Finance (No. 2) Bill (HC Bill 134)

Finance (No. 2) BillPage 140

(c) the subsequent recipient is a close member of the settlor’s
family when the subsequent recipient receives the onward
payment (see section 87I(1)(c)) by reference to which the
chargeable gains are treated as accruing.

(4) 5Section 87K(3)(a) has effect as if its reference to the subsequent
recipient were a reference to the settlor, and references (however
expressed) to chargeable gains treated as accruing by this section are
to chargeable gains treated by section 87K(3)(a) as accruing to the
settlor as a result of the operation of this subsection.

(5) 10Where, in the case of a settlement, any tax is chargeable on the settlor
as a result of this section and is paid, the settlor is entitled to recover
the full amount of the tax from the person mentioned in subsection
(1)(a) or (3)(a), as the case may be.

(6) For the purpose of recovering that amount, the settlor is entitled to
15require an officer of Revenue and Customs to give the settlor a
certificate specifying—

(a) the amount of tax paid, and

(b) the amount of the gains on which the tax is paid,

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

87M 20Cases where recipient of onward gift is user of remittance basis

(1) Subsection (2) applies where—

(a) ignoring this section, a person is treated by section 87K(2) as
receiving a capital payment from the trustees of a settlement
at a time (“the time of receipt”) in a tax year,

(b) 25section 809B, 809D or 809E of ITA 2007 (remittance basis)
applies to the person for that tax year, and

(c) the payment is not treated by section 87L(2) as received by
the settlor.

(2) Section 87I(1)(a) has effect as if the capital payment were received
30from the trustees by the person at the time of receipt, and section
87K(2)(a) and (b) do not have effect for the purposes of sections 87
and 87A in the case of the payment.

(3) The rules in subsection (4) apply where—

(a) in the case of a settlement, chargeable gains are (ignoring this
35section) treated by section 87K(3), but not as a result of the
operation of section 87L(4), as accruing to a person in a tax
year by reference to a gift within section 87I(1)(d) made to the
person,

(b) section 809B, 809D or 809E of ITA 2007 applies to the person
40for that tax year, and

(c) none, or part only, of the gains is remitted to the United
Kingdom in that tax year.

(4) The rules are—

(a) section 87I(1)(a) has effect—

(i) 45as if a capital payment were received from the
trustees by the person at the time the gift is made, and

Finance (No. 2) BillPage 141

(ii) as if the capital payment were equal in amount to so
much of the gains as is not remitted in the tax year
mentioned in subsection (3)(a) of this section,

(b) for the purposes of section 87J—

(i) 5the whole of the capital payment is a “matched
amount”, and

(ii) the whole of the matched amount is its “untaxed part”
(and the matched amount has no “taxed part”), and

(c) the amount of the gains treated by section 87K(3)(a) and (b)
10as accruing to the person by reference to the gift is reduced by
the amount of the capital payment.

(5) Where the capital payment mentioned in section 87I(1)(a) is one
treated as received by subsection (2) or (4) of this section in
connection with the operation of sections 87I to 87K on a previous
15occasion, section 87I(1) has effect—

(a) with the omission of its paragraph (b),

(b) as if the reference in its paragraph (c) to the original payment
were, instead, to what was the onward payment on that
previous occasion, and

(c) 20as if the references in its paragraph (d) to the original
payment were, instead, to so much of that onward payment
as was on that previous occasion within any of sub-
paragraphs (i) to (iii) of that paragraph.

(6) Section 87I(4) and (7) (interpretation of references to gifts and their
25making) apply also for the purposes of subsections (3) and (4) of this
section.

87N Sections 87 and 87A: disregard of payments to migrating beneficiary

(1) For the purposes of sections 87 and 87A as they apply in relation to a
settlement for a particular tax year, no account is to be taken of a
30capital payment (or part of a capital payment) within subsection (2),
but this is subject to section 87P.

(2) A capital payment is within this subsection—

(a) if it is received by a beneficiary of the settlement before the
particular tax year,

(b) 35if the relevant person is resident in the United Kingdom in
the tax year in which it is received,

(c) if the relevant person is not resident in the United Kingdom
in the particular tax year, and

(d) so far as it has not been matched (under section 87A as it
40applies for tax years before the particular tax year) with—

(i) the section 2(2) amount for any tax year before the
particular tax year, but not earlier than the tax year
2018-19, in which the relevant person is resident in the
United Kingdom, or

(ii) 45the section 2(2) amount for any tax year earlier than
the tax year 2018-19.

(3) For the purposes of subsection (2), the beneficiary is “the relevant
person” unless section 87G(2) applies in relation to the capital
payment in which event the settlor is “the relevant person”.

Finance (No. 2) BillPage 142

87P Sections 87 and 87A: temporary migration after payment disregarded

(1) If—

(a) as a result of section 87N, no account is taken of a capital
payment (or a part of a capital payment) for the purposes of
5sections 87 and 87A as they apply in relation to a settlement
for a particular tax year,

(b) the recipient beneficiary (where section 87G(2) does not
apply in relation to the capital payment), or the settlor (where
section 87G(2) does apply in relation to the capital payment),
10is an individual who is temporarily non-resident,

(c) the whole or part of the particular tax year constitutes, or
forms part of, that individual’s temporary period of non-
residence,

(d) either—

(i) 15that individual’s temporary period of non-residence
begins with the start of a tax year and the payment (or
part) is received before that tax year, or

(ii) that individual’s temporary period of non-residence
begins otherwise than at the start of a tax year and the
20payment (or part) is received before, or at any time in,
the tax year in which that individual’s temporary
period of non-residence begins, and

(e) the payment (or part) has not been matched (under section
87A as it applies for tax years before the particular tax year)
25with—

(i) the section 2(2) amount for any tax year before the
particular tax year, but not earlier than the tax year
2018-19, in which that individual is resident in the
United Kingdom, or

(ii) 30the section 2(2) amount for any tax year earlier than
the tax year 2018-19,

the payment (or part) is treated for the purposes of sections 87 and
87A as received (by that individual) in that individual’s period of
return, and account is to be taken of it accordingly for those
35purposes.

(2) Part 4 of Schedule 45 to FA 2013 explains—

(a) when an individual is to be regarded as “temporarily non-
resident”, and

(b) what “the temporary period of residence” and “the period of
40return” mean.”

(2) In sections 2(4) and (5), 16ZC(4) and 62(2A)(a) of TCGA 1992, after “87”
insert “, 87K, 87L”.

(3) In section 86A(1) of TCGA 1992 (attribution of gains to settlor in temporary
non-residence cases)—

(a) 45in paragraph (b)—

(i) for “beneficiaries of the settlement” substitute “, in the case of
the settlement, individuals”, and

(ii) after “87” insert “, 87K, 87L”, and

(b) in paragraph (c) omit “by the beneficiaries”.

Finance (No. 2) BillPage 143

(4) In section 87 of TCGA 1992 (non-UK resident settlements: attribution of
gains to beneficiaries)—

(a) after subsection (2) insert—

(2A) If the relevant tax year is a split year as respects the
5beneficiary, the gains are treated as accruing in the UK part
of that year.”, and

(b) omit subsection (7) (apportionment of gains where relevant year is a
split year).

(5) In section 87B of TCGA 1992 (section 87: remittance basis)—

(a) 10in subsection (1)(a), after “87” insert “, 87K or 87L”,

(b) in subsection (1)(b) (which refers to sections 809B, 809D and 809E of
ITA 2007), after “809E” insert “of ITA 2007”, and

(c) in subsection (4), after “capital payment” insert “, or onward
payment (see section 87I(1)(c)),”.

(6) 15In section 89(3) of TCGA 1992 (application of sections 87 to 87C in relation to
migrant settlements), for “87C” substitute “87P”.

(7) In section 91 of TCGA 1992 (increase in tax payable under section 87 or
89(2))—

(a) in subsection (1)(a)—

(i) 20after “87” insert “, 87K, 87L”, and

(ii) for “a beneficiary” substitute “an individual directly, or
indirectly,”, and

(b) in subsections (1)(b), (2) and (3), for “beneficiary” substitute
“individual”.

(8) 25In sections 279A(7)(b) and 279C(6)(c) of TCGA 1992, after “87” insert “, 87K,
87L”.

(9) In paragraph 1A of Schedule 4C to TCGA 1992—

(a) in Step 2 in sub-paragraph (1)—

(i) after “applies if,” insert “directly or indirectly”

(ii) 30after “87” insert “, 87K, 87L”, and

(iii) for “a beneficiary” substitute “an individual”, and

(b) in sub-paragraph (3)—

(i) for “a beneficiary” substitute “an individual”, and

(ii) for “the beneficiary” substitute “the individual”.

(10) 35In paragraph 8 of Schedule 4C to TCGA 1992, after sub-paragraph (5)
insert—

(6) Sections 87G(2), 87K(2) and 87L(2) (capital payment treated for
purposes of sections 87 and 87A as received by someone other
than actual recipient) apply also for the purposes of this
40paragraph, but this is subject to paragraph 9.”

(11) In consequence of sub-paragraph (4)(b), in Schedule 45 to FA 2013 omit
paragraph 101.

(12) The new sections 87D and 87E have effect—

(a) except as provided by the new section 87D(3), in relation to
45payments received in the tax year 2018-19 or a later tax year, and

Finance (No. 2) BillPage 144

(b) in the tax year 2018-19 and later tax years, also in relation to
payments received before the tax year 2018-19 that have not been
matched under section 87A of TCGA 1992 as it applies for tax years
before the tax year 2018-19.

(13) 5The new sections 87F and 87G, and the amendments made by sub-
paragraphs (4) and (11), have effect in relation to payments received in the
tax year 2018-19 or a later tax year.

(14) The new sections 87I to 87M have effect in relation to onward payments
made on or after 6 April 2018, and do so even in cases where the original
10payment is received before that date.

(15) The new sections 87N and 87P have effect where the particular tax year is the
tax year 2018-19 or a later tax year.

(16) The amendment made in section 89 has effect for the tax year 2018-19 and
later tax years.

2 (1) 15Sub-paragraph (2) applies in a case where—

(a) section 10A of TCGA 1992 (temporary non-residents) as substituted
by paragraph 119 of Schedule 45 to FA 2013 applies in relation to an
individual,

(b) the period of temporary non-residence began before 8 July 2015, and

(c) 20a capital payment (or part of a capital payment) is treated by section
87E or 87P of TCGA 1992 as received by the individual in the period
of return.

(2) For the purposes of capital gains tax in respect of any chargeable gain treated
by section 87 of TCGA 1992 as accruing to the individual as a result of
25matching of the payment (or part), section 809B(1A) of ITA 2007 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) the individual makes a claim under
section 809B of ITA 2007 for any of the tax years 2018-19 to 2020-21 inclusive,
30sections 809C, 809G and 809H of ITA 2007 do not apply to the individual for
that tax year.

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

Part 2 35Income tax

ITTOIA 2005

3 (1) Chapter 5 of Part 5 of ITTOIA 2005 (settlements: amounts treated as income
of settlor) is amended as follows.

(2) In the Chapter heading, after “settlor” insert “or family”.

4 40In section 619(1) (list of provisions in the Chapter charging tax)—

(a) omit the “and” at the end of paragraph (c), and

Finance (No. 2) BillPage 145

(b) after paragraph (d) insert—

(e) benefits whose amount or value is treated as income
of the settlor or a close family member as a result of
section 643A (benefits provided out of protected
5foreign-source income), and

(f) amounts treated as income of the settlor or a close
family member by section 643J or 643L (gifts provided
out of benefits).”

5 In section 621 (income charged under the Chapter), for “income and capital
10sums” substitute “income, capital sums and benefits”.

6 In section 622 (person liable), at the end insert “, but this is subject to sections
643A and 643I to 643M.”

7 In section 623 (deductions and reliefs allowed when calculating liability
under the Chapter)—

(a) 15for “a settlor” substitute “an individual”, and

(b) for “the settlor”, in both places it occurs, substitute “the individual”.

8 In section 635 (amount of available income for section 633 purposes)—

(a) in subsection (3)(d)(i) (tax on certain income to be deducted when
calculating available amount), before “income” insert “unprotected”,
20and

(b) in subsection (5) (meaning of “unprotected income”), for “subsection
(2)” substitute “this section and sections 636 and 637”.

9 In section 636 (amount of unprotected income that is undistributed for
section 635 purposes)—

(a) 25in subsection (2) (deducting payments that are or would be taxable
as recipients’ income)—

(i) in the words before paragraph (a) omit “such”,

(ii) in those words, for “as” substitute “that are payments of
unprotected income, or sums treated as representing
30unprotected income, and that”, and

(iii) in paragraph (b), for “so treated” substitute “treated as
mentioned in paragraph (a)”,

(b) in subsection (4) (deducting expenses properly chargeable to
income), before “income” insert “unprotected”, and

(c) 35in subsection (6) (deducting amounts in respect of exempt income),
in the definition of “A”, before “income” insert “unprotected”.

10 In section 637 (qualifications to section 636)—

(a) in subsections (2), (3) and (4) (extent to which interest treated as
deductible trust expenses), before “interest” insert “relevant”,

(b) 40in subsection (5) (the relevant fraction), in the definition of “A”,
before “income” insert “unprotected”, and

(c) after subsection (7) insert—

(7A) In this section “relevant interest” means interest which, in the
absence of any express provision of the settlement, would be
45properly chargeable to unprotected income.”

Finance (No. 2) BillPage 146

11 After section 643 insert—

“Benefits provided out of protected foreign-source income

643A Deemed income because of benefits for settlor or close family member

(1) If an individual has an untaxed benefits total for a settlement for a tax
5year (see section 643B), an amount equal to so much of that total as
does not exceed the settlement’s available protected income up to the
end of the year (see section 643C) is treated for income tax purposes
as income of the individual for the year, subject to subsections (2) to
(5).

(2) 10Subsections (3) and (4) apply if—

(a) an amount (“the deemed income”) is treated by subsection
(1), before the application of subsections (3) and (4), as
income of an individual for a tax year,

(b) the individual is not the settlor,

(c) 15either—

(i) the individual is non-UK resident for the year, or

(ii) the individual is UK resident for the year and one of
sections 809B, 809D and 809E of ITA 2007 (remittance
basis) applies to the individual for the year,

(d) 20the settlor is UK resident for the year,

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

(f) there is no time in the year when the settlor is regarded for
the purposes of section 809B(1)(b) of ITA 2007 as domiciled in
25the United Kingdom as a result of section 835BA of ITA 2007
having effect because of Condition A in that section being
met.

(3) If the case is one—

(a) where the condition in subsection (2)(c)(i) is met, or

(b) 30where the condition in subsection (2)(c)(ii) is met and none of
the deemed income is remitted to the United Kingdom in the
year,

the deemed income is to be treated for income tax purposes not as
income of the individual for the year but as income of the settlor for
35the year.

(4) If the case is one—

(a) where the condition in subsection (2)(c)(ii) is met, and

(b) part only of the deemed income is remitted to the United
Kingdom in the year,

40the remainder of the deemed income is to be treated for income tax
purposes not as income of the individual for the year but as income
of the settlor for the year.

(5) If there is a choice about the individuals in whose case income is to
be treated as arising by subsection (1) (before the application of
45subsections (3) and (4))—

(a) income is to be treated as arising to such one or more of them
as appears to an officer of Revenue and Customs to be just
and reasonable, and

Finance (No. 2) BillPage 147

(b) if more than one, in such respective proportions as appears to
the officer to be just and reasonable.

(6) Sections 809L to 809Z6 of ITA 2007 (remittance basis: rules about
when income is remitted) apply for the purposes of this section.

643B 5 Meaning of “untaxed benefits total” in section 643A

(1) For the purposes of section 643A, whether an individual has an
untaxed benefits total for a settlement for a tax year (“the current
year”), and (if so) its amount, are determined as follows—

Step 1

10If the individual is the settlor, identify each benefit provided by the
trustees to the individual at a time—

(a) when the individual is not relevantly domiciled, and

(b) in a tax year that is the current year or an earlier tax year.

If the individual is not the settlor, identify each benefit provided by
15the trustees to the individual at a time—

(a) when the individual is a close member of the settlor’s family
(see section 643H), and

(b) in a tax year that is the current year or an earlier tax year.

Step 2

20Identify the amount or value of each benefit identified in the
individual’s case at Step 1, and calculate the total of those amounts
and values.

Step 3

Take the total calculated at Step 2 and deduct from it the following—

(a) 25any part of it on which the individual is liable to income tax
otherwise than under section 643A,

(b) any income treated by section 643A, 643J or 643L as arising,
to a person for a tax year earlier than the current year, by
reference to any of the benefits identified in the individual’s
30case at Step 1,

(c) where the whole or part of a benefit identified in the
individual’s case at Step 1 is taken into account in charging
income tax under Chapter 2 of Part 13 of ITA 2007, the
amount or value of so much of the benefit as is taken into
35account in doing that, and

(d) any amount required to be deducted by section 643D(2)
(gains treated as accruing in a year before the current year).

Step 4

If the result of the calculation at Step 3 is an amount greater than nil,
40that amount is the individual’s untaxed benefits total for the
settlement for the current year.

(2) For the purposes of Step 1 in subsection (1), an individual is
“relevantly domiciled” at any time if at that time—

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

(b) 45the individual is 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 because of
Condition A in that section being met.

Finance (No. 2) BillPage 148

(3) Sections 742C to 742E of ITA 2007 (value of certain benefits) apply for
the purpose of calculating the value of a benefit for the purposes of
this section as they apply for the purpose of calculating an income
tax charge under Chapter 2 of Part 13 of ITA 2007.

643C 5 Meaning of “available protected income” in section 643A

(1) For the purposes of the application of section 643A(1) in the case of
an individual and a settlement, the settlement has available
protected income up to the end of a tax year if—

PFSI − TOAA < TI

10and, if the settlement has available protected income up to the end of
a tax year, its amount is given by—

PFSI − TOAA − TI

(2) In this section—

  • PFSI is the total amount of any protected foreign-source income
    15arising under the settlement in the year or in any earlier tax
    year that would be treated under section 624 or 629 as income
    of the settlor but for (as the case may be) section 628A or
    630A,

  • TOAA is so much of PFSI as is, in respect of benefits provided
    20by the trustees in the year or in an earlier tax year, taken into
    account in charging income tax under Chapter 2 of Part 13 of
    ITA 2007 (transfer of assets abroad) for the year or any earlier
    tax year, and

  • TI is the total of—

    (a)

    25all amounts which, by reference to benefits provided
    by the trustees to the individual, are treated by section
    643A, 643J or 643L as income for any earlier tax year,
    and

    (b)

    all amounts which, by reference to benefits provided
    30by the trustees to other individuals, are treated by
    section 643A, 643J or 643L as income for the year or
    any earlier tax year.

(3) As regards the definition of PFSI in subsection (2)—

(a) section 648(3) to (5) (relevant foreign income treated as
35arising under settlement only if and when remitted) do not
apply for the purposes of that definition,

(b) that definition has effect as if section 648(3) to (5) do not apply
for the purposes of sections 624 and 629, and

(c) in that definition “protected foreign-source income” has the
40meaning given by sections 628A(2) to (13) and 628B.

643D Reduction in section 643A income: previous capital gains tax charge

(1) Subsection (2) applies if—

(a) in the case of a settlement, benefits provided to an individual
as mentioned at Step 1 in section 643B(1) are received in a tax
45year, and

(b) chargeable gains are treated by section 87, 87K, 87L or 89(2)
of, or paragraph 8 of Schedule 4C to, TCGA 1992 as accruing
to a person in that or a subsequent tax year by reference

Finance (No. 2) BillPage 149

(direct or indirect) to the whole or part of any benefits so
provided.

(2) In the calculation under section 643B of the individual’s untaxed
benefits total for the settlement for any tax year after the one in which
5such chargeable gains are so treated, the amounts to be deducted at
Step 3(d) of that calculation include the amount of those gains.

(3) References in this section to chargeable gains treated as accruing to
an individual include offshore gains treated as arising to the
individual (see regulations 20 and 22 to 24 of the Offshore Funds
10(Tax) Regulations 2009 (S.I. 2009/3001S.I. 2009/3001)).

643E Reimbursement of tax paid by settlor because of section 643A

(1) Where any tax for which the settlor of a settlement is liable as a result
of section 643A(3) or (4) is paid, the settlor is entitled to recover the
amount of the tax from the individual concerned.

(2) 15For the purpose of recovering that amount, the settlor is entitled to
require an officer of Revenue and Customs to give the settlor a
certificate specifying—

(a) the amount of the income concerned, and

(b) the amount of tax paid,

20and any such certificate is conclusive evidence of the facts stated in it.

643F Income attributed by section 643A to user of remittance basis

(1) This section applies where—

(a) in the case of a settlement, income (“the deemed income”) is
treated by section 643A as arising to an individual for a tax
25year, and

(b) section 809B, 809D or 809E of ITA 2007 (remittance basis)
applies to the individual for that year.

(2) The deemed income is treated as relevant foreign income of the
individual.

(3) 30In the application of section 832 to the deemed income, subsection (2)
of that section has effect with the omission of paragraph (b).

(4) For the purposes of Chapter A1 of Part 14 of ITA 2007 (remittance
basis) treat a benefit, or any available protected income, that relates
to any part of the deemed income as deriving from that part of the
35deemed income.

(5) In subsection (4)—

  • “available protected income” means the income that forms PFSI
    in the calculation of the settlement’s available protected
    income for the year (see section 643C), but is not within
    40TOAA in that calculation, and

  • “relates” has the meaning given by section 643G.

643G Section 643F(4): benefits and income “relating” to deemed income

(1) In subsection (2)—