Finance (No. 2) Bill (151)

Finance (No. 2) BillPage 150

(6) Where—

(a) income arises under a settlement, and

(b) the income, before being distributed, is the income of a
person other than the trustees,

5a benefit is for the purposes of subsection (4)(a) treated as provided
by the trustees and is for the purposes of subsection (5)(a) treated as
provided by the trustees to the person.

(7) A benefit treated as provided by subsection (6) is treated—

(a) as consisting of the income mentioned in that subsection, but
10after any reduction in accordance with Chapter 8 of Part 9 of
ITA 2007 for trustees’ expenses, and

(b) as provided at the time that income arises.

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

(1) For the purposes of the application of section 643A(1) in the case of
15an individual and a settlement, the settlement has available
protected income up to the end of a tax year if—


PFSI − TOAATI

and, if the settlement has available protected income up to the end of
a tax year, its amount is given by—
PFSI − TOAA − TI 20

(2) In this section—

  • PFSI is the total of—

    (a)

    any protected foreign-source income—

    (i)

    arising under the settlement in the year or in
    25any earlier tax year,

    (ii)

    that would be treated under section 624 as
    income of the settlor but for section 628A,

    (iii)

    that can be used directly or indirectly to
    provide benefits for the individual, and

    (iv)

    30on which the individual is not liable to income
    tax (ignoring for this purpose any liability
    under section 643A), and

    (b)

    any protected foreign-source income—

    (i)

    arising under the settlement in the year or in
    35any earlier tax year,

    (ii)

    that would be treated under section 629 as
    income of the settlor but for section 630A, and

    (iii)

    on which the relevant child concerned (see
    section 629) is not liable to income tax
    40(ignoring for this purpose any liability under
    section 643A),

  • TOAA is so much of PFSI as is, in respect of benefits provided
    by 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
    45ITA 2007 (transfer of assets abroad) for the year or any earlier
    tax year, and

  • TI is the total of—

    (a)

    so much of PFSI as is, by reference to benefits
    provided by the trustees to the individual, treated by

    Finance (No. 2) BillPage 151

    section 643A, 643J or 643L as income for any earlier
    tax year, and

    (b)

    so much of PFSI as is, by reference to benefits
    provided by the trustees to other individuals, treated
    5by 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
arising under settlement only if and when remitted) do not
10apply 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
meaning given by sections 628A(2) to (13) and 628B.

643D 15 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
year, and

(b) 20chargeable 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
(direct or indirect) to the whole or part of any benefits so
provided.

(2) 25In the calculation under section 643B of the individual’s untaxed
benefits total for the settlement for any tax year after the one in which
such 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
30an individual include offshore gains treated as arising to the
individual (see regulations 20 and 22 to 24 of the Offshore Funds
(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
35of section 643A(3) or (4) is paid, the settlor is entitled to recover the
amount of the tax from the individual concerned.

(2) 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) 40the 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.

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

(1) This section applies where—

(a) 45in the case of a settlement, income (“the deemed income”) is
treated by section 643A as arising to an individual for a tax
year, and

Finance (No. 2) BillPage 152

(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) 5In 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 protected income, that relates to any part
of the deemed income as deriving from that part of the deemed
10income.

(5) In subsection (4) “relates” has the meaning given by section 643G.

(6) In this section and section 643G—

  • “protected income” means the income that forms PFSI in the
    calculation of the settlement’s available protected income in
    15the case of the relevant individual for the year, and

  • “the relevant individual”—

    (a)

    where the deemed income is treated as income of an
    individual by section 643A(1)(a) both before and after
    the application of section 643A(3) and (4), means that
    20individual, and

    (b)

    where the deemed income is treated as income of the
    settlor by section 643A(3) or (4) after having been
    treated as income of another individual by section
    643A(1), means that other individual.

643G 25Section 643F(4): benefits and income “relating” to deemed income

(1) In this section—

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

(b) 30“protected income” and “the relevant individual” have the
meaning given by section 643F(6), and

(c) “the settlement” and “the year” mean, respectively, the
settlement and tax year mentioned in section 643F.

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

(a) 35place the benefits identified at Step 1 in the order in which
they were received by the relevant 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
40those benefits, reduce the benefit by the amount of the
deduction,

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

(d) where the whole or part of an item of the protected income is,
45in respect of benefits provided by the trustees in the year or
in any earlier tax year, taken into account in charging income
tax under Chapter 2 of Part 13 of ITA 2007 (transfer of assets

Finance (No. 2) BillPage 153

abroad) for the year or any earlier tax year, reduce the item
by so much of itself as is so taken into account,

(e) where the whole or part of an item of the protected income is,
by reference to benefits provided by the trustees to
5individuals other than the relevant individual, treated by
section 643A or 643J or 643L as income for the year or any
earlier tax year, reduce the item by so much of itself as is so
treated,”

(f) place the income treated by section 643A(1) (before the
10application of section 643A(3) and (4)) as arising to the
relevant individual in respect of the benefits referred to in
paragraph (a) in the order in which it is treated as arising
(starting with the earliest income treated as having arisen),
and

(g) 15treat the income mentioned in paragraph (f) as related to—

(i) the benefits referred to in paragraph (a), and

(ii) the protected income,

by matching the income mentioned in paragraph (f) with
those benefits and the protected income (in the orders
20mentioned in paragraphs (a), (c) and (f)).

(3) For the purposes of subsection (2)(d), the whole or part of an item of
the protected income is to be treated as taken into account in respect
of a benefit so far as the item or part—

(a) is matched under section 735A of ITA 2007 with notional
25income with which the benefit is matched under that section,
or

(b) would be matched under that section (if it applied also for
this purpose) with notional income with which the benefit
would be matched under that section (if it applied also for
30this purpose),

and here “notional income” means income which is treated as arising
under section 732 of ITA 2007.

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
35member 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) 40is 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
45other 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.

Finance (No. 2) BillPage 154

643I Recipients of onward gifts

(1) Sections 643J to 643L apply if—

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

(i) is treated by section 643A(1)(a), both before and after
5the application of section 643A(3) and (4), as income
of an 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
10individual (“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, or

(iii) is treated by section 643A(1)(b), before the application
of section 643A(3) and (4), as income of an individual
15(“the original beneficiary”) for a tax year (“the
matching year”) but is not treated by section 643A(3),
and is not treated by section 643A(4), as income of the
settlor for the matching year,

(b) under section 643G (if it applied also for this purpose) the
20amount would be matched with a benefit provided in the
matching year, or an earlier tax year, to the original
beneficiary,

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

(i) 25there are arrangements, or there is an intention, as
regards 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
30another person as envisaged by the arrangements or
intention, 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
35recipient”)—

(i) at 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
40original beneficiary and, it is reasonable to assume, in
anticipation 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
45indirectly) derives from, or represents, the whole or
part 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
50property to the subsequent recipient,

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

Finance (No. 2) BillPage 155

(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
5matching 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
10of 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
matching year but not later than the tax year in which the
onward payment is made, and

(h) 15the subsequent recipient—

(i) is the settlor, or

(ii) is 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
20both of the time so given and the actual time the
onward payment is made.

(2) Where, in a case within subsection (1)(a)(i) and by reference to the
amount mentioned in subsection (1)(a), income is treated by section
643J or 643L as arising to a person for a tax year, the original
25beneficiary is not liable to tax for any later tax year on so much of the
amount mentioned in subsection (1)(a) as is equal to that income; and
where, in a case within subsection (1)(a)(ii) and by reference to the
amount mentioned in subsection (1)(a), income is treated by section
643J as arising to a person for a tax year, the settlor is not liable to tax
30for any later tax year on so much of the amount mentioned in
subsection (1)(a) as is equal to that income.

(3) The 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)
35and (4), as income of the original beneficiary for the matching
year;

(b) the 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
40(1)(d)(ii), the onward payment is to be treated—

(a) for the purposes of the provisions of this section following
subsection (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
45is provided to the original beneficiary.

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

(a) if 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)
50is provided to the original beneficiary, or

Finance (No. 2) BillPage 156

(ii) where that benefit is one that section 643M(3) treats as
provided, 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
5treated as arising by section 643K in connection with the
operation of this section and section 643K on a previous
occasion, “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
10presumed (unless the contrary is shown) that subsection (1)(c) is also
met in that case.

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

  • “arrangements” includes any agreement, understanding,
    scheme, transaction or series of transactions (whether or not
    15legally enforceable),

  • “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
    20is made (but see subsection (4)),

  • “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
    25the United Kingdom in a tax year for which the settlor is UK
    resident.

(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
30apply for the purpose of calculating an income tax charge
under 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
35when income is remitted)—

(a) apply 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
40were relevant foreign income of the subsequent recipient.

643J 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) 45the subsequent recipient is UK resident for the matching year
if 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.

Finance (No. 2) BillPage 157

(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
5if 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) the whole, or part only, of the onward payment is remitted to
the United Kingdom in the charging year.

(3) 10For 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) where this subsection applies because of subsection (2) and
15part 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) 20The 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) 25if 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))
30and—

(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-
35UK 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
40if 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) 45Section 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

Finance (No. 2) BillPage 158

643A(1)(a), both before and after the application of section
643A(3) and (4), as arising for the charging year, and

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

(i) were equal to the amount or value of so much of the
5onward 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) were, where this subsection applies because of
10subsection (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.

(4) The amount given by subsection (3) (before adjustment under this
15subsection) 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) Where the amount mentioned in section 643I(1)(a) is treated as
arising by this section in connection with the operation of section
20643I and this section on a previous occasion, section 643I(1) has
effect—

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

(b) as if the references in its paragraph (d) to the benefit
mentioned in its paragraph (b) were, instead, to what was the
25onward 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
made, and

(d) as if the references in its paragraph (e) to that benefit were,
30instead, 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 Cases where settlor liable following onward gift

(1) Subsection (3) applies if—

(a) 35this 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) the subsequent recipient is UK resident for the charging year,

(d) section 809B, 809D or 809E of ITA 2007 applies to the
40subsequent 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) there is a time in the charging year when the settlor is UK
resident,

(g) 45there 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
regarded for the purposes of section 809B(1)(b) of ITA 2007 as
domiciled in the United Kingdom as a result of section 835BA

Finance (No. 2) BillPage 159

of ITA 2007 having effect because of Condition A in that
section being met.

(2) Subsection (3) also applies if—

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

(b) 5the 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) there is a time in the charging year when the settlor is UK
10resident,

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

(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
15domiciled in the United Kingdom as a result of section 835BA
of ITA 2007 having effect because of Condition A in that
section being met.

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

(a) equal to the amount or value of so much of the onward
20payment as is within any of sub-paragraphs (i) to (iii) of
section 643I(1)(e), or

(b) where 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
25to the amount or value of the remainder of that much of the
onward payment,

is 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
30subsection) is to be adjusted as follows—

(a) deduct any part of the amount on which the settlor is liable to
income 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
35the excess.

(5) Where any tax for which the settlor is liable as a result of subsections
(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
40require 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,

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

643M 45Onward gift to settlor or close family member by other recipient

(1) Subsection (3) applies if—

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