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

Finance (No. 2) BillPage 150

(a) references to a step are to a step under section 643B(1) as it
applies in the case of the settlement, individual and tax year
mentioned in section 643F, and

(b) “available protected income” means the income that forms
5PFSI in the calculation of that settlement’s available protected
income for that year (see section 643C), but is not within
TOAA in that calculation.

(2) For the purposes of section 643F(4)—

(a) place the benefits identified at Step 1 in the order in which
10they were received by the individual (starting with the
earliest benefit received),

(b) where a deduction is allowed by any of paragraphs (a), (c)
and (d) of Step 3 by reference to the whole or part of any of
those benefits, reduce the benefit by the amount of the
15deduction,

(c) place the available protected income in the order in which it
arose (starting with the earliest income to arise),

(d) place the income treated by section 643A as arising to the
individual in respect of the benefits in the order in which it is
20treated as arising (starting with the earliest income treated as
having arisen), and

(e) treat the income mentioned in paragraph (d) as related to—

(i) the benefits, and

(ii) the available protected income,

25by matching the income mentioned in paragraph (d) with the
benefits and the available protected income (in the orders
mentioned in paragraphs (a), (c) and (d)).

643H Meaning of close member of settlor’s family in sections 643B to 643M

(1) For the purposes of sections 643B to 643M, a person is a close
30member of the family of the settlor of a settlement at any time if the
settlor is living at that time and—

(a) the person is the settlor’s spouse or civil partner at that time,
or

(b) the person—

(i) 35is a child of the settlor, or of a person who at that time
is the settlor’s spouse or civil partner, and

(ii) at that time has not reached the age of 18.

(2) For the purposes of subsection (1)—

(a) two people living together as if they were spouses of each
40other 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.

643I Recipients of onward gifts

(1) 45Sections 643J to 643L apply if—

(a) in the case of a settlement, an amount—

(i) is treated by section 643A(1), both before and after the
application of section 643A(3) and (4), as income of an

Finance (No. 2) BillPage 151

individual (“the original beneficiary”) for a tax year
(“the matching year”), or

(ii) having been treated by section 643A(1) before the
application of section 643A(3) and (4) as income of an
5individual (“the original beneficiary”) for a tax year
(“the matching year”), is treated by section 643A(3) or
(4) as income of the settlor for the matching year,

(b) under section 643G (if it applied also for this purpose) the
amount would be matched with a benefit provided in the
10matching year, or an earlier tax year, to the original
beneficiary,

(c) at the time the benefit is provided to the original
beneficiary—

(i) there are arrangements, or there is an intention, as
15regards the (direct or indirect) passing-on of the
whole, or part, of the benefit to another person, and

(ii) it is reasonable to expect that, in the event of the
whole or part of the benefit being passed on to
another person as envisaged by the arrangements or
20intention, that other person will be UK resident when
they receive at least part of what is passed on to them,

(d) the original beneficiary makes, directly or indirectly, a gift
(“the onward payment”) to a person (“the subsequent
recipient”)—

(i) 25at the time the benefit is provided to the original
beneficiary, or at any later time in the 3 years
beginning with the day containing the start time, or

(ii) at any time before the benefit is provided to the
original beneficiary and, it is reasonable to assume, in
30anticipation of the benefit being provided,

(e) the gift is of or includes—

(i) the whole or part of the benefit,

(ii) anything that (wholly or in part, and directly or
indirectly) derives from, or represents, the whole or
35part of the benefit, or

(iii) any other property, but only if the benefit is provided
with a view to enabling or facilitating, or otherwise in
connection with, the making of the gift of the
property to the subsequent recipient,

(f) 40in a case within paragraph (a)(i), either—

(i) the original beneficiary is non-UK resident for the
matching year, or

(ii) section 809B, 809D or 809E of ITA 2007 (remittance
basis) applies to the original beneficiary for the
45matching year and none of the amount is relevantly
remitted in the matching year or in any tax year later
than the matching year but not later than the tax year
in which the onward payment is made,

(g) in a case within paragraph (a)(ii), section 809B, 809D or 809E
50of ITA 2007 (remittance basis) applies to the settlor for the
matching year and none of the amount is relevantly remitted
in the matching year or in any tax year later than the

Finance (No. 2) BillPage 152

matching year but not later than the tax year in which the
onward payment is made, and

(h) the subsequent recipient—

(i) is the settlor, or

(ii) 5is a close member of the settlor’s family (see section
643H) at the time the onward payment is made or,
where that time is given by subsection (4), at either or
both of the time so given and the actual time the
onward payment is made.

(2) 10The original beneficiary in a case within subsection (1)(a)(i) is not
liable to tax for any year after the charging year on so much of the
amount mentioned in subsection (1)(a) as is—

(a) treated as arising to the subsequent recipient by section 643J,
or

(b) 15treated as arising to the settlor by section 643L;

and the settlor in a case within subsection (1)(a)(ii) is not liable to tax
for any year after the charging year on so much of the amount
mentioned in subsection (1)(a) as is treated as arising to the
subsequent recipient by section 643J.

(3) 20The amount mentioned in subsection (1)(a) need not be—

(a) the whole amount that in the case of the settlement is treated
by section 643A(1), before the application of section 643A(3)
and (4), as income of the original beneficiary for the matching
year;

(b) 25the whole amount that would be matched with the benefit
mentioned in subsection (1)(b).

(4) Where the onward payment is made as mentioned in subsection
(1)(d)(ii), the onward payment is to be treated—

(a) for the purposes of the provisions of this section following
30subsection (1)(d), and

(b) for the purposes of sections 643J to 643L,

as made immediately after, and in the tax year in which, the benefit
is provided to the original beneficiary.

(5) For the purposes of subsection (1)(d)(i)—

(a) 35if the amount mentioned in subsection (1)(a) is not one that is
treated as arising by section 643K, “the start time”—

(i) is the time the benefit mentioned in subsection (1)(b)
is provided to the original beneficiary, or

(ii) where that benefit is one that section 643M(3) treats as
40provided, is the time the original benefit in that case
(see section 643M(1)(a)) is provided, and

(b) if the amount mentioned in subsection (1)(a) is one that is
treated as arising by section 643K in connection with the
operation of this section and section 643K on a previous
45occasion, “the start time” is the time given by this subsection
as the start time on that occasion.

(6) Where subsection (1)(d) and (e) are met in any case, it is to be
presumed (unless the contrary is shown) that subsection (1)(c) is also
met in that case.

Finance (No. 2) BillPage 153

(7) In this section (and sections 643J to 643L)—

  • “arrangements” includes any agreement, understanding,
    scheme, transaction or series of transactions (whether or not
    legally enforceable),

  • 5“the charging year” means the gift year or, if later, the matching
    year,

  • “gift” includes any benefit,

  • “the gift year” means the tax year in which the onward payment
    is made (but see subsection (4)),

  • 10“make”, in relation to a gift that is a benefit, means confer, and

  • “relevantly remitted” means remitted to the United Kingdom in
    a tax year for which the original beneficiary is UK resident
    but, in a case within subsection (1)(a)(ii), means remitted to
    the United Kingdom in a tax year for which the settlor is UK
    15resident.

(8) Sections 742C to 742E of ITA 2007 (value of certain benefits)—

(a) apply for the purpose of calculating the value of the onward
payment for the purposes of sections 643J to 643L as they
apply for the purpose of calculating an income tax charge
20under Chapter 2 of Part 13 of ITA 2007, and

(b) apply for that purpose as if their references to a benefit
provided were references to a gift made.

(9) Sections 809L to 809Z6 of ITA 2007 (remittance basis: rules about
when income is remitted)—

(a) 25apply for the purposes of this section and sections 643J to
643L, and

(b) apply for those purposes in relation to references to
remittance of the onward payment as if the onward payment
were relevant foreign income of the subsequent recipient.

643J 30 Cases where income treated as arising to recipient of onward gift

(1) Subsection (3) applies if—

(a) this section applies (see section 643I(1)), and

(b) the subsequent recipient is UK resident for the gift year, and

(c) the subsequent recipient is UK resident for the matching year
35if that is later than the gift year, and

(d) none of sections 809B, 809D and 809E of ITA 2007 (remittance
basis) applies to the subsequent recipient for the charging
year.

(2) Subsection (3) also applies if—

(a) 40this section applies (see section 643I(1)), and

(b) the subsequent recipient is UK resident for the gift year, and

(c) the subsequent recipient is UK resident for the matching year
if that is later than the gift year, and

(d) section 809B, 809D or 809E of ITA 2007 applies to the
45subsequent recipient for the charging year, and

(e) the whole, or part only, of the onward payment is remitted to
the United Kingdom in the charging year.

(3) For income tax purposes, an amount of income—

Finance (No. 2) BillPage 154

(a) equal to the amount or value of so much of the onward
payment as is within any of sub-paragraphs (i) to (iii) of
section 643I(1)(e), or

(b) where this subsection applies because of subsection (2) and
5part only of that much of the onward payment is remitted to
the United Kingdom in the charging year, equal to the
amount or value of that part,

is treated as income of the subsequent recipient for the charging year,
subject to subsection (4).

(4) 10The amount given by subsection (3) (before adjustment under this
subsection) is to be adjusted as follows—

(a) deduct any part of the amount on which the subsequent
recipient is liable to income tax otherwise than under this
section, and

(b) 15if following any adjustment under paragraph (a) the amount
exceeds the amount mentioned in section 643I(1)(a), deduct
the excess.

643K Cases where deemed income attributed to recipient of onward gift

(1) Subsection (3) applies if this section applies (see section 643I(1))
20and—

(a) the subsequent recipient is non-UK resident for the gift year,
or

(b) the matching year is later than the gift year and the
subsequent recipient is UK resident for the gift year but non-
25UK resident for the matching year.

(2) Subsection (3) also applies if—

(a) this section applies (see section 643I(1)), and

(b) the subsequent recipient is UK resident for the gift year, and

(c) the subsequent recipient is UK resident for the matching year
30if that is later than the gift year, and

(d) section 809B, 809D or 809E of ITA 2007 applies to the
subsequent recipient for the charging year, and

(e) none, or part only, of the onward payment is remitted to the
United Kingdom in the charging year.

(3) 35Section 643I(1)(a) has effect—

(a) as if the subsequent recipient were an individual to whom, in
the case of the settlement, income is treated by section
643A(1) as arising for the charging year, and

(b) as if, subject to subsection (4), the amount of that income—

(i) 40were equal to the amount or value of so much of the
onward payment as is within any of sub-paragraphs
(i) to (iii) of section 643I(1)(e) and is not treated as
arising to the settlor as a result of the operation of
section 643L, or

(ii) 45were, where this subsection applies because of
subsection (2) and part only of that much of the
onward payment is remitted to the United Kingdom
in the charging year, equal to the amount or value of
the remainder of that much of the onward payment.

Finance (No. 2) BillPage 155

(4) The amount given by subsection (3) (before adjustment under this
subsection) is to be adjusted as follows: if that amount exceeds the
amount mentioned in section 643I(1)(a) in the case of the original
beneficiary, deduct the excess.

(5) 5Where the amount mentioned in section 643I(1)(a) is treated as
arising by this section in connection with the operation of section
643I and this section on a previous occasion, section 643I(1) has
effect—

(a) with the omission of its paragraphs (b) and (c),

(b) 10as if the references in its paragraph (d) to the benefit
mentioned in its paragraph (b) were, instead, to what was the
onward payment on that previous occasion,

(c) as if the references in its paragraph (d) to when that benefit is
provided were, instead, to when that onward payment was
15made, and

(d) as if the references in its paragraph (e) to that benefit 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.

643L 20Cases where settlor liable following onward gift

(1) Subsection (3) applies if—

(a) this section applies (see section 643I(1)),

(b) the subsequent recipient is a close member of the settlor’s
family (see section 643H) when the onward payment is made,

(c) 25the subsequent recipient is UK resident for the charging year,

(d) section 809B, 809D or 809E of ITA 2007 applies to the
subsequent recipient for the charging year,

(e) none, or part only, of the onward payment is remitted to the
United Kingdom in the charging year,

(f) 30there is a time in the charging year when the settlor is UK
resident,

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

(h) there is no time in the charging year when the settlor is
35regarded for the purposes of section 809B(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.

(2) Subsection (3) also applies if—

(a) 40this section applies (see section 643I(1)),

(b) the subsequent recipient is a close member of the settlor’s
family when the onward payment is made,

(c) the subsequent recipient is non-UK resident for the charging
year,

(d) 45there is a time in the charging year when the settlor is UK
resident,

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

Finance (No. 2) BillPage 156

(f) there is no time in the charging year when the settlor is
regarded for the purposes of section 809B(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
5section being met.

(3) For income tax purposes, an amount of income—

(a) equal to the amount or value of so much of the onward
payment as is within any of sub-paragraphs (i) to (iii) of
section 643I(1)(e), or

(b) 10where this subsection applies because of subsection (1) in a
case where part only of that much of the onward payment is
remitted to the United Kingdom in the charging year, equal
to the amount or value of the remainder of that much of the
onward payment,

15is treated as arising to the settlor for the charging year, subject to
subsection (4).

(4) The amount given by subsection (3) (before adjustment under this
subsection) is to be adjusted as follows—

(a) deduct any part of the amount on which the settlor is liable to
20income tax otherwise than under this section, and

(b) if following any adjustment under paragraph (a) the amount
exceeds the amount mentioned in section 643I(1)(a), deduct
the excess.

(5) Where any tax for which the settlor is liable as a result of subsections
25(3) and (4) is paid, the settlor is entitled to recover the amount of the
tax from the subsequent recipient.

(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) 30the 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.

643M Onward gift to settlor or close family member by other recipient

(1) Subsection (3) applies if—

(a) 35the trustees of a settlement provide a benefit (“the original
benefit”) to an individual (“the original recipient”),

(b) the original recipient is not the settlor,

(c) at the time the original benefit is provided, the original
recipient is not a close member of the settlor’s family (see
40section 643H),

(d) at the time the original benefit is provided—

(i) there are arrangements, or there is an intention, as
regards the (direct or indirect) passing-on of the
whole, or part, of the original benefit to another
45person, and

(ii) it is reasonable to expect that, in the event of the
whole or part of the original benefit being passed on
to another person as envisaged by the arrangements
or intention, that other person will be UK resident

Finance (No. 2) BillPage 157

when they receive at least part of what is passed on to
them,

(e) the original recipient makes, directly or indirectly, a gift (“the
onward payment”) to a person (“the subsequent recipient”)—

(i) 5at the time the original benefit is provided to the
original recipient, or at any later time in the 3 years
beginning with the day containing that time, or

(ii) at any time before the original benefit is provided to
the original recipient and, it is reasonable to assume,
10in anticipation of the original benefit being provided,

(f) the gift is of or includes—

(i) the whole or part of the original benefit,

(ii) anything that (wholly or in part, and directly or
indirectly) derives from, or represents, the whole or
15part of the original benefit, or

(iii) any other property, but only if the original benefit is
provided with a view to enabling or facilitating, or
otherwise in connection with, the making of the gift of
the property to the subsequent recipient, and

(g) 20the subsequent recipient—

(i) is the settlor, or

(ii) is a close member of the settlor’s family at the time the
onward payment is made or, where that time is given
by subsection (4), at either or both of the time so given
25and the actual time the onward payment is made.

(2) Where—

(a) there is a series of two or more gifts,

(b) the first gift in the series is made, directly or indirectly, by the
original recipient—

(i) 30at the time the original benefit is provided, or at any
later time in the 3 years beginning with the day
containing that time, or

(ii) at any time before the original benefit is provided
and, it is reasonable to assume, in anticipation of the
35original benefit being provided,

(c) the recipient of a gift in the series is the person who makes,
directly or indirectly, the next gift in the series,

(d) the recipient of the last gift in the series is the settlor or, at the
time that last gift is made, is a close member of the settlor’s
40family,

(e) as regards any earlier gift in the series, its recipient—

(i) is not the settlor, and

(ii) is not, at the time that earlier gift is made, a close
member of the settlor’s family, and

(f) 45the condition in subsection (1)(f) is met in relation to each gift
in the series,

the last gift in the series is to be treated for the purposes of subsection
(1)(e) as if its maker were the original recipient (and not its actual
maker).

Finance (No. 2) BillPage 158

(3) So much of the onward payment as is within any of sub-paragraphs
(i) to (iii) of subsection (1)(f) is treated for the purposes of Step 1 in
section 643B(1) as a benefit provided by the trustees to the
subsequent recipient at the time the onward payment is made.

(4) 5Where the onward payment is made as mentioned in subsection
(1)(e)(ii), the onward payment is to be treated, for the purposes of
subsections (1)(g) and (3), as made immediately after, and in the tax
year in which, the original benefit is provided to the original
recipient.

(5) 10Where subsection (1)(e) to (g) are met in any case, it is to be presumed
(unless the contrary is shown) that subsection (1)(d) is also met in
that case.

(6) Where the benefit mentioned in section 643I(1)(b) is one that
subsection (3) of this section treats as provided, section 643I(1) has
15effect with the omission of its paragraph (c).

(7) In this section—

  • “arrangements” includes any agreement, understanding,
    scheme, transaction or series of transactions (whether or not
    legally enforceable),

  • 20“gift” includes any benefit, and

  • “make”, in relation to a gift that is a benefit, means confer.

643N Person liable under section 643J or 643L and remittance basis applies

(1) This section applies in relation to income if—

(a) the income is treated as arising to an individual for a tax
25year—

(i) by section 643J(3) and (4) where section 643J(3)
applies because of section 643J(2), or

(ii) by section 643L, and

(b) section 809B, 809D or 809E of ITA 2007 (remittance basis)
30applies to the individual for that year.

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

(3) For the purposes of Chapter A1 of Part 14 of ITA 2007 (remittance
basis) treat the onward payment, or (as the case may be) the part of
it whose amount or value is equal to the amount of the income, as
35deriving from the income.

(4) In the application of section 832 in relation to the income, subsection
(2) of that section has effect with the omission of its paragraph (b).”

ITA 2007

12 Chapter 2 of Part 13 of ITA 2007 (transfer of assets abroad) is amended as
40follows.

13 (1) Section 731 (charge to tax on income treated as arising under section 732) is
amended as follows.

Finance (No. 2) BillPage 159

(2) After subsection (1B) insert—

(1C) Subsection (1A) does not restrict the charge to tax under this section
on income treated as arising to the individual by section 733C or
733E (onward gifts: recipient or settlor treated as individual to whom
5income is treated as arising).”

(3) In subsection (2A) (which signposts section 735), for “section 735” substitute
“sections 735, 735B and 735C”.

14 In section 732(1)(e) (where benefit received, income treated as arising only if
no tax on benefit apart from section 731)—

(a) 10after “is not liable to income tax” insert “, under any provision that is
none of section 731 of this Act and sections 643A, 643J and 643L of
ITTOIA 2005,”, and

(b) omit “(apart from section 731)”.

15 In section 733A(7) (meaning of “close member” of settlor’s family), for the
15words after “family of the settlor” substitute “at any time if the settlor is
living at that time and—

the person is the settlor’s spouse or civil partner at that time,
or

(b) the person—

(i) 20is a child of the settlor, or of a person who at that time
is the settlor’s spouse or civil partner, and

(ii) at that time has not reached the age of 18.”

16 After section 733A insert—

733B Recipients of onward gifts

(1) 25Sections 733C to 733E apply if—

(a) an amount of income is treated as arising under section 732 to
an individual (“the original beneficiary”) in a tax year (“the
arising year”) but neither by section 733C nor by section 733E,

(b) under section 735A (if it applied also for this purpose) that
30amount would be matched—

(i) 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

(ii) with the whole or part of a benefit received by the
35original beneficiary,

(c) at the time that benefit is received by the original beneficiary
(“the distribution time”)—

(i) there are arrangements, or there is an intention, as
regards the (direct or indirect) passing-on of the
40whole or part of that benefit to another person, and

(ii) it is reasonable to expect that, in the event of the
whole or part of that benefit being passed on to
another person as envisaged by the arrangements or
intention, that other person will be UK resident when
45they receive at least part of what is passed on to them,

(d) the original beneficiary makes, directly or indirectly, a gift
(“the onward payment”) to a person (“the subsequent
recipient”)—