Finance Bill (HC Bill 102)

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(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
5United Kingdom.

(5) For the purposes of subsections (3)(e) and (4)(g), 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) contains further provision for the purposes of
10subsections (3)(e) and (4)(g).

(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
    15section 718(1)(b) as domiciled in the United Kingdom as a
    result of section 835BA of ITA 2007 having effect.

721B Section 721A: tainting

(1) This section applies for the purposes of subsections (3)(e) and (4)(g)
of section 721A.

(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 under
30a 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

(c) a relevant event occurs,

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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) capitalisation of interest payable under the loan,

(b) 5any 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) Subsection (6) applies (subject to subsection (7)) where—

(a) 10the 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
date”), a loan has been made to the trustees of the settlement
15by—

(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) any amount that is outstanding under the loan on the
20deemed 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
by the lender for the purposes of the settlement (despite subsection
25(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
under the loan is paid, before 6 April 2018, or

(b) 30the 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
with 5 April 2018 as if those arm’s length terms had
35been 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.

(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
40if interest at the official rate or more is payable at least
annually under the loan;

(b) in the case of a loan made by the trustees of a settlement, only
if any interest payable under the loan is payable at no more
than the official rate.

(9) 45For the purposes of this section—

  • 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 section 721A;

  • Finance BillPage 512

  • “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.”

30 In section 726 (individuals to whom remittance basis applies), after
5subsection (5) insert—

(6) In addition, where the tax year in which any foreign deemed income
arises is earlier than the tax year 2017-18, section 832 of ITTOIA 2005
does not apply to the foreign deemed income so far as it—

(a) is remitted to the United Kingdom in the tax year 2017-18 or
10a later tax year, and

(b) is transitionally protected income.

(7) In subsection (6)—

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

  • 15“transitionally protected income” means any foreign deemed
    income where the income mentioned in section 721(2)—

    (a)

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

    (b)

    would be protected foreign-source income as defined
    by section 721A if section 721A—

    (i)

    20had effect for tax years earlier than the tax
    year 2017-18, and

    (ii)

    so had effect with the omission of its
    subsections (3)(e), (4)(g), (5) and (6), and

    (c)

    has not prior to 6 April 2017 been distributed by the
    25trustees of the settlement concerned.”

31 In section 728 (income of a person abroad that is treated as arising to a UK
resident individual), for subsection (1A) (amount treated as arising)
substitute—

(1A) The amount of the income treated as arising under subsection (1) is
30(subject to subsection (2)) given by the following rules—

Rule 1

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

(a) is domiciled in the United Kingdom at any time in the tax
35year, 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.

40Rule 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
729A).

(1B) In a case in which rule 2 of subsection (1A) applies, so much of the
45income 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).”

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32 After section 729 insert—

729A Meaning of “protected foreign-source income” in section 728

(1) This section has effect for the purposes of rule 2 of section 728(1A)
(cases where the individual is not UK domiciled and is not 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 condition in paragraph (c) is met as a result of a relevant
transaction (whether or not it is also met otherwise than as a
result of a relevant transaction),

(e) 40the income has become the income of the person abroad as a
result of that relevant transaction,

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

(g) when the settlement is created, the individual is—

(i) not domiciled in the United Kingdom, and

(ii) 45if the settlement is created on or after 6 April 2017, not
deemed domiciled in the United Kingdom, and

(h) no property or income is provided directly or indirectly for
the purposes of the settlement by the individual, or by the

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trustees of any other settlement of which the individual is a
beneficiary or settlor, at a time in the period—

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

(ii) 5ending with the end of the tax year,

when the individual is domiciled or deemed domiciled in the
United Kingdom.

(5) For the purposes of subsections (3)(e) and (4)(h), the addition of
value to property comprised in the settlement is to be treated as the
10direct provision of property for the purposes of the settlement.

(6) Section 721B (tainting) applies for the purposes of subsections (3)(e)
and (4)(h) as it applies for the purposes of section 721A(3)(e) and
(4)(g).

(7) In this section—

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

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

33 20In 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
arises is earlier than the tax year 2017-18, section 832 of ITTOIA 2005
does not apply to the foreign deemed income so far as it—

(a) 25is remitted to the United Kingdom in the tax year 2017-18 or
a later tax year, and

(b) is transitionally protected income.

(7) In subsection (6)—

  • “remitted to the United Kingdom” is to be read in accordance
    30with Chapter A1 of Part 14, and

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

    (a)

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

    (b)

    would be protected foreign-source income as defined
    35by section 729A if section 729A—

    (i)

    had effect for tax years earlier than the tax
    year 2017-18, and

    (ii)

    so had effect with the omission of its
    subsections (3)(e), (4)(h), (5) and (6), and

    (c)

    40has not prior to 6 April 2017 been distributed by the
    trustees of the settlement concerned.”

34 (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”.

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(3) After subsection (1) insert—

(1A) But where the individual is non-UK resident for the tax year in which
a benefit is received, there is a charge to tax under this section on any
matched deemed income—

(a) 5only so far as that matched deemed income would under
section 735A (if it applied also for this purpose) be matched
with an amount of relevant income that is protected income
for the purposes of section 733A(1)(b)(i) (see sections
721(3BA) and 728(1B)), and

(b) 10only if—

(i) the individual is the settlor of the settlement
concerned, or

(ii) the benefit is received by the individual at a time
when the individual is a close member of the family
15of the settlor of that settlement.

(1B) For the purposes of subsection (1A)—

(a) “matched deemed income” means income which—

(i) is treated by section 732 as arising to the individual,
and

(ii) 20would, if section 735A applied also for this purpose,
be matched under that section with the benefit, and

(b) a person is a close member of the family of the settlor of a
settlement if the person is—

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

(ii) 25a child of the settlor, or of a person within sub-
paragraph (i), if the child has not reached the age of
18;

and section 733A(7) (persons living together) applies also for the
purposes of paragraph (b).”

(4) 30In 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.”

35 (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) 35in 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
40is 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
45domiciled” 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

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section 835BA having effect because of Condition A in that
section 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
5Step 2, at the end insert “except that, where any of that income is matched
deemed income for the purposes of section 731(1A), that matched deemed
income is to be deducted only so far as it is matched deemed income on
which tax has been charged under section 731 for an earlier tax year.”

36 After section 733 insert—

733A 10 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
15amount would be matched—

(i) with an amount of relevant income that is protected
income for the purposes of this sub-paragraph (see
sections 721(3BA) and 728(1B)), and

(ii) with a benefit received by the individual at a time
20when the individual was a close member (see
subsection (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) 25there is a time in the year when the settlor is resident in the
United 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
30the 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.

(2) If—

(a) the individual is not resident in the United Kingdom at any
35time in the year, or

(b) section 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,

40the settlor is liable for the tax charged under section 731 on that
amount 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) 45section 809B, 809D or 809E (remittance basis) applies to the
individual 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,

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

(4) 5The 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
operations.

(5) Where any tax for which the settlor is liable as a result of subsection
10(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) 15the amount of the income concerned, and

(b) the 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) 20the settlor’s spouse or civil partner, or

(b) a 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
25other are treated as if they were spouses of each other, and

(b) two 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
30remitted, including rule treating pre-arising remittances of deemed
income as made when the income arises) apply for the purposes of
this section.”

37 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
35person,”.

38 After 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
40(“the beneficiary”) for a tax year,

(b) another 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) 45The income (“the transferred-liability deemed income”) is treated as
relevant foreign income of the settlor.

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(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
5benefit 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).”

10Commencement of amendments in FA 2004, ITTOIA 2005 and ITA 2007

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

FA 2008

40 In Part 2 of Schedule 7 to FA 2008 (remittance basis: trusts etc), after
15paragraph 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
    the purposes of paragraph 118(1)(d), and

  • 20paragraphs 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) the individual was born in the United Kingdom,

(b) 25the 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.”

Part 3 30Capital gains tax rebasing

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

(c) 35the 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) begins with 16 March 2016 or, if later, the date on which P acquired
40the asset, and

(b) ends with 5 April 2017.

(3) P is a qualifying individual if—

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

(b) P is not an individual—

(i) 5who was born in the United Kingdom, and

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

(c) P 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
10relevant 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) 15In 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) 20Where 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.

42 (1) 25This paragraph applies for the purposes of paragraph 41(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) 30it 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
35Kingdom 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
40the 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) 45by 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