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

Loans made in a depreciating currency

8 (1) Paragraph 9 applies in relation to a loan where—

(a) the loan currency is a currency other than sterling, and

(b) it is reasonable to suppose that the main reason, or one of the main
5reasons, for the loan being made in that currency is that the loan
currency is expected to depreciate as against sterling during the loan
period.

(2) The “loan period”, in relation to a loan, is the period—

(a) beginning at the time the loan is made, and

(b) 10ending with the time by which, under the terms of the loan, the
whole of the loan is to be repaid.

9 (1) Where this paragraph applies in relation to a loan—

(a) paragraphs 6 and 7 do not apply in relation to the loan, and

(b) sub-paragraphs (2) to (5) apply for the purposes of calculating the
15amount of the loan that is outstanding at the time P is treated as
taking the relevant step.

(2) The relevant principal amount, in relation to the loan, is an amount equal to
the total of—

(a) the value in sterling, at the reference date, of the initial principal
20amount lent, and

(b) the value in sterling, at the reference date, of any sums that become
principal under the loan, otherwise than by capitalisation of interest.

(3) The “reference date”—

(a) in relation to an amount within sub-paragraph (2)(a), means the date
25on which the loan is made, and

(b) in relation to a sum within sub-paragraph (2)(b), means the date on
which the sum becomes principal.

(4) The repayment amount, in relation to the loan, is an amount equal to the
total of—

(a) 30the amount of principal under the loan that has been repaid in
sterling, and

(b) where payments are made, in a currency other than sterling, by way
of repayment of principal under the loan, the amount equal to the
sterling value of the payments.

(5) 35The “sterling value” of a payment is its value in sterling on the date it is
made.

Meaning of “outstanding”: quasi-loans

10 (1) An amount of a quasi-loan is outstanding for the purposes of paragraph 1 if
the initial debt amount exceeds the repayment amount.

(2) 40In sub-paragraph (1) “initial debt amount”, in relation to a quasi-loan, means
the total of—

(a) an amount equal to the value of the acquired debt (see paragraph
2(2)), and

(b) where P subsequently acquires a further right (an “additional debt”)
45to a payment, or transfer of assets, in connection with the payment

mentioned in paragraph 2(3)(a) or (as the case may be) the transfer
mentioned in paragraph 2(3)(b), an amount equal to the value of the
additional debt.

(3) For the purposes of sub-paragraph (2)—

(a) 5where the acquired debt is a right to payment of an amount, the
“value” of the debt is that amount,

(b) where the additional debt is a right to payment of an amount, the
“value” of the debt is that amount, but is nil if the additional debt
accrued to P by the capitalisation of interest on the acquired debt or
10another additional debt, and

(c) where the acquired debt or additional debt is a right to a transfer of
assets, the “value” of the debt is an amount equal to—

(i) the market value of the assets at the time the right is acquired
(or the value of the right at that time if the assets are non-
15fungible and not in existence at that time), or

(ii) if higher, the cost of the assets at that time.

(4) In sub-paragraph (1) “repayment amount”, in relation to a quasi-loan, means
the total of—

(a) the amount (if any) by which the initial debt amount has been
20reduced (by way of repayment) before 17 March 2016,

(b) payments in money (if any) made by the relevant person on or after
17 March 2016 by way of repayment of the initial debt amount, and

(c) if the acquired debt or an additional debt is a right to a transfer of
assets, and the assets have been transferred, an amount equal to the
25market value of the assets at the time of the transfer.

(5) A payment or transfer is to be disregarded for the purposes of sub-
paragraph (4)(b) or (c) if there is any connection (direct or indirect) between
the payment or transfer and a tax avoidance arrangement (other than the
arrangement under which the quasi-loan was made).

11 (1) 30This paragraph applies where—

(a) a person (“P”) has made a quasi-loan to a relevant person,

(b) the quasi-loan was made on or after 6 April 1999, and

(c) before the end of 5 April 2019, A or B acquires (whether or not for
consideration) a right to the payment or transfer of assets mentioned
35in paragraph 2(2)(a).

(2) The amount equal to the value of the right acquired by A or B is to be
treated—

(a) for the purposes of paragraph 1(1) as an amount, of the quasi-loan
made by P to the relevant person, that is outstanding immediately
40before the end of 5 April 2019;

(b) for the purposes of paragraph 1(4) and section 554Z3(1) of ITEPA
2003, as an amount of the quasi-loan that is outstanding at the time P
is treated as taking the relevant step under paragraph 1(1).

(3) For the purposes of sub-paragraph (2)—

(a) 45where the right acquired by A or B is a right to payment of an
amount, the “value” of the right is that amount;

(b) where the right acquired by A or B is a right to a transfer of assets,
the “value” of the right is an amount equal to—

(i) the market value of the assets at the time the right is acquired
(or the value of the right at that time if the assets are non-
fungible and not in existence at that time), or

(ii) if higher, the cost of the assets at that time.

(4) 5Where a loan or a quasi-loan made by P to a relevant person is replaced,
directly or indirectly, by a quasi-loan or another quasi-loan (the
“replacement quasi-loan”), references in sub-paragraphs (1) and (2) to the
quasi-loan are references to the replacement quasi-loan.

Meaning of “outstanding”: quasi-loans in currencies other than sterling

12 (1) 10Paragraphs 13 to 16 apply where P makes a quasi-loan to a relevant person
by reason of acquiring a right to a payment in a particular currency (the
“quasi-loan currency”).

(2) For the purposes of paragraphs 13 to 16, the value of an amount in a
particular currency is to be determined by reference to an appropriate spot
15rate of exchange.

13 (1) This paragraph applies in relation to the quasi-loan if the quasi-loan
currency is a currency other than sterling.

(2) But this paragraph does not apply if paragraph 16 applies in relation to the
quasi-loan.

(3) 20The amount of the quasi-loan that is outstanding, at the time P is treated as
taking the relevant step, is to be calculated in sterling as follows—

Step 1

Calculate, in the quasi-loan currency, the amount that is outstanding at that
time.

25Step 2

(4) See paragraph 14 for provision about repayments made in a currency other
than the quasi-loan currency.

Repayments in currencies other than the quasi-loan currency

14 (1) This paragraph applies in relation to the quasi-loan if—

(a) 30payments in money are made by way of repayment of the initial debt
amount, and

(b) some or all of the payments are made in a currency other than the
quasi-loan currency.

(2) But this paragraph does not apply if paragraph 16 applies in relation to the
35quasi-loan.

(3) For the purposes of calculating the repayment amount in relation to the
quasi-loan, the amount of each of the payments referred to in sub-paragraph
(1)(b) is an amount equal to its value in the quasi-loan currency on the date
it is made.

Quasi-loans made in a depreciating currency

15 (1) Paragraph 16 applies in relation to the quasi-loan if—

(a) the quasi-loan currency is a currency other than sterling, and

(b) it is reasonable to suppose that the main reason, or one of the main
5reasons, for the quasi-loan being made in that currency is that the
quasi-loan currency is expected to depreciate during the quasi-loan
period.

(2) The “quasi-loan period”, in relation to a quasi-loan, is the period—

(a) beginning at the time the quasi-loan is made, and

(b) 10ending with the time by which, under the terms of the quasi-loan, the
whole of the quasi-loan is to be repaid.

16 (1) Where this paragraph applies in relation to the quasi-loan—

(a) paragraphs 13 and 14 do not apply in relation to the quasi-loan, and

(b) sub-paragraphs (2) to (5) apply for the purposes of calculating the
15amount of the quasi-loan that is outstanding at the time P is treated
as taking the relevant step.

(2) The initial debt amount, in relation to the quasi-loan, is an amount equal to
the total of—

(a) the value in sterling, at the reference date, of the acquired debt, and

(b) 20the value in sterling, at the reference date, of any additional debt.

(3) The “reference date”—

(a) in relation to a right within sub-paragraph (2)(a), means the date on
which P acquires it, and

(b) in relation to a right within sub-paragraph (2)(b), means the date on
25which P acquires it.

(4) The repayment amount, in relation to the quasi-loan, is an amount equal to
the total of—

(a) the amount of the initial debt amount that has been repaid in sterling,
and

(b) 30where payments are made, in a currency other than sterling, by way
of repayment of the initial debt amount, the amount equal to the
sterling value of the payments.

(5) The “sterling value” of a payment is its value in sterling on the date it is
made.

35Meaning of “approved fixed term loan”

17 (1) A loan is an “approved fixed term loan” on 5 April 2019 if, at any time on
that day, it is a qualifying loan which has been approved by an officer of
Revenue and Customs in accordance with paragraph 18.

(2) A loan is a “qualifying loan” if—

(a) 40the loan was made before 9 December 2010,

(b) the term of the loan cannot exceed 10 years, and

(c) it is not an excluded loan under sub-paragraph (3).

(3) A loan is an excluded loan if, at any time after the loan was made—

(a) the loan has been replaced, directly or indirectly, by another loan, or

(b) the terms of the loan have been altered so as—

(i) to meet the condition in sub-paragraph (2)(b), or

(ii) to postpone the date by which, under the terms of the loan,
the whole of the loan must be repaid.

5Part 2 Approval of a qualifying loan etc.

Application to HMRC

18 (1) The liable person in relation to a qualifying loan may make an application to
the Commissioners for Her Majesty’s Revenue and Customs for approval of
10the loan.

(2) An officer of Revenue and Customs may grant such an application if
satisfied that, in relation to the loan—

(a) the qualifying payments condition is met (see paragraph 19), or

(b) the commercial terms condition is met (see paragraph 20).

(3) 15Subject to sub-paragraph (4), an application may be made in 2018.

(4) An application may be made after 2018 if an officer of Revenue and Customs
considers it is reasonable in all the circumstances for the liable person to
make a late application.

(5) An application for an approval must be made in such form and manner, and
20contain such information, as may be specified by, or on behalf of, the
Commissioners for Her Majesty’s Revenue and Customs.

(6) An officer of Revenue and Customs must notify the applicant of the decision
on an application.

(7) In this paragraph “liable person”, in relation to a loan, means the person who
25is liable for any tax on the value of the relevant step in relation to the loan
under paragraph 1.

Qualifying payments condition

19 (1) The qualifying payments condition is met in relation to a qualifying loan if,
during the relevant period—

(a) 30payments have been made to the lender in respect of the repayment
of the principal of the loan, and

(b) the payments have been made at intervals not exceeding 53 weeks.

(2) The “relevant period” in relation to a loan is the period beginning with the
making of the loan and ending with the making of the application.

35Commercial terms condition

20 (1) The commercial terms condition is met in relation to a qualifying loan if—

(a) either—

(i) it is reasonable to assume that, had the qualifying loan been
made in the ordinary course of a lending business, loans on
40terms comparable to those of the qualifying loan would have
been available to members of the public, or

(ii) the qualifying loan was made in the ordinary course of a
lending business, and

(b) the borrower has, in all material respects, complied with the terms of
the loan.

(2) 5For the purposes of sub-paragraph (1), a loan is made in the ordinary course
of a lending business if it is made by a person in the ordinary course of a
business carried on by the person which includes—

(a) the lending of money, or

(b) the supplying of goods or services on credit.

10Accelerated payments

21 (1) Paragraph 22(1) applies where—

(a) a person (“P”) would (ignoring paragraph 22) be treated as taking a
relevant step within paragraph 1 by reason of making a loan, or a
quasi-loan, to a relevant person,

(b) 15an accelerated payment notice, or a partner payment notice, relating
to a relevant charge (the “accelerated payment notice”) has been
given under Chapter 3 of Part 4 of FA 2014,

(c) the relevant person makes a payment (the “accelerated payment”) in
respect of the understated or disputed tax to which the notice relates,

(d) 20the accelerated payment is made on or before the relevant date, and

(e) the amount of the loan or quasi-loan that, at the end of the relevant
date, is outstanding for the purposes of paragraph 1 (see paragraphs
3 to 16) is equal to or less than the amount of the accelerated
payment.

(2) 25In sub-paragraph (1)(b), “relevant charge” means a charge to tax arising by
reason of a step taken pursuant to the relevant arrangement concerned.

(3) The reference in sub-paragraph (2) to the relevant arrangement concerned is
a reference to the relevant arrangement in pursuance of which, or in
connection with which, the loan or quasi-loan mentioned in sub-paragraph
30(1)(a) is made.

(4) In sub-paragraph (1)(d) and (e), “the relevant date” means—

(a) the approved repayment date, if P has made a loan which is an
approved fixed term loan on 5 April 2019, or

(b) 5 April 2019, in any other case.

22 (1) 35The relevant person may make an application to the Commissioners for Her
Majesty’s Revenue and Customs for P to be treated—

(a) as taking the relevant step only if the condition in sub-paragraph (2)
is met, and

(b) as doing so not at the time given by paragraph 1(2) but immediately
40before the end of the 30 days beginning with the date on which the
condition in sub-paragraph (2) becomes met.

(2) The condition is that, on the withdrawal of the accelerated payment notice
or on the determination of an appeal, any part of the accelerated payment is
repaid.

(3) 45Subject to sub-paragraph (4), an application under sub-paragraph (1) may be
made in 2018.

(4) An application may be made after 2018 if an officer of Revenue and Customs
considers it is reasonable in all the circumstances for the relevant person to
make a late application.

(5) An application must be made in such form and manner, and contain such
5information, as may be specified by, or on behalf of, the Commissioners for
Her Majesty’s Revenue and Customs.

(6) An officer of Revenue and Customs must notify the applicant of the decision
on an application under this paragraph.

Part 3 10Exclusions

Commercial transactions

23 Chapter 2 of Part 7A of ITEPA 2003 does not apply by reason of a relevant
step within paragraph 1 which is treated as being taken by a person (“P”) if—

(a) P is treated as taking a relevant step within that paragraph by reason
15of the payment of a sum of money by way of a loan,

(b) the loan is (at the time it is made) a loan on ordinary commercial
terms within the meaning of section 176 of ITEPA 2003, ignoring
conditions B and C in that section, and

(c) there is no connection (direct or indirect) between the relevant step
20and a tax avoidance arrangement.

24 In section 554F of ITEPA 2003 (exclusions: commercial transactions), at the
end insert—

“(6) See paragraph 23 of Schedule 17 to FA 2017 for provision about
exclusions where a loan is made on ordinary commercial terms and
25the relevant step is within paragraph 1 of that Schedule.””

Transfer of employment-related loans

25 (1) Chapter 2 of Part 7A of ITEPA 2003 does not apply by reason of a relevant
step within paragraph 1 which is treated as being taken by a person (“P”) if—

(a) P is treated as taking a relevant step within that paragraph by reason
30of making a quasi-loan by acquiring a right to payment of an amount
equal to the whole or part of a payment made by way of a loan to a
relevant person (the “borrower”),

(b) the loan, at the time it was made, was an employment-related loan,

(c) at the time the right is acquired, the section 180 threshold is not
35exceeded in relation to the loan,

(d) at the time the right is acquired, the borrower is an employee, or a
prospective employee, of P, and

(e) there is no connection (direct or indirect) between the acquisition of
the right and a tax avoidance arrangement.

(2) 40Subsections (2) to (5) of section 554OA of ITEPA 2003 (section 180 threshold)
apply for the purposes of this paragraph as they apply for the purposes of
that section.

(3) In this paragraph, “employment-related loan” has the same meaning as it
has for the purposes of Chapter 7 of Part 3.

26 In section 554OA of ITEPA 2003 (exclusions: transfer of employment-related
loans) (inserted by paragraph 5 of Schedule 16), at the end insert—

“(6) See paragraph 25 of Schedule 17 to FA 2017 for provision about
exclusions where a loan is an employment-related loan and the
5relevant step is within paragraph 1 of that Schedule.””

Transactions under employee benefit packages

27 (1) Chapter 2 of Part 7A of ITEPA 2003 does not apply by reason of a relevant
step within paragraph 1 which is treated as being taken by a person (“P”) if—

(a) P is treated as taking a relevant step within that paragraph by reason
10of the payment of a sum of money by way of a loan,

(b) the step is not taken under a pension scheme,

(c) the loan was made for the sole purpose of a transaction of P’s with A
and which P entered into in the ordinary course of P’s business,

(d) at the time the loan was made (the “relevant time”)—

(i) 15a substantial proportion of P’s business involved making
similar loans to members of the public,

(ii) the transaction with A was part of a package of benefits
which was available to a substantial proportion of B’s
employees, and

(iii) 20sub-paragraph (3) does not apply,

(e) the terms on which similar transactions were offered by P under the
package of benefits mentioned in paragraph (d)(ii) were generous
enough to enable substantially all of the employees of B to whom the
package was available at or around the relevant time to take
25advantage of what was offered (if they wanted to),

(f) the terms on which P entered into the transaction with A were
substantially the same as the terms on which at or around the
relevant time P normally entered into similar transactions with
employees of B under the package of benefits,

(g) 30if B is a company, a majority of B’s employees to whom the package
of benefits was available at the relevant time did not have a material
interest (as defined in section 68 of ITEPA 2003) in B, and

(h) there is no connection (direct or indirect) between the relevant step and a tax avoidance arrangement.

(2) For the purposes of sub-paragraph (1)(d)(i)—

(a) 35a loan is “similar” if it is made for the same or similar purposes as the
loan which is the subject of the relevant step, and

(b) “members of the public” means members of the public at large with
whom P deals at arm‘s length.

(3) This sub-paragraph applies if any feature of the package of benefits
40mentioned in sub-paragraph (1)(d)(ii) had or would have been likely to have
had the effect that, of the employees of B to whom the package was available,
it is employees within sub-paragraph (4) on whom benefits under the
package will be wholly or mainly conferred.

(4) The employees within this sub-paragraph are—

(a) 45directors,

(b) senior employees,

(c) employees who at the relevant time received, or as a result of the
package of benefits would have been likely to have received, the
higher or highest levels of remuneration, and

(d) if, at the relevant time, B was a company and was a member of a
5group of companies, any employees not within paragraph (b) or (c)
who—

(i) were senior employees in the group, or

(ii) received, or as a result of the package of benefits would have
been likely to have received, the higher or highest levels of
10remuneration in the group.

(5) For the purposes of sub-paragraph (1)(d) and (e) a transaction is “similar” if
it is of the same or a similar type to the transaction which P has or had with
A.

(6) In this paragraph references to A include references to any person linked
15with A.

(7) In this paragraph “pension scheme” has the same meaning as in Part 4 of FA
2004 (see section 150(1) of that Act).

28 In section 554G of ITEPA 2003 (exclusions: transactions under employee
benefit packages), at the end insert—

“(8) 20See paragraph 27 of Schedule 17 to FA 2017 for provision about
exclusions for transactions under employee benefit packages in a
case in which the relevant step is within paragraph 1 of that
Schedule.””

Cases involving employment-related securities

29 25Chapter 2 of Part 7A of ITEPA 2003 does not apply by reason of a relevant
step within paragraph 1 which is treated as being taken by a person (“P”) if—

(a) P is treated as taking a relevant step within that paragraph by reason
of the payment of a sum of money by way of a loan (the “relevant
loan”),

(b) 30the relevant loan is made and used solely for the purpose of enabling
A to exercise an employment-related securities option (within the
meaning of Chapter 5 of Part 7 of ITEPA 2003),

(c) the exercise of the option by A gives rise to employment income of A
in respect of A’s employment with B—

(i) 35which is chargeable to income tax or would be chargeable
apart from Chapter 5B of Part 2 of ITEPA 2003, or

(ii) which is exempt income, and

(d) there is no connection (direct or indirect) between the relevant step
and a tax avoidance arrangement.

30 40In section 554N of ITEPA 2003 (exclusions: other cases involving
employment-related securities etc.), at the end insert—

“(17) See paragraph 29 of Schedule 17 to FA 2017 for provision about
exclusions where a loan is made for the purpose of enabling the
exercise of an employment-related securities option and the relevant
45step is within paragraph 1 of that Schedule.””

Employee car ownership schemes

31 (1) This paragraph applies if—

(a) there is an arrangement (“the car ownership arrangement”) which—

(i) provides for A to purchase a new car from another person
5(“S”) using a loan (“the car loan”) to be made to A by an
authorised lender,

(ii) specifies the date (“the repayment date”) by which the car
loan must be fully repaid which must be no later than four
years after the date on which the car loan is made, and

(iii) 10permits A, in order to obtain funds to repay the car loan, to
sell the car back to S on a specified date at a specified price
based on an estimate (made at the time the car ownership
arrangement is made) of the likely outstanding amount of the
car loan on the specified date, and

(iv) 15as provided for by the car ownership arrangement, A
purchases the car using the car loan.

(2) Chapter 2 does not apply by reason of a relevant step within paragraph 1
which is treated as being taken by a person if—

(a) the person is treated as taking a relevant step within that paragraph
20by reason of making the car loan, and

(b) the car ownership arrangement is not a tax avoidance arrangement
and there is no other connection (direct or indirect) between the
relevant step and a tax avoidance arrangement.

(3) In this paragraph—

• 25“car” has the meaning given by section 235(2) of ITEPA 2003, and

• “authorised lender” means a person who—

  (a)

  has permission under Part 4A of the Financial Services and
  Markets Act 2000 to enter into, or to exercise or have the right
  to exercise rights and duties under, a contract of the kind
  30mentioned in paragraph 23 of Schedule 2 to that Act, and

  (b)

  is not acting as a trustee.

(4) The definition of “authorised lender” must be read with—

(a) section 22 of the Financial Services and Markets Act 2000,

(b) any relevant order under that section, and

(c) 35Schedule 2 to that Act.

(32) In section 554O of ITEPA 2003 (exclusions: employee car ownership schemes), at the end insert—

“(7) See paragraph 31 of Schedule 17 to FA 2017 for provision about
exclusions for car loans in a case in which the relevant step is within
paragraph 1 of that Schedule.””

40Acquisition of unlisted employer shares

33 (1) Chapter 2 of Part 7A of ITEPA 2003 does not apply by reason of a relevant
step within paragraph 1 which is treated as being taken by a person (“P”) if
the conditions in sub-paragraph (2) are met.

(2) The conditions are that—

(a) 45the loan or quasi-loan concerned was made before 9 December 2010,