Finance Bill (HC Bill 116)

(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—

• 5“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
  10interest 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);

• 15“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
  20the 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
  25that 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
  30company 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
  35participators 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) 40a limited partnership registered under the Limited
Partnerships 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) 45a firm or entity of a similar character to either of those
mentioned 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) This section is subject to Schedule A1 (non-excluded overseas
5property).””

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
subsection is subject to Schedule A1.”

5 10In section 65 (charge at other times), after subsection (7B) (as inserted by
section 30) insert—

“(7C) 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
15thereby becomes excluded property by virtue of section 48(3)(a)
above.

(7D) 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
20excluded 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
25overseas property).””

7 In section 237 (imposition of charge), after subsection (2) insert—

“(2A) Where tax is charged by virtue of Schedule A1 on the value
transferred by a chargeable transfer, the reference in subsection (1)(a)
to property to the value of which the value transferred is wholly or
30partly attributable includes the UK residential property interest
(within the meaning of that Schedule) to which the charge to tax
relates.””

8 In section 272 (general interpretation), in the definition of “excluded
property”, after “above” insert “and Schedule A1”.

35Commencement

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

(2) But for the purposes of paragraph 5(1) of Schedule A1 to IHTA 1984 as
inserted by this Schedule—

(a) 40paragraph (a) of that paragraph does not apply in relation to a
disposal of property occurring before 6 April 2017, and

(b) paragraph (b) of that paragraph does not apply in relation to a
payment of money or money’s worth occurring before 6 April 2017.

Transitional provision

10 (1) Sub-paragraphs (2) and (3) apply if an amount of inheritance tax—

(a) would not be charged but for the amendments made by this
Schedule, or

(b) 5is, because of those amendments, greater than it would otherwise
have been.

(2) Section 233 of IHTA 1984 (interest on unpaid inheritance tax) applies in
relation to the amount of inheritance tax as if the reference, in the closing
words of subsection (1) of that section, to the end of the period mentioned in
10paragraph (a), (aa), (b) or (c) of that subsection were a reference to—

(a) the end of that period, or

(b) if later, the end of the month immediately following the month in
which this Act is passed.

(3) Subsection (1) of section 234 of IHTA 1984 (cases where inheritance tax
15payable by instalments carries interest only from instalment dates) applies
in relation to the amount of inheritance tax as if the reference, in the closing
words of that subsection, to the date at which an instalment is payable were
a reference to—

(a) the date at which the instalment is payable, or

(b) 20if later, the end of the month immediately following the month in
which this Act is passed.

11 (1) Sub-paragraph (2) applies if—

(a) a person is liable as mentioned in section 216(1)(c) of IHTA 1984
(trustee liable on 10-year anniversary, and other trust cases) for an
25amount of inheritance tax charged on an occasion, and

(b) but for the amendments made by this Schedule—

(i) no inheritance tax would be charged on that occasion, or

(ii) a lesser amount of inheritance tax would be charged on that
occasion.

(2) 30Section 216(6)(ad) of IHTA 1984 (delivery date for accounts required by
section 216(1)(c)) applies in relation to the account to be delivered in
connection with the occasion as if the reference to the expiration of the
period of 6 months from the end of the month in which the occasion occurs
were a reference to—

(a) 35the expiration of that period, or

(b) if later, the end of the month immediately following the month in
which this Act is passed.

Section 34

SCHEDULE 11 Employment income provided through third parties: loans etc outstanding on
5 April 2019

Part 1 5Application of Part 7A of ITEPA 2003

Relevant step

1 (1) A person (“P”) is treated as taking a relevant step for the purposes of Part 7A
of ITEPA 2003 if—

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

(b) 10the loan or quasi-loan was made on or after 6 April 1999, and

(c) an amount of the loan or quasi-loan is outstanding immediately
before the end of 5 April 2019.

(2) P is treated as taking the step immediately before—

(a) the end of the approved repayment date, if P has made a loan which
15is an approved fixed term loan on 5 April 2019, or

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

(3) Where P is treated by this paragraph as taking a relevant step, references to
“the relevant step” in section 554A(1)(e)(i) and (ii) of ITEPA 2003 have effect
as if they were references to the step of making the loan or, as the case may
20be, quasi-loan.

(4) For the purposes of section 554Z3(1) of ITEPA 2003 (value of relevant step),
the step is to be treated as involving a sum of money equal to the amount of
the loan or quasi-loan that is outstanding at the time P is treated as taking
the step.

(5) 25Subsections (2) and (3) of section 554C of ITEPA 2003 (“relevant person”)
apply for the purposes of this Schedule as they apply for the purposes of that
section.

(6) Sub-paragraph (1) is subject to paragraphs 23 and 24 (accelerated payments).

(7) For the purposes of this paragraph, whether an amount of a loan or quasi-
30loan is outstanding at a particular time—

(a) is to be determined in accordance with the following provisions of
this Schedule, and

(b) does not depend on the loan or quasi-loan subsisting at that time.

(8) References in this Schedule and in Part 7A of ITEPA 2003 to a relevant step
35within paragraph 1 of this Schedule are to be read as references to a relevant
step which a person is treated by this paragraph as taking.

Meaning of “loan”, “quasi-loan” and “approved repayment date”

2 (1) In this Part of this Schedule “loan” includes—

(a) any form of credit;

(b) 40a payment that is purported to be made by way of a loan.

(2) For the purposes of paragraph 1, P makes a “quasi-loan” to a relevant person
if (and when) P acquires a right (the “acquired debt”)—

(a) which is a right to a payment or a transfer of assets, and

(b) in respect of which the condition in sub-paragraph (3) is met.

(3) 5The condition is met in relation to a right if there is a connection (direct or
indirect) between the acquisition of the right and—

(a) a payment made, by way of a loan or otherwise, to the relevant
person, or

(b) a transfer of assets to the relevant person.

(4) 10Where a quasi-loan or a loan made by P to a relevant person is replaced,
directly or indirectly, by a loan or another loan (the “replacement loan”),
references in paragraph 1 to the loan are references to the replacement loan.

(5) Where 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
15“replacement quasi-loan”), references in paragraph 1 to the quasi-loan are
references to the replacement quasi-loan.

(6) In this Part of this Schedule, “approved repayment date”, in relation to an
approved fixed term loan, means the date by which, under the terms of the
loan at the time of making the application for approval under paragraph 20,
20the whole of the loan must be repaid.

Meaning of “outstanding”: loans

3 (1) An amount of a loan is “outstanding” for the purposes of paragraph 1 if the
relevant principal amount exceeds the repayment amount.

(2) In sub-paragraph (1) “relevant principal amount”, in relation to a loan,
25means the total of—

(a) the initial principal amount lent, and

(b) any sums that have become principal under the loan, otherwise than
by capitalisation of interest.

(3) In sub-paragraph (1) “repayment amount”, in relation to a loan, means the
30total of—

(a) the amount of principal under the loan that has been repaid before
17 March 2016, and

(b) payments in money made by the relevant person on or after 17
March 2016 by way of repayment of principal under the loan.

4 (1) 35A payment is to be disregarded for the purposes of paragraph 3(3)(b) if—

(a) there is any connection (direct or indirect) between the payment and
a tax avoidance arrangement (other than the arrangement under
which the loan was made), or

(b) the payment, or a sum or asset directly or indirectly representing the
40payment, is the subject of a relevant step (as defined in section
554A(2) of ITEPA 2003) that is taken—

(i) after the payment is made, but

(ii) before the end of the relevant date.

(2) But a payment is not to be disregarded under sub-paragraph (1)(b) if, by the
45end of the relevant date, each relevant tax liability has been paid in full.

(3) For the purposes of this paragraph, each of the following is a “relevant tax
liability”—

(a) any liability for income tax arising by virtue of the application of
Chapter 2 by reason of the relevant step mentioned in sub-paragraph
5(1)(b), and

(b) where section 554Z6 of ITEPA 2003 (overlap with certain earnings)
applies because that relevant step gives rise to relevant earnings for
the purposes of that section, any liability for income tax in respect of
those relevant earnings.

(4) 10In this paragraph, “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.

(5) Sub-paragraph (6) applies if a payment is disregarded under sub-paragraph
15(1)(b).

(6) The value of the relevant step treated as taken by paragraph 1 is not reduced
under section 554Z5(3) of ITEPA 2003 (overlap with money or asset subject
to earlier tax liability) by the amount of the sum, or the value of the asset,
which is the subject of the relevant step mentioned in sub-paragraph (1)(b)
20unless the payment condition is met by reason of section 554Z5(4)(a) and
(b)(ii) being met.

5 (1) This paragraph applies where—

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

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

(c) 25before the end of 5 April 2019, A or B acquires (whether or not for
consideration) a right to payment of the whole or part of the loan.

(2) The amount of the loan in respect of which A or B acquires a right to
payment is to be treated—

(a) for the purposes of paragraph 1(1) as an amount, of the loan made by
30P to the relevant person, that is outstanding immediately before 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 loan that is outstanding at the time P is
treated as taking the relevant step under paragraph 1(1).

(3) 35Where a quasi-loan or a loan made by P to a relevant person is replaced,
directly or indirectly, by a loan or another loan (the “replacement loan”),
references in sub-paragraphs (1) and (2) to the loan are references to the
replacement loan.

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

6 (1) 40In paragraphs 7 to 10 “the loan currency”, in relation to a loan, means the
currency in which the initial principal amount of the loan is denominated
(whether or not that amount is paid in that currency).

(2) For the purposes of paragraphs 7 to 10, the value of an amount in a particular
currency is to be determined by reference to an appropriate spot rate of
45exchange.

7 (1) This paragraph applies in relation to a loan where the loan currency is a
currency other than sterling.

(2) But this paragraph does not apply if paragraph 10 applies in relation to the
loan.

(3) 5The amount of the 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 loan currency, the amount that is outstanding at that time.

Step 2

10Take the value in sterling, at that time, of that amount.

(4) See paragraph 8 for provision about repayments made in a currency other
than the loan currency.

Repayments in currencies other than the loan currency

8 (1) This paragraph applies in relation to a loan where—

(a) 15payments in money are made by way of repayment of principal
under the loan, and

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

(2) But this paragraph does not apply if paragraph 10 applies in relation to the
20loan.

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

Loans made in a depreciating currency

9 (1) 25Paragraph 10 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
reasons, for the loan being made in that currency is that the loan
currency is expected to depreciate as against sterling during the loan
30period.

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

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

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

10 (1) 35Where this paragraph applies in relation to a loan—

(a) paragraphs 7 and 8 do not apply in relation to the loan, and

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

(2) 40The 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
amount 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) 5The “reference date”—

(a) in relation to an amount within sub-paragraph (2)(a), means the date
on 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) 10The repayment amount, in relation to the loan, is an amount equal to the
total of—

(a) the 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
15of repayment of principal under the loan, 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.

Meaning of “outstanding”: quasi-loans

11 (1) 20An amount of a quasi-loan is outstanding for the purposes of paragraph 1 if
the initial debt amount exceeds the repayment amount.

(2) In 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
252(2)), and

(b) where P subsequently acquires a further right (an “additional debt”)
to 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
30additional debt.

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

(a) where 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
35“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
another 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) 40the 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) In sub-paragraph (1) “repayment amount”, in relation to a quasi-loan, means
45the total of—

(a) the amount (if any) by which the initial debt amount has been
reduced (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
5market value of the assets at the time of the transfer.

12 (1) A payment or transfer is to be disregarded for the purposes of paragraph
11(4)(b) or (c) if—

(a) there is any connection (direct or indirect) between the payment or
transfer and a tax avoidance arrangement (other than the
10arrangement under which the quasi-loan was made), or

(b) the payment or the asset transferred, or a sum or asset directly or
indirectly representing the payment or asset, is the subject of a
relevant step (as defined in section 554A(2) of ITEPA 2003) that is
taken—

(i) 15after the payment is made or the asset transferred, but

(ii) before the end of 5 April 2019.

(2) But a payment or transfer is not to be disregarded under sub-paragraph
(1)(b) if, by the end of 5 April 2019, each relevant tax liability has been paid
in full.

(3) 20For the purposes of this paragraph, each of the following is a “relevant tax
liability”—

(a) any liability for income tax arising by virtue of the application of
Chapter 2 by reason of the relevant step mentioned in sub-paragraph
(1)(b), and

(b) 25where section 554Z6 of ITEPA 2003 (overlap with certain earnings)
applies because that relevant step gives rise to relevant earnings for
the purposes of that section, any liability for income tax in respect of
those relevant earnings.

(4) Sub-paragraph (5) applies if a payment is disregarded under sub-paragraph
30(1)(b).

(5) The value of the relevant step treated as taken by paragraph 1 is not reduced
under section 554Z5(3) of ITEPA 2003 (overlap with money or asset subject
to earlier tax liability) by the amount of the sum, or the value of the asset,
which is the subject of the relevant step mentioned in sub-paragraph (1)(b)
35unless the payment condition is met by reason of section 554Z5(4)(a) and
(b)(ii) being met.

13 (1) This 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) 40before 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
in paragraph 2(2)(a).

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

(a) 45for the purposes of paragraph 1(1) as an amount, of the quasi-loan
made by P to the relevant person, that is outstanding immediately
before 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) 5where 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
10(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) Where 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
15“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

14 (1) Paragraphs 15 to 18 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
20“quasi-loan currency”).

(2) For the purposes of paragraphs 15 to 18, the value of an amount in a
particular currency is to be determined by reference to an appropriate spot
rate of exchange.

15 (1) This paragraph applies in relation to the quasi-loan if the quasi-loan
25currency is a currency other than sterling.

(2) But this paragraph does not apply if paragraph 18 applies in relation to the
quasi-loan.

(3) The 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—

30Step 1

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

Step 2

Take the value in sterling, at that time, of that amount.

(4) 35See paragraph 16 for provision about repayments made in a currency other
than the quasi-loan currency.

Repayments in currencies other than the quasi-loan currency

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

(a) payments in money are made by way of repayment of the initial debt
40amount, and

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