Finance Bill (HC Bill 102)

Finance BillPage 500

(2) The amendment made by this paragraph has effect in relation to the tax year
2017-18 and subsequent tax years.

14 (1) Chapter A1 of Part 14 (remittance basis) is amended as follows.

(2) In section 809B (claim for remittance basis to apply), after subsection (1)
5insert—

(1A) Section 835BA (deemed domicile) applies for the purposes of
subsection (1)(b).”

(3) In section 809C (claim for remittance basis by long-term UK resident:
nomination) omit the following—

(a) 10in subsection (1)(b), “the 17-year residence test,”;

(b) subsection (1ZA);

(c) subsection (1A)(a);

(d) in subsection (1B)(a), “the 17-year residence test or”;

(e) subsection (4)(za).

(4) 15In section 809E (application of remittance basis without claim: other cases),
after subsection (1) insert—

(1A) Section 835BA (deemed domicile) applies for the purposes of
subsection (1)(b).”

(5) In section 809H (claim for remittance basis by long-term UK resident:
20charge) omit the following—

(a) in subsection (1)(c), “the 17-year residence test,”;

(b) in subsection (1A)—

(i) “(1ZA)”;

(ii) “the 17-year residence test,”;

(c) 25subsection (5B)(za).

(6) The amendments made by this paragraph have effect in relation to the tax
year 2017-18 and subsequent tax years.

15 (1) This paragraph applies in a case where—

(a) 30section 10A of TCGA 1992 (temporary non-residents) as originally
enacted applies in relation to an individual, and

(b) the year of return is 2017-18.

(2) For the purposes of capital gains tax in respect of foreign chargeable gains
accruing to the individual during an intervening year, the amendment made
35by paragraph 14(2) does not have effect in relation to the year of return.

(3) Where by virtue of sub-paragraph (2) an individual makes a claim under
section 809B of ITA 2007 for the tax year 2017-18, sections 809C, 809G and
809H of ITA 2007 do not apply to the individual for that tax year.

(4) In this paragraph—

  • 40“intervening year” and “year of return” have the same meanings as in
    section 10A of TCGA 1992 as originally enacted;

  • “foreign chargeable gain” has the meaning given by section 12(4) of
    TCGA 1992.

Finance BillPage 501

16 (1) This paragraph applies in a case where section 10A of TCGA 1992 as
substituted by paragraph 119 of Schedule 45 to FA 2013 applies in relation
to an individual.

(2) For the purposes of capital gains tax in respect of foreign chargeable gains
5accruing to the individual during a temporary period of non-residence
beginning before 8 July 2015, the amendment made by paragraph 14(2) does
not have effect in relation to the tax year which consists of or includes the
period of return.

(3) Where by virtue of sub-paragraph (2) an individual makes a claim under
10section 809B of ITA 2007 for any of the tax years 2017-18 to 2020-21 inclusive,
sections 809C, 809G and 809H of ITA 2007 do not apply to the individual for
that tax year.

(4) In this paragraph, “foreign chargeable gain” has the meaning given by
section 12(4) of TCGA 1992.

(5) 15Part 4 of Schedule 45 to FA 2013 explains what “temporary period of non-
residence” and “period of return” mean.

17 (1) In section 834 (residence of personal representatives), at the end insert—

(5) Section 835BA (deemed domicile) applies for the purposes of
subsection (3).”

(2) 20The amendment made by this paragraph has effect in relation to the tax year
2017-18 and subsequent tax years.

Part 2 Protection of overseas trusts

TCGA 1992

18 25In Schedule 5 to TCGA 1992 (provisions supplementing section 86 of TCGA
1992), after paragraph 5 insert—

5A (1) Section 86 does not apply in relation to a year (“the particular
year”) if Conditions A to D are met.

(2) Condition A is that the particular year is—

(a) 30the tax year 2017-18, or

(b) a later tax year.

(3) Condition B 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
35deemed domiciled in the United Kingdom.

(4) Condition C is that there is no time in the particular year when the
settlor is—

(a) domiciled in the United Kingdom, or

(b) deemed domiciled in the United Kingdom by virtue of
40Condition A in section 835BA of ITA 2007.

(5) Condition D is that no property or income is provided directly or
indirectly for the purposes of the settlement by the settlor, or by

Finance BillPage 502

the trustees of another settlement of which the settlor is the settlor
or a beneficiary, at a time in the relevant period when the settlor
is—

(a) domiciled in the United Kingdom, or

(b) 5deemed domiciled in the United Kingdom.

(6) In sub-paragraph (5) “relevant period” means the period—

(a) beginning with the start of 6 April 2017 or, if later, the
creation of the settlement, and

(b) ending with the end of the particular year.

(7) 10For the purposes of Condition D, 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.

(8) Paragraph 5B contains further provision for the purposes of
Condition D.

(9) 15In this paragraph “deemed domiciled” means regarded for the
purposes of section 86(1)(c) as domiciled in the United Kingdom
as a result of section 835BA of ITA 2007 having effect.

5B (1) This paragraph applies for the purposes of Condition D in
paragraph 5A.

(2) 20Ignore—

(a) property or income provided under a transaction, other
than a loan, where the transaction is entered into on arm’s
length terms,

(b) property or income provided, otherwise than under a loan,
25without 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
settlement on arm’s length terms,

(d) the payment of interest to the trustees of the settlement
30under 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) property or income provided in pursuance of a liability
incurred by any person before 6 April 2017, and

(g) 35where 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 the value of any such property and income is not
greater than the amount of—

(i) 40the excess, or

(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) 45a 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

Finance BillPage 503

(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 BillPage 504

(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.”

10FA 2004

19 In paragraph 8 of Schedule 15 to FA 2004 (income tax on benefits received
by former owner of property: intangible property comprised in settlement
where settlor retains an interest), after sub-paragraph (3) insert—

(4) For the purpose of deciding whether the condition in sub-
15paragraph (1)(a) is met, ignore section 628A of ITTOIA 2005
(which provides for section 624 of that Act not to apply to certain
foreign income arising under a settlement).”

ITTOIA 2005

20 Chapter 5 of Part 5 of ITTOIA 2005 (settlements) is amended as follows.

21 20In 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) after the entry for section 628 insert , and

  • section 628A (exception for protected foreign-source
    25income).”

22 After section 628 insert—

628A Exception for protected foreign-source income

(1) The 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
30year.

(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
F are met.

(3) Condition A is that the income would be relevant foreign income if
35it 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) Condition C is that when the settlement is created the settlor—

(a) is not domiciled in the United Kingdom, and

(b) 40if 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
is—

Finance BillPage 505

(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
5for 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—

(a) 10domiciled 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
creation of the settlement, and

(b) 15ending 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) Section 628B (tainting) contains further provision for the purposes of
20Condition 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.

(13) Section 648(3) to (5) (relevant foreign income treated as arising under
25settlement only if and when remitted) do not apply for the purposes
of this section.

628B Section 628A: tainting

(1) This section applies for the purposes of Condition F in section 628A.

(2) Ignore—

(a) 30property or income provided under a transaction, other than
a loan, where the transaction is entered into on arm’s length
terms,

(b) property or income provided, otherwise than under a loan,
without any intention by the person providing it to confer a
35gratuitous benefit on any person,

(c) the principal of a loan which is made to the trustees of the
settlement 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) 40repayment to the trustees of the settlement of the principal of
a loan made by them,

(f) property 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
45administration for a tax year exceed its income for that year,
property or income provided towards meeting that excess if

Finance BillPage 506

the 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
5the amount of such expenses which may be paid out
of 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) 10the 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
the trustees at the time of that event (despite subsection (2)).

(4) In subsection (3) “relevant event” means—

(a) 15capitalisation 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) 20Subsection (6) applies (subject to subsection (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
25date”), 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) the loan is not entered into on arm’s length terms, and

(d) 30any 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 subsection applies, the outstanding amount is to be
regarded as property directly provided on the deemed domicile date
35by 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
not apply if—

(a) the principal of the loan is repaid, and all interest payable
40under 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 respect
of the period beginning with 6 April 2017 and ending
45with 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
accordance with those terms.

Finance BillPage 507

(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) 5in 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
    10settlor 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.

628C 15Foreign income arising before, but remitted on or after, 6 April 2017

(1) For the purposes of applying section 809L of ITA 2007 (meaning of
remitted to the UK) in relation to transitional trust income, “relevant
person” in that section does not include the trustees of the settlement
concerned.

(2) 20“Transitional trust income” means income—

(a) that arises under a settlement in the period beginning with
the tax year 2008-09 and ending with the tax year 2016-17
(“the protection period”),

(b) that would be protected foreign-source income for the
25purposes of section 628A(1) if section 628A(2)—

(i) had effect for the protection period, and

(ii) so had effect with a reference to conditions A to E
(instead of A to F),

(c) that prior to 6 April 2017 has neither been distributed by the
30trustees of the settlement nor treated under section 624(1) as
income of the settlor, and

(d) that would for the tax year in which it arose under the
settlement have been treated under section 624(1) as income
of the settlor if the settlor had been domiciled in the United
35Kingdom for that year.

(3) Section 648(3) to (5) (relevant foreign income treated as arising under
settlement only if and when remitted), and corresponding earlier
enactments, do not apply for the purposes of subsection (2)(a) and
(d).”

23 (1) 40In 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) The rule in section 629(1) does not apply to income which arises
45under a settlement if it is protected foreign-source income for a tax
year.

Finance BillPage 508

(2) Sections 628A(2) to (12) and 628B (meaning of “protected foreign-
source income”) have effect also for this purpose.

(3) Section 648(3) to (5) (relevant foreign income treated as arising under
settlement only if and when remitted) do not apply for the purposes
5of this section.”

24 (1) Section 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) 10In subsection (2) “unprotected income” means income which is not
protected foreign-source income, and sections 628A(2) to (13) and
628B (meaning of “protected foreign-source income”) have effect also
for this purpose.”

25 In section 636(1) (meaning in section 635 of “undistributed”), before
15“income”, in both places it occurs, insert “unprotected”.

26 In section 645(1) (meaning of property originating from the settlor), for
“section” substitute “sections 628A and”.

ITA 2007

27 Chapter 2 of Part 13 of ITA 2007 (transfer of assets abroad) is amended as
20follows.

28 In 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
25(subject to sections 724 and 725) given by the following rules—

Rule 1

The amount is equal to the amount of the income of the person
abroad if the individual—

(a) is domiciled in the United Kingdom at any time in the tax
30year, or

(b) is 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.

35Rule 2

In any other case, the amount is equal to so much of the income of the
person abroad as is not protected foreign-source income (see section
721A).

(3BA) In a case in which rule 2 of subsection (3B) applies, so much of the
40income of the person abroad as is protected foreign-source income
for the purposes of that rule counts as “protected income” for the
purposes of section 733A(1)(b)(i).”

Finance BillPage 509

29 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) The income of the person abroad is “protected foreign-source
income” so far as it is within subsection (3) or (4).

(3) Income is within this subsection if—

(a) it would be relevant foreign income if it were the
10individual’s,

(b) the person abroad is the trustees of a settlement,

(c) the trustees are non-UK resident for the tax year,

(d) 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

(e) 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.

(4) Income is within this subsection if—

(a) it would be relevant foreign income if it were the
individual’s,

(b) the person abroad is a company,

(c) 30the 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
person abroad and where each company in the chain
35(except the last) is a participator in the next company
in the chain,

(d) the individual’s power to enjoy the income results from the
trustees being participators as mentioned in paragraph (c)(i)
or (ii),

(e) 40the trustees are not UK resident for the tax year,

(f) 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
deemed domiciled in the United Kingdom, and

(g) 45no 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—