the United Kingdom,

(c) 40P was not domiciled in the United Kingdom at any time in a relevant
tax year, and

(d) P met condition B in section 835BA of ITA 2007 in relation to each
relevant tax year.

(4) The relevant tax years are—

(a) the tax year 2017-18, and

(b) if the disposal was made after that tax year, all subsequent tax years
up to and including that in which the disposal was made.

(5) 5In computing, for the purpose of TCGA 1992, the gain or loss accruing on the
disposal, it is to be assumed that P acquired the asset on 5 April 2017 for a
consideration equal to its market value on that date.

(6) Sub-paragraph (5) applies notwithstanding section 58(1) of TCGA 1992
(disposals between spouses).

(7) 10Where under section 127 of TCGA 1992 (including that section as applied by
sections 132, 135 and 136 of that Act) an original and a new holding of shares
or other securities are treated as the same asset, the condition in sub-
paragraph (1)(c) applies to both the original and the new holding.

(8) This Part of this Schedule has effect as if it were included in TCGA 1992.

41 (1) 15This paragraph applies for the purposes of paragraph 40(1)(c) in the case of
an asset which, having been situated outside the United Kingdom, becomes
situated in the United Kingdom before the end of the relevant period.

(2) The asset is to be regarded as not situated in the United Kingdom at a time
in the relevant period when—

(a) 20it meets the condition in section 809Z(3)(a), (b) or (c) of ITA 2007
(public access),

(b) it meets the condition in section 809Z3(3)(a), (b) or (c) of ITA 2007
(repairs),

(c) the sole or principal purpose of its being situated in the United
25Kingdom is to sell it or put it up for sale, or

(d) in the case of clothing, footwear, jewellery or a watch, it is for the
personal use of—

(i) P or a husband, wife or civil partner of P, or

(ii) a child or grandchild of a person within sub-paragraph (i), if
30the child or grandchild has not reached the age of 18.

(3) The asset is to be regarded as not situated in the United Kingdom at any time
in the relevant period if it is brought to, or received or used in, the United
Kingdom in circumstances in which section 809L(2)(a) of ITA 2007 applies
but—

(a) 35by virtue of section 809X(5)(c) of ITA 2007 (notional remitted amount
less than £1000) it is treated as not remitted to the United Kingdom,
or

(b) by the end of the relevant period it has not failed to meet the
temporary importation rule in section 809Z4 of ITA 2007.

(4) 40Section 809M(3)(a) and (b) of ITA 2007 (persons living together) apply for
the purposes of sub-paragraph (2)(d)(i).

42 (1) An individual may make an election for paragraph 40 not to apply to a
disposal made by the individual.

(2) Sections 42 and 43 of TMA 1970 (procedure and time limit for claims), except
45section 42(1A) of that Act, apply in relation to an election under this
paragraph as they apply in relation to a claim for relief.

(3) An election under this paragraph is irrevocable.

(4) All such adjustments are to be made, whether by way of discharge or
repayment of tax, the making of assessments or otherwise, as are required to
give effect to an election under this paragraph.

5Part 4 Cleansing of mixed funds

43 (1) This paragraph applies for the purposes of the application of section 809Q(3)
of ITA 2007 in relation to an individual (“P”).

(2) Section 809R(4) of ITA 2007 does not apply to an offshore transfer from a
10mixed fund where—

(a) the transfer is made in the tax year 2017-18 or the tax year 2018-19,

(b) the transfer is a transfer of money,

(c) the mixed fund from which the transfer is made is an account
(account A) and the transfer is made to another account (account B),

(d) 15the transfer is nominated by P for the purposes of this sub-
paragraph,

(e) at the time of the nomination no other transfer from account A to
account B has been so nominated, and

(f) P is a qualifying individual.

(3) 20P is a qualifying individual if—

(a) section 809B, 809D or 809E of ITA 2007 (remittance basis) applied in
relation to P for any tax year before the tax year 2017-18, and

(b) P is not an individual who—

(i) was born in the United Kingdom, and

(ii) 25whose domicile of origin was in the United Kingdom.

(4) An offshore transfer to which sub-paragraph (2) applies is to be treated as
containing such amount of such kind or kinds of income and capital in the
mixed fund immediately before the transfer as may be specified in the
nomination under sub-paragraph (2)(d).

(5) 30An amount of a kind of income or capital specified under sub-paragraph (4)
may not exceed the amount of that kind which is in the mixed fund
immediately before the transfer.

(6) In this paragraph “mixed fund” and “offshore transfer” have the same
meanings as in section 809R(4) of ITA 2007.

Section 43

35SCHEDULE 14 Settlements and transfer of assets abroad: value of benefits

Capital gains tax: settlements: value of benefit conferred by certain capital payments

1 (1) In section 97(4) of TCGA 1992 (supplementary provisions in relation to
settlements), at the end insert “(see sections 97A to 97C for the value of

benefits conferred by a capital payment made by way of loan or by way of
making movable property or land available)”.

(2) After section 97 of TCGA 1992 insert—

“97A Value of benefit conferred by capital payment made by way of loan

(1) 5For the purposes of section 97(4), the value of the benefit conferred
on a person (P) by a capital payment made by way of loan to P is, for
each tax year in which the loan is outstanding, the amount (if any) by
which—

(a) the amount of interest that would have been payable in that
10year on the loan if interest had been payable on the loan at the
official rate, exceeds

(b) the amount of interest (if any) actually paid by P in that year
on the loan.

(2) In this section and section 97B the “official rate”, in relation to
15interest, means the rate 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.

97B Value of benefit conferred by capital payment made by way of making
movable property available

(1) 20For the purposes of section 97(4), the value of the benefit conferred
by a capital payment consisting of making movable property
available, without any transfer of the property in it, to a person (P) is,
for each tax year in which the benefit is conferred on P—

where—

• CC is the capital cost of the movable property on the date when
  the property is first made available to P in the tax year,

• D is the number of days in the tax year on which the property is
  30made available to P (the relevant period),

• R is the official rate of interest for the relevant period (but see
  subsection (3)),

• T is the total of the amounts (if any) paid in the tax year by P—

  (a)

  to the person conferring the benefit, in respect of the
  35availability of the movable property, or

  (b)

  so far as not within paragraph (a), in respect of the
  repair, insurance, maintenance or storage of the
  movable property, and

• Y is the number of days in the tax year.

(2) 40In subsection (1), in the meaning of CC, the “capital cost” of movable
property means an amount equal to the total of—

(a) the amount which is the greater of—

(i) the amount or value of the consideration given for the
acquisition of the movable property by, or on behalf
45of, the person (A) conferring the benefit, and

(ii) its market value at the time of that acquisition, and

(b) the amount of any expenditure wholly and exclusively
incurred by, or on behalf of, A for the purpose of enhancing
the value of the movable property.

(3) If the official rate of interest changes during the relevant period, then
5in subsection (1) R is the average official rate of interest for the period
calculated as follows.

Step 1

Multiply each official rate of interest in force during the relevant
period by the number of days when it is in force.

10Step 2

Add together the products found in Step 1.

Step 3

Divide the total found in Step 2 by the number of days in the relevant
period.

(4) 15In subsections (1) and (2), “movable property” means any tangible
movable property other than money.

97C Value of benefit conferred by capital payment made by way of making
land available

(1) For the purposes of section 97(4), the value of the benefit conferred
20by a capital payment consisting of making land available for the use
of a person (P) is, for each tax year in which the benefit is conferred
on P, the amount by which—

(a) the rental value of the land for the period of the tax year
during which the land is made available to P, exceeds

(b) 25the total of the amounts (if any) paid in the tax year by P—

(i) to the person conferring the benefit, in respect of the
availability of the land, or

(ii) so far as not within sub-paragraph (i), in respect of
costs of repair, insurance or maintenance relating to
30the land.

(2) Subsection (1) does not apply in the case where the person conferring
the benefit transfers the whole of the person’s interest in the land to
P.

(3) In subsection (1) “the rental value” of the land for a period means the
35rent which would have been payable for the period if the land had
been let to P at an annual rent equal to the annual value.

(4) For the purposes of subsection (3) “the annual value” of land is the
rent that might reasonably be expected to be obtained on a letting
from year to year if—

(a) 40the tenant undertook to pay all taxes, rates and charges
usually paid by a tenant, and

(b) the landlord undertook to bear the costs of the repairs and
insurance and the other expenses (if any) necessary for
maintaining the property in a state to command that rent.

(5) 45For the purposes of subsection (4) that rent—

(a) is to be taken to be the amount that might reasonably be
expected to be so obtained in respect of a letting of the land,
and

(b) is to be calculated on the basis that the only amounts that may
be deducted in respect of services provided by the landlord
are amounts in respect of the costs to the landlord of
providing any relevant services.

(6) 5In subsection (5) “relevant service” means a service other than the
repair, insurance or maintenance of the property.””

Income tax: transfer of assets abroad: value of certain benefits

2 After section 742A of ITA 2007 insert—

““Value of certain benefits

742B Value of certain benefits

10Sections 742C to 742E apply where it is necessary, for the purpose of
calculating a charge to income tax under the preceding provisions of
this Chapter, to determine the value of a benefit provided to a person
by way of—

(a) a payment by way of loan (see section 742C),

(b) 15making available movable property without any transfer of
the property in it (see section 742D), or

(c) making available land for use without transferring the whole
interest in it (see section 742E).

742C Value of benefit provided by a payment by way of loan

(1) 20The value of the benefit provided to a person (P) by a payment by
way of loan to P is, for each tax year in which the loan is outstanding,
the amount (if any) by which—

(a) the amount of interest that would have been payable in that
year on the loan if interest had been payable on the loan at the
25official rate, exceeds

(b) the amount of interest (if any) actually paid by P in that year
on the loan.

(2) In this section and section 742D the “official rate”, in relation to
interest, means the rate applicable from time to time under section
30178 of the Finance Act 1989 for the purposes of Chapter 7 of Part 3 of
ITEPA 2003.

742D Value of benefit provided by making movable property available

(1) The value of the benefit provided by making movable property
available, without any transfer of the property in it, to a person (P) is,
35for each tax year in which the benefit is provided to P—

(2) 10In subsection (1), in the meaning of CC, the “capital cost” of the
movable property means an amount equal to the total of—

(a) the amount which is the greater of—

(i) the amount or value of the consideration given for the
acquisition of the movable property by, or on behalf
15of, the person (A) providing the benefit, and

(ii) its market value at the time of that acquisition, and

(b) the amount of any expenditure wholly and exclusively
incurred by, or on behalf of, A for the purpose of enhancing
the value of the movable property.

(3) 20If the official rate of interest changes during the relevant period, then
in subsection (1) R is the average official rate of interest for the period
calculated as follows.

Step 1

Multiply each official rate of interest in force during the relevant
25period by the number of days when it is in force.

Step 2

Add together the products found in Step 1.

Step 3

Divide the total found in Step 2 by the number of days in the relevant
30period.

(4) In subsections (1) and (2), “movable property” means any tangible
movable property other than money.

742E Value of benefit provided by making land available

(1) The value of the benefit provided by making land available for the
35use of a person (P) is, for each tax year in which the benefit is
provided to P, the amount by which—

(a) the rental value of the land for the period of the tax year
during which the land is made available to P, exceeds

(b) the total of the amounts (if any) paid in the tax year by P—

(i) 40to the person providing the benefit, in respect of the
availability of the land, or

(ii) so far as not within sub-paragraph (i), in respect of
costs of repair, insurance or maintenance relating to
the land.

(2) 45Subsection (1) does not apply in the case where the person providing
the benefit transfers the whole of the person’s interest in the land to
P.

(3) In subsection (1) “the rental value” of the land for a period means the
rent which would have been payable for the period if the land had
been let to P at an annual rent equal to the annual value.

(4) For the purposes of subsection (3) “the annual value” of land is the
5rent that might reasonably be expected to be obtained on a letting
from year to year if—

(a) the tenant undertook to pay all taxes, rates and charges
usually paid by a tenant, and

(b) the landlord undertook to bear the costs of the repairs and
10insurance and the other expenses (if any) necessary for
maintaining the property in a state to command that rent.

(5) For the purposes of subsection (4) that rent—

(a) is to be taken to be the amount that might reasonably be
expected to be so obtained in respect of a letting of the land,
15and

(b) is to be calculated on the basis that the only amounts that may
be deducted in respect of services provided by the landlord
are amounts in respect of the costs to the landlord of
providing any relevant services.

(6) 20In subsection (5) “relevant service” means a service other than the
repair, insurance or maintenance of the property.””

Commencement

3 The amendments made by this Schedule have effect in relation to capital
payments or benefits received in the tax year 2017-18 and subsequent tax
25years.

Section 44

SCHEDULE 15 Inheritance tax on overseas property representing UK residential property

Non-excluded overseas property

1 In IHTA 1984, before Schedule 1 insert—

““Schedule A1 30Non-excluded overseas property

Part 1 Overseas property with value attributable to UK residential property

Introductory

1 Property is not excluded property by virtue of section 6(1) or
3548(3)(a) if and to the extent that paragraph 2 or 3 applies to it.

Close company and partnership interests

2 (1) This paragraph applies to an interest in a close company or in a
partnership, if and to the extent that the interest meets the
condition in sub-paragraph (2).

(2) 5The condition is that the value of the interest is—

(a) directly attributable to a UK residential property interest,
or

(b) attributable to a UK residential property interest by virtue
only of one or more of the following—

(i) 10an interest in a close company;

(ii) an interest in a partnership;

(iii) property to which paragraph 3 (loans) applies.

(3) For the purposes of sub-paragraphs (1) and (2) disregard—

(a) an interest in a close company, if the value of the interest is
15less than 5% of the total value of all the interests in the close
company;

(b) an interest in a partnership, if the value of the interest is
less than 5% of the total value of all the interests in the
partnership.

(4) 20In determining whether or to what extent the value of an interest
in a close company or in a partnership is attributable to a UK
residential property interest for the purposes of sub-paragraph (1),
liabilities of a close company or partnership are to be attributed
rateably to all of its property, whether or not they would otherwise
25be attributed to any particular property.

Loans

3 This paragraph applies to—

(a) the rights of a creditor in respect of a loan which is a
relevant loan (see paragraph 4), and

(b) 30money or money’s worth held or otherwise made
available as security, collateral or guarantee for a loan
which is a relevant loan, to the extent that it does not
exceed the value of the relevant loan.

4 (1) For the purposes of this Schedule a loan is a relevant loan if and to
35the extent that money or money’s worth made available under the
loan is used to finance, directly or indirectly—

(a) the acquisition by an individual, a partnership or the
trustees of a settlement of—

(i) a UK residential property interest, or

(ii) 40property to which paragraph 2 to any extent
applies, or

(b) the acquisition by an individual, a partnership or the
trustees of a settlement of an interest in a close company or
a partnership (“the intermediary”) and the acquisition by
45the intermediary of property within paragraph (a)(i) or (ii).

(2) In this paragraph references to money or money’s worth made
available under a loan or sale proceeds being used “indirectly” to

finance the acquisition of something include the money or
money’s worth or sale proceeds being used to finance—

(a) the acquisition of any property the proceeds of sale of
which are used directly or indirectly to finance the
5acquisition of that thing, or

(b) the making, or repayment, of a loan to finance the
acquisition of that thing.

(3) In this paragraph references to the acquisition of a UK residential
property interest by an individual, a partnership, the trustees of a
10settlement or a close company include the maintenance, or an
enhancement, of the value of a UK residential property interest
which is (as the case may be) the property of the individual,
property comprised in the settlement or property of the
partnership or close company.

(4) 15Where the UK residential property interest by virtue of which a
loan is a relevant loan is disposed of, the loan ceases to be a
relevant loan.

(5) Where a proportion of the UK residential property interest by
virtue of which a loan is a relevant loan is disposed of, the loan
20ceases to be a relevant loan by the same proportion.

(6) In this Schedule, references to a loan include an acknowledgment
of debt by a person; and in that case references to money or
money’s worth made available under the loan are to the amount
to which the acknowledgment relates.

25Part 2 Supplementary

Disposals and repayments

5 (1) This paragraph applies to—

(a) property which constitutes consideration in money or
30money’s worth for the disposal of property to which
paragraph 2 applies;

(b) any money or money’s worth paid in respect of a creditor’s
rights falling within paragraph 3(1)(a);

(c) any property directly or indirectly representing property
35within paragraph (a) or (b).

(2) If and to the extent that this paragraph applies to any property—

(a) for the two-year period it is not excluded property by
virtue of section 6(1), (1A) or (2) or 48(3)(a), (3A) or (4), and

(b) if it is held in a qualifying foreign currency account within
40the meaning of section 157 (non-residents’ bank accounts),
that section does not apply to it for the two-year period.

(3) The two-year period is the period of two years beginning with the
date of—

(a) the disposal referred to in sub-paragraph (1)(a), or

(b) 45the payment referred to in sub-paragraph (1)(b).

(4) The value of any property within sub-paragraph (1)(c) is to be
treated as not exceeding the relevant amount.

(5) The relevant amount is—

(a) where the property within sub-paragraph (1)(c) directly or
5indirectly represents property within sub-paragraph (1)(a)
(“the consideration”), the value of the consideration at the
time of the disposal referred to in that sub-paragraph, and

(b) where the property within sub-paragraph (1)(c) directly or
indirectly represents property within sub-paragraph
10(1)(b), the amount of the money or money’s worth paid as
mentioned in that sub-paragraph.

Tax avoidance arrangements

6 (1) In determining whether or to what extent property situated
outside the United Kingdom is excluded property, no regard is to
15be had to any arrangements the purpose or one of the main
purposes of which is to secure a tax advantage by avoiding or
minimising the effect of paragraph 1 or 5.

(2) In this paragraph—

• “tax advantage” has the meaning given in section 208 of the
  20Finance Act 2013;

• “arrangements” includes any scheme, transaction or series of
  transactions, agreement or understanding (whether or not
  legally enforceable and whenever entered into) and any
  associated operations.

25Double taxation relief arrangements

7 (1) Nothing in any double taxation relief arrangements made with the
government of a territory outside the United Kingdom is to be
read as preventing a person from being liable for any amount of
inheritance tax by virtue of paragraph 1 or 5 in relation to any
30chargeable transfer if under the law of that territory—

(a) no tax of a character similar to inheritance tax is charged on
that chargeable transfer, or

(b) a tax of a character similar to inheritance tax is charged in
relation to that chargeable transfer at an effective rate of 0%
35(otherwise than by virtue of a relief or exemption).

(2) In this paragraph—

• “double taxation relief arrangements” means arrangements
  having effect under section 158(1);

• “effective rate” means the rate found by expressing the tax
  40chargeable as a percentage of the amount by reference to
  which it is charged.

Part 3 Interpretation

UK residential property interest

8 (1) In this Schedule “UK residential property interest” means an
5interest in UK land—

(a) where the land consists of a dwelling,

(b) where and to the extent that the land includes a dwelling,
or

(c) where the interest subsists under a contract for an off-plan
10purchase.

(2) For the purposes of sub-paragraph (1)(b), the extent to which land
includes a dwelling is to be determined on a just and reasonable
basis.

(3) In this paragraph—

• 15“interest in UK land” has the meaning given by paragraph 2
  of Schedule B1 to the 1992 Act (and the power in sub-
  paragraph (5) of that paragraph applies for the purposes of
  this Schedule);

• “the land”, in relation to an interest in UK land which is an
  20interest subsisting for the benefit of land, is a reference to
  the land for the benefit of which the interest subsists;

• “dwelling” has the meaning given by paragraph 4 of
  Schedule B1 to the 1992 Act (and the power in paragraph 5
  of that Schedule applies for the purposes of this Schedule);

• 25“contract for an off-plan purchase” has the meaning given by
  paragraph 1(6) of Schedule B1 to the 1992 Act.

Close companies

9 (1) In this Schedule—

• “close company” means a company within the meaning of
  30the Corporation Tax Acts which is (or would be if resident
  in the United Kingdom) a close company for the purposes
  of those Acts;

• references to an interest in a close company are to the rights
  and interests that a participator in a close company has in
  35that company.

(2) In this paragraph—

• “participator”, in relation to a close company, means any
  person who is (or would be if the company were resident
  in the United Kingdom) a participator in relation to that
  40company within the meaning given by section 454 of the
  Corporation Tax Act 2010;

• references to rights and interests in a close company include
  references to rights and interests in the assets of the
  company available for distribution among the
  45participators in the event of a winding-up or in any other
  circumstances.

Partnerships

10 In this Schedule “partnership” means—

(a) a partnership within the Partnership Act 1890,

(b) a limited partnership registered under the Limited
5Partnerships Act 1907,

(c) a limited liability partnership formed under the Limited
Liability Partnerships Act 2000 or the Limited Liability
Partnerships Act (Northern Ireland) 2002, or

(d) a firm or entity of a similar character to either of those
10mentioned in paragraph (a) or (b) formed under the law of
a country or territory outside the United Kingdom.””

Consequential and supplementary amendments

2 IHTA 1984 is amended as follows.

3 In section 6 (excluded property), at the end insert—

“(5) 15This section is subject to Schedule A1 (non-excluded overseas
property).””

4 In section 48 (excluded property)—

(a) in subsections (3) and (3A), at the end insert “and to Schedule A1”;

(b) in subsection (4), at the end (but on a new line) insert “This
20subsection is subject to Schedule A1.”

5 In section 65 (charge at other times), after subsection (7A) insert—

“(7B) Tax shall not be charged under this section by reason only that
property comprised in a settlement ceases to any extent to be
property to which paragraph 2 or 3 of Schedule A1 applies and
25thereby becomes excluded property by virtue of section 48(3)(a)
above.

(7C) Tax shall not be charged under this section where property
comprised in a settlement or any part of that property—

(a) is, by virtue of paragraph 5(2)(a) of Schedule A1, not
30excluded property for the two year period referred to in that
paragraph, but

(b) becomes excluded property at the end of that period.””

6 In section 157 (non-residents’ bank accounts), after subsection (3) insert—

“(3A) This section is subject to paragraph 5 of Schedule A1 (non-excluded
35overseas property).””