Finance (No. 3) Bill (HC Bill 282)
SCHEDULE 1 continued PART 1 continued
Contents page 1-9 10-19 20-29 30-37 40-49 50-59 60-69 70-79 80-89 90-99 100-109 110-119 120-129 130-139 140-156 157-159 160-169 170-179 180-189 190-199 Last page
Finance (No. 3) BillPage 90
7
Omit Chapter 7 of Part 2 (computation of gains and losses: disposals of
residential property interests).
8 After section 103DA insert—
“103DB UK property rich collective investment vehicles etc
5Schedule 5AAA makes provision in relation to collective investment
vehicles where the property which is the subject of or held by the
vehicles consists of or includes direct or indirect interests in land in
the United Kingdom.”
9 After section 271 insert—
10““Visiting forces and official agents etc
271ZA Visiting forces and staff of designated allied headquarters
(1)
This section applies for the purposes of capital gains tax if section 833
of ITA 2007 (visiting forces and staff of designated allied
headquarters) applies to an individual throughout a period.
(2) 15The period is not a period of residence in the United Kingdom.
(3)
The period does not create a change of the individual’s residence or
domicile.
271ZB
Official agents of Commonwealth countries or Republic of Ireland
etc
(1)
20An individual who is entitled to immunity from income tax as a
result of section 841 of ITA 2007 (official agents of Commonwealth
countries or Republic of Ireland etc) is entitled to the same immunity
from capital gains tax as that to which a member of the staff of a
mission is entitled under the Diplomatic Privileges Act 1964.
(2)
25The reference here to a member of the staff of a mission is to be read
in accordance with the Diplomatic Privileges Act 1964.”
10 Omit Schedule B1 (disposals of UK residential property interests).
11 Omit Schedule BA1 (disposals of non-UK residential property interests).
12
Omit Schedule C1 (section 14F: meaning of “closely-held company” and
30“widely-marketed scheme”).
13 For Schedule 1 substitute—
““Schedule 1 UK resident individuals not domiciled in UK
Foreign gains treated as accruing when remitted to UK
1
(1)
This paragraph applies in the case of an individual to whom the
35remittance basis applies for a tax year if—
(a) in that year the individual disposes of foreign assets,
(b)
chargeable gains accrue to the individual on the disposal of
those assets, and
Finance (No. 3) BillPage 91
(c)
the gains are not taken outside the charge to capital gains
tax as a result of section 1G (cases where tax year is a split
year).
(2)
The gains are treated as accruing to the individual only so far as,
5and at the time when, they are remitted to the United Kingdom.
(3)
The amount treated as accruing is equal to the full amount
remitted to the United Kingdom at that time.
Use of allowable losses against foreign gains remitted in later year
2 (1) This paragraph applies if—
(a)
10gains are treated as accruing to an individual in a tax year
as a result of paragraph 1,
(b)
the tax year is later than the one (“the actual year of
accrual”) in which those gains actually accrued to the
individual, and
(c)
15an election under section 16ZA (election for foreign losses
to be allowable losses) has effect for both the tax year and
the actual year of accrual.
(2)
No allowable losses may be deducted under section 1 from the
gains.
(3) 20This prohibition—
(a)
applies regardless of whether or not the allowable losses
accrue on disposals of foreign assets, but
(b)
does not prevent the prior application of paragraph 3(3) in
relation to the gains (which contains a rule for reducing the
25amount of the gains by reference to losses).
Matching rules for relieving allowable losses
3
(1)
This paragraph applies in the case of an individual for a tax year
if—
(a)
the remittance basis applies to the individual for the tax
30year, and
(b) an election under section 16ZA has effect for the tax year.
(2)
Allowable losses accruing to the individual must be matched to
chargeable gains accruing to the individual in accordance with
paragraph 4.
(3)
35If allowable losses are matched to chargeable gains accruing on
disposals of foreign assets—
(a) which actually accrue in the tax year, but
(b)
which are, as a result of paragraph 1, treated as not
accruing in the tax year,
40the amount of those gains is reduced by the matched amount (and
the allowable losses are reduced accordingly).
(4)
So far as allowable losses are matched to other chargeable gains,
they are deducted from chargeable gains accruing to the
individual in the tax year.
Finance (No. 3) BillPage 92
(5) This is subject to—
(a)
paragraph 2 (no use of allowable losses against foreign
gains remitted in later year), and
(b)
section 1E(4) (prohibition of deduction of losses from gains
5treated as accruing under section 87, 87K, 87L or 89(2)).
Rules for matching losses to chargeable gains
4
(1)
This paragraph explains how, for the purposes of paragraph 3,
allowable losses are matched to chargeable gains in the case of an
individual to whom that paragraph applies for a tax year.
(2) 10The losses are matched to the gains in the following order—
-
first, gains actually accruing to the individual in the tax year
on the disposal of foreign assets so far as they are remitted
to the United Kingdom in the tax year; -
second, gains actually accruing to the individual in the tax
15year on the disposal of foreign assets so far as they are not
remitted to the United Kingdom in the tax year; -
third, any other gains accruing to the individual in the tax
year.
(3)
If the tax year is a split year, the matching under the first and
20second steps is to be done by reference to the extent to which the
gains are, or are not, remitted in the UK part of the year.
(4)
If there are losses to be matched to gains under the second step but
the losses are insufficient to eliminate the gains—
(a)
the losses are to be matched against gains accruing on the
25most recent day first (and then the next most recent day
and so on until none of the losses remain), and
(b)
if losses cannot be matched fully against gains accruing on
a particular day, the appropriate portion of the losses is
matched against each of the gains.
(5)
30“The appropriate portion” means the amount of each gain
accruing on the day divided by the total amount of all of the gains
accruing on the day.
Definitions
5
(1)
For the purposes of this Schedule “foreign asset” means an asset
35situated outside the United Kingdom.
(2)
For the purposes of this Schedule any reference to “the remittance
basis” applying to an individual for a tax year is to section 809B,
809D or 809E of ITA 2007 applying to the individual for the year.
(3)
For the purposes of this Schedule any question as to whether, and
40when, amounts are “remitted to the United Kingdom” is
determined in accordance with the rules in Chapter A1 of Part 14
of ITA 2007.”
Finance (No. 3) BillPage 93
14 After Schedule 1 insert—
““Schedule 1A Assets deriving 75% of value from UK land etc
Part 1 Introduction
1
5This Schedule makes provision, for the purposes of section
1A(3)(c) or 2B(4)(b), for determining in the case of any disposal of
any asset—
(a)
whether the asset derives at least 75% of its value from UK
land (see Part 2 of this Schedule), and
(b)
10whether the person making the disposal has a substantial
indirect interest in the UK land (see Part 3 of this
Schedule).
2
The provision made by this Schedule needs to be read together
with—
(a)
15paragraph 5 of Schedule 5AAA (which treats units in a
CoACS as shares for the purposes of this Schedule), and
(b)
paragraph 6 of that Schedule (which treats certain
disposals of interests in collective investment vehicles as
meeting the conditions in Part 3 of this Schedule).
20Part 2 Whether asset derives at least 75% of its value from UK land
The basic rule
3 (1) An asset derives at least 75% of its value from UK land if—
(a) the asset consists of a right or an interest in a company, and
(b)
25at the time of the disposal, at least 75% of the total market
value of the company’s qualifying assets derives (directly
or indirectly) from interests in UK land.
(2)
Market value may be traced through any number of companies,
partnerships, trusts and other entities or arrangements but may
30not be traced through a normal commercial loan.
(3)
It is irrelevant whether the law under which a company,
partnership, trust or other entity or an arrangement is established
or has effect is—
(a) the law of any part of the United Kingdom, or
(b) 35the law of any territory outside the United Kingdom.
(4)
The assets held by a company, partnership or trust or other entity
or arrangement must be attributed to the shareholders, partners,
beneficiaries or other participants at each stage in whatever way is
appropriate in the circumstances.
(5) 40For the purposes of this paragraph—
-
“normal commercial loan” means a loan which is a normal
commercial loan for the purposes of section 158(1)(b) or
159(4)(b) of CTA 2010, and -
“qualifying assets” has the meaning given by paragraph 4.
Finance (No. 3) BillPage 94
(6)
5The provision made by this paragraph is subject to exceptions
provided by—
(a)
paragraph 5 (interests in UK land used for trading
purposes), and
(b)
paragraph 6 (certain disposals of rights or interests in
10connected companies).
Meaning of “qualifying assets”
4
(1)
Subject as follows, all of the assets of the company are qualifying
assets.
(2)
An asset of the company is not a qualifying asset so far as it is
15matched to a related party liability.
(3)
But an interest in UK land is a qualifying asset of the company
even if it is matched to any extent to a related party liability.
(4) An asset of the company is matched to a related party liability if—
(a)
the asset consists of a right under a transaction (for
20example, a right under a loan relationship or derivative
contract),
(b)
the right entitles the company to require another person to
meet a liability arising under the transaction, and
(c)
the other person is relevant to the paragraph 3 tracing
25exercise or is a related party of the company on the day of
the disposal.
(5)
For the purposes of this paragraph a person is relevant to the
paragraph 3 tracing exercise if—
(a)
the person has assets that fall to be taken into account in
30the tracing exercise mentioned in paragraph 3, or
(b)
the person has obligations (whether as a trustee or
otherwise) in relation to the holding of assets comprised in
any trust or other arrangement that fall to be taken into
account in that exercise.
(6)
35Whether, for the purposes of this paragraph, a person is a related
party of the company on any day is determined in accordance
with the rules in Part 8ZB of CTA 2010 but as if, in section
356OT(4) of that Act, the words “, within the period of 6 months
beginning with that day” were omitted.
(7)
40In this paragraph a liability includes a contingent liability (such as
one arising as a result of the giving of a guarantee, indemnity or
other form of financial assistance).
Exception in relation to interests in UK land used for trading purposes
5
(1)
A disposal of a right or interest in a company is not to be regarded
45as a disposal of an asset deriving at least 75% of its value from UK
Finance (No. 3) BillPage 95
land if it is reasonable to conclude that, so far as the market value
of the company’s qualifying assets derives (directly or indirectly)
from interests in UK land—
(a)
all of the interests in UK land are used for trading
5purposes, or
(b)
all of the interests in UK land would be used for those
purposes if low-value non-trade interests in UK land were
left out of account.
(2)
An interest in UK land is “used for trading purposes” for the
10purposes of this paragraph if (and only if), at the time of the
disposal—
(a)
it is being used in, or for the purposes of, a qualifying
trade, or
(b)
it has been acquired for use in, or the purposes of, a
15qualifying trade.
(3)
A trade is a “qualifying” trade for the purposes of this paragraph
if—
(a)
it has been carried on by the company, or by a person
connected with the company, throughout the period of one
20year ending with the time of the disposal on a commercial
basis with a view to the realisation of profits, and
(b)
it is reasonable to conclude that the trade will continue to
be carried on (for more than an insignificant period of
time) on a commercial basis with a view to the realisation
25of profits.
(4)
For the purposes of this paragraph, “low-value non-trade interests
in UK land” means interests in UK land—
(a) which are not used for trading purposes, and
(b)
the total market value of which is, at the time of the
30disposal, no more than 10% of the total market value at that
time of the interests in UK land that are used for trading
purposes.
Exception for certain disposals of rights or interests under same arrangements etc
6 (1) This paragraph applies if—
(a)
35there are two or more disposals of rights or interests in
companies,
(b) the disposals are linked with each other,
(c)
some but not all of the disposals would, apart from this
paragraph, be disposals of assets deriving at least 75% of
40their value from UK land, and
(d)
if one of the companies included all of the assets of the
others, a disposal of a right or interest in it would not be a
disposal of an asset deriving at least 75% of its value from
UK land.
(2)
45None of the disposals are to be regarded as disposals of assets
deriving at least 75% of their value from UK land.
(3)
In determining whether the condition in sub-paragraph (1)(d) is
met in the case of a disposal of a right or interest in a company, it
Finance (No. 3) BillPage 96
is to be assumed that, for the purposes of paragraph 4, each of the
other companies in which rights or interest are disposed of is (so
far as this would not otherwise be the case) a related party of the
company on the day of the disposal.
(4)
5For the purposes of this paragraph a disposal of a right or interest
in a company is linked with a disposal of a right or interest in
another company if—
(a) the disposals are made under the same arrangements,
(b)
the disposals are made by the same person or by persons
10connected with each other,
(c)
the disposals are made to the same person or to persons
connected with each other, and
(d)
in the case of each disposal, the person making the disposal
is connected with the company in which the right or
15interest is disposed of.
(5)
For the purposes of this paragraph, the question whether or not a
person is connected with another is to be determined immediately
before the arrangements are entered into.
(6)
Section 286 (connected persons: interpretation) has effect for the
20purposes of this paragraph as if, in subsection (4), the words
“Except in relation to acquisitions or disposals of partnership
assets pursuant to bona fide commercial arrangements,” were
omitted.
Meaning of “interest in UK land”
7
25For the purposes of this Part of this Schedule “interest in UK land”
has the meaning given by section 1C.
Part 3 Whether person has substantial indirect interest in UK land
Basic rule
8 (1) 30If—
(a)
a person disposes of an asset consisting of a right or an
interest in a company, and
(b) the asset derives at least 75% of its value from UK land,
the person has a substantial indirect interest in UK land if, at any
35time in the period of 2 years ending with the time of the disposal,
the person has a 25% investment in the company.
(2)
But a person is not to be regarded as having a 25% investment in
the company at times falling in the person’s qualifying ownership
period if, having regard to the length of that period, the times
40(taken as whole) constitute an insignificant proportion of that
period.
(3)
The “person’s qualifying ownership period” means the period
throughout which the person has held an asset consisting of a
right or an interest in the company, but excluding times that fall
Finance (No. 3) BillPage 97
before the beginning of the 2 year period mentioned in sub-
paragraph (1).
Meaning of “25% investment”
9 (1) A person (“P”) has a 25% investment in a company (“C”) if—
(a)
5P possesses or is entitled to acquire 25% or more of the
voting power in C,
(b)
in the event of a disposal of the whole of the equity in C, P
would receive 25% or more of the proceeds,
(c)
in the event that the income in respect of the equity in C
10were distributed among the equity holders in C, P would
receive 25% or more of the amount so distributed, or
(d)
in the event of a winding-up of C or in any other
circumstances, P would receive 25% or more of C’s assets
which would then be available for distribution among the
15equity holders in C in respect of the equity in C.
(2) In this paragraph references to the equity in C are to—
(a) the shares in C other than restricted preference shares, or
(b) loans to C other than normal commercial loans.
(3) For this purpose “shares in C” includes—
(a) 20stock, and
(b) any other interests of members in C.
(4)
For the purposes of this paragraph a person is an equity holder in
C if the person possesses any of the equity in C.
(5) For the purposes of this paragraph—
-
25“normal commercial loan” means a loan which is a normal
commercial loan for the purposes of section 158(1)(b) or
159(4)(b) of CTA 2010, and -
“restricted preference shares” means shares which are
restricted preference shares for the purposes of section 160
30of CTA 2010.
(6)
In a case where C is a company which does not have share capital,
in applying for the purposes of this paragraph the definitions of
“normal commercial loan” and “restricted preference shares”—
(a) sections 160(2) to (7) and 161 to 164 of CTA 2010, and
(b) 35any other relevant provisions of that Act,
have effect with the necessary modifications.
(7)
In this paragraph references to a person receiving any proceeds,
amount or assets include—
(a)
the direct or indirect receipt of the proceeds, amount or
40assets, and
(b)
the direct or indirect application of the proceeds, amount
or assets for the person’s benefit,
and it does not matter whether the receipt or application is at the
time of the disposal, distribution, winding-up or other
45circumstances or at a later time.
(8) If—
Finance (No. 3) BillPage 98
(a)
there is a direct receipt or direct application of any
proceeds, amount or assets by or for the benefit of a person
(“A”), and
(b)
another person (“B”) directly or indirectly owns a
5percentage of the equity in A,
there is, for the purposes of sub-paragraph (7), an indirect receipt
or indirect application of that percentage of the proceeds, amount
or assets by or for the benefit of B.
(9)
For this purpose the percentage of the equity in A directly or
10indirectly owned by B is to be determined by applying the rules in
sections 1155 to 1157 of CTA 2010 with such modifications (if any)
as may be necessary.
(10)
Sub-paragraph (7) is not to result in a person being regarded as
having a 25% investment in another person merely as a result of
15their being parties to a normal commercial loan.
(11)
Any reference in this paragraph, in the case of a person who is a
member of a partnership, to the proceeds, amount or assets of the
person includes the person’s share of the proceeds, amount or
assets of the partnership (apportioning those things between the
20partners on a just and reasonable basis).
Attribution of rights and interests
10
(1)
In determining for the purposes of paragraph 9 the investment
that a person (“P”) has in a company, P is to be taken to have all of
the rights and interests of any person connected with P.
(2)
25A person is not to be regarded as connected with another person
for the purposes of this paragraph merely as a result of their being
parties to a loan that is a normal commercial loan for the purposes
of paragraph 9.
(3)
Section 286 (connected persons: interpretation) has effect for the
30purposes of this paragraph—
(a)
as if, in subsection (2), for the words from “, or is a relative”
to the end there were substituted “or is a lineal ancestor or
lineal descendant of the individual or of the individual’s
spouse or civil partner”, and
(b) 35as if subsections (4) and (8) were omitted.
Part 4 Anti-avoidance
11
(1)
This paragraph applies if a person has entered into any
arrangements the main purpose, or one of the main purposes, of
40which is to obtain a tax advantage for the person as a result
(wholly or partly) of—
(a) a provision of this Schedule applying or not applying, or
(b)
double taxation arrangements having effect despite a
provision of this Schedule in a case where the advantage is
45contrary to the object and purpose of the double taxation
arrangements.
Finance (No. 3) BillPage 99
(2)
The tax advantage is to be counteracted by the making of such
adjustments as are just and reasonable.
(3)
The adjustments may be made (whether by an officer of Revenue
and Customs or the person) by way of an assessment, the
5modification of an assessment, amendment or disallowance of a
claim, or otherwise.
(4)
The counteraction has effect in a treaty shopping case regardless
of section 6(1) of TIOPA 2010.
(5) This paragraph applies by reference to—
(a)
10arrangements entered into on or after 22 November 2017 in
a treaty shopping case, and
(b)
arrangements entered into on or after 6 July 2018 in any
other case.
(6) In this paragraph—
-
15“arrangements” (except in the expression “double taxation
arrangements”) includes any agreement, understanding,
scheme, transaction or series of transactions (whether or
not legally enforceable), -
“double taxation arrangements” means arrangements that
20have effect under section 2(1) of TIOPA 2010, -
“tax” means capital gains tax or corporation tax,
-
“tax advantage” includes—
(a)relief or increased relief from tax,
(b)repayment or increased repayment of tax,
(c)25avoidance or reduction of a charge to tax or an
assessment to tax,(d)avoidance of a possible assessment to tax,
(e)deferral of a payment of tax or advancement of a
repayment of tax, and(f)30avoidance of an obligation to deduct or account for
tax, and -
“treaty shopping case” means a case where this paragraph
applies as a result of sub-paragraph (1)(b).”
15 After Schedule 1A insert—
““Schedule 1B 35Residential property gains
Meaning of “residential property gain”
1
(1)
For the purposes of Chapter 1 of Part 1 “residential property gain”
means so much of a chargeable gain accruing to a person on a
disposal of residential property as, in accordance with paragraph
402, is attributable to that property.
(2)
The question whether or not a person disposes of residential
property is determined in accordance with paragraphs 3 to 7.