Finance (No. 3) Bill (HC Bill 282)

Finance (No. 3) BillPage 120

(5) In this Schedule “participant” means—

(a) in relation to a collective investment scheme or an AIF, a
person who takes part in the arrangements or undertaking
constituting the scheme or AIF, whether by becoming the
5owner of, or of any part of, the property that is the subject
of or held by the arrangements or undertaking or
otherwise, or

(b) in relation to a company within (1)(c) or (d), a shareholder
in the company.

(6) 10In this Schedule “unit” means—

(a) in the case of a collective investment scheme or an AIF, the
rights or interests (however described) of the participant in
the scheme or AIF, or

(b) in the case of a company within (1)(c) or (d), a share in the
15company.

(7) In this paragraph—

  • “AIF” has the meaning given by regulation 3 of the
    Alternative Investment Fund Managers Regulations 2013,
    and

  • 20UK REIT” has the same meaning as in Part 12 of CTA 2010.

Meaning of “offshore collective investment vehicle”

2 (1) In this Schedule “offshore collective investment vehicle” means—

(a) a collective investment vehicle constituted as a body
corporate resident outside the United Kingdom,

(b) 25a collective investment vehicle under which property is
held on trust for the participants where the trustees of the
property are not resident in the United Kingdom, or

(c) a collective investment vehicle constituted by other
arrangements that create rights in the nature of co-
30ownership where the arrangements take effect as a result
of the law of a territory outside the United Kingdom.

(2) In this paragraph—

  • “body corporate” does not include a limited liability
    partnership, and

  • 35“co-ownership” is not restricted to the meaning of that term
    in the law of any part of the United Kingdom.

Meaning of a collective investment vehicle being “UK property rich” etc

3 (1) For the purposes of this Schedule the question whether a collective
investment vehicle is “UK property rich” at any time is
40determined by applying the rules in Part 2 of Schedule 1A on the
following assumptions.

(2) The assumptions are—

(a) that (so far as this would not otherwise be the case) the
vehicle were a company, and

(b) 45that a disposal were made at that time of a right or interest
in that company.

Finance (No. 3) BillPage 121

(3) If that disposal would be regarded for the purposes of Schedule
1A as a disposal of an asset deriving at least 75% of its value from
UK land, the vehicle is regarded for the purposes of this Schedule
as being UK property rich at that time.

(4) 5For the purposes of this Schedule the question whether a company
is “UK property rich” at any time is determined by applying the
rules in Part 2 of Schedule 1A on the assumption that a disposal
were made at that time of a right or interest in the company.

(5) If that disposal would be regarded for the purposes of Schedule
101A as a disposal of an asset deriving at least 75% of its value from
UK land, the company is regarded for the purposes of this
Schedule as being UK property rich at that time.

Part 2 Basic rules
15Application of Act to offshore CIV

4 (1) This paragraph applies to an offshore collective investment
vehicle—

(a) which is not a company, and

(b) which is not constituted by two or more persons carrying
20on a trade or business in partnership.

(2) It is to be assumed that, for relevant purposes—

(a) the vehicle is a company, and

(b) the rights of the participants are shares in that company.

(3) The reference here to “relevant purposes” means—

(a) 25the purposes of this Schedule, and

(b) the purpose of applying section 1A(3)(b) or (c) or 2B(4)
(and the other provisions of this or any other Act so far as
relevant to their application) in relation to the vehicle.

(4) This paragraph does not apply to a collective investment vehicle
30in relation to which an election has effect under Part 3 of this
Schedule (election for transparency).

(5) This paragraph applies in relation to a collective investment
vehicle to which section 103D applies (tax transparent funds) but
does not affect the operation of the rules set out in—

(a) 35section 103D(4) to (9) (calculation of gains on disposal of
units etc), or

(b) section 103DA (share pooling etc).

(6) If this paragraph applies in relation to a collective investment
vehicle, section 99 (application of Act to unit trust schemes) does
40not apply in relation to the scheme.

Units in a CoACS treated as shares in a company

5 (1) This paragraph applies to a unit in an authorised contractual
scheme which is a co-ownership scheme where, as a result of the

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application of section 103D (application of Act to tax transparent
funds), the unit is treated as an asset for the purposes of this Act.

(2) The asset is treated for the purposes of Schedule 1A as if it were a
share in a company.

5Disposals by non-UK residents

6 (1) This paragraph applies if—

(a) a person disposes of an asset that derives at least 75% of its
value from UK land (as determined in accordance with
Part 2 of Schedule 1A), and

(b) 10the disposal has an appropriate connection to a collective
investment vehicle (see sub-paragraphs (3) to (6) for the
cases in which this test is met).

(2) For the purposes of section 1A(3)(c) or 2B(4)(b) (disposals by non-
UK residents of assets deriving 75% of value from UK land etc),
15the person is treated as having a substantial indirect interest in the
UK land at the time of the disposal.

(3) A disposal has an appropriate connection to a collective
investment vehicle if the asset disposed of consists of a right or
interest in—

(a) 20a collective investment vehicle, or

(b) a company at least half of whose market value derives
from its being a direct or indirect participant in one or
more collective investment vehicles.

(4) A disposal has an appropriate connection to a collective
25investment vehicle if—

(a) the vehicle is constituted by two or more persons carrying
on a trade or business in partnership, and

(b) the disposal is made by a person as a participant in the
vehicle.

(5) 30A disposal has an appropriate connection to a collective
investment vehicle if the vehicle is a company and the disposal is
made by it.

(6) A disposal has an appropriate connection to a collective
investment vehicle if—

(a) 35a company (which is not the vehicle) makes the disposal,
and

(b) the vehicle, and one or more other collective investment
vehicles that are UK property rich, have a 50% investment
in the company.

(7) 40Collective investment vehicles have a 50% investment in a
company if, applying the rule in paragraph 9 (but without regard
to paragraph 10) of Schedule 1A as if references to 25% were
references to 50%, the vehicles would be regarded as having a 50%
investment in the company at the time of the disposal.

(8) 45For this purpose the collective investment schemes are to be
regarded as if they were a single person.

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(9) This paragraph is subject to paragraph 7 (collective investment
vehicles expected to have no more than 40% investments in UK
land).

7 (1) This paragraph applies to a disposal which would otherwise have
5an appropriate connection to a collective investment vehicle as a
result of paragraph 6(3), (5) or (6).

(2) A disposal does not have an appropriate connection to a collective
investment vehicle if, at the time of the disposal, the vehicle
mentioned in paragraph 6(3)(a) or (5) or (6), or each of the vehicles
10mentioned in paragraph 6(3)(b), meets—

(a) the non-UK real estate condition, and

(b) the genuine diversity of ownership condition or, if the
vehicle is a company, the non-close condition.

(3) If—

(a) 15a disposal is made as mentioned in paragraph 6(6), and

(b) the vehicle mentioned there is constituted by two or more
persons carrying on a trade or business in partnership,

the condition in sub-paragraph (2)(b) is taken to be met if the
company mentioned in paragraph 6(6) meets the non-close
20condition.

(4) A vehicle meets the non-UK real estate condition at any time if, by
reference to the prospectus for the vehicle as the prospectus has
effect at that time, no more than 40% of the expected market value
of the vehicle’s investments is intended to derive from
25investments consisting of—

(a) interests in UK land, or

(b) rights or interests in companies which are UK property
rich.

(5) A vehicle meets the genuine diversity of ownership condition at
30any time if, at that time—

(a) it meets conditions A to C of regulation 75 of the Offshore
Funds (Tax) Regulations 2009, or

(b) it meets the condition in regulation 75(5) of those
Regulations,

35and those Regulations apply for the purposes of this sub-
paragraph as if any collective investment vehicle which is not an
offshore fund were regarded as an offshore fund.

(6) A company meets the non-close condition at any time if, at that
time, it—

(a) 40is not a close company, or

(b) is a close company but only because it has a qualifying
investor as a direct or indirect participator.

(7) Paragraph 46 (meaning of “close company”, “qualifying investor”
and “direct or indirect participator”) applies for the purposes of
45sub-paragraph (6).

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Part 3 Election for transparency
Election for collective investment vehicle to be treated as partnership

8 (1) This paragraph applies to an offshore collective investment
5vehicle—

(a) which is UK property rich, and

(b) which is transparent for income tax purposes otherwise
than as a result of being constituted by two or more
persons carrying on a trade or business in partnership.

(2) 10The manager of the vehicle may make an election for the vehicle
to be treated for the purposes of—

(a) this Act, and

(b) the Management Act, and any other provision of the
Corporation Tax Acts, so far as relating to the taxation of
15chargeable gains,

as if, in relation to all times on and after its constitution, it were to
be regarded as a partnership.

(3) Accordingly, as a result of sub-paragraph (2)(b), it follows that, in
applying rules such as section 1154 of CTA 2010 (meaning of “75%
20subsidiary” etc) for the purposes of Part 12 of that Act (Real Estate
Investment Trusts) so far as relating to the taxation of chargeable
gains, the vehicle is to be regarded as a partnership.

(4) In the case of section 12AA of the Management Act as it applies as
a result of sub-paragraph (2), a notice under subsection (2) or (3)
25of that section may be given to the manager of the vehicle.

(5) The election has effect whether or not the vehicle would, but for
the making of the election, be regarded as a person chargeable to
capital gains tax or corporation tax on chargeable gains.

(6) For the purposes of this paragraph whether or not an offshore
30collective investment vehicle is regarded as being UK property
rich may be determined by reference to the prospectus for the
vehicle on the assumption that investments are made by the
vehicle in accordance with the prospectus.

(7) For the purposes of this paragraph a collective investment vehicle
35is “transparent for income tax purposes” if, on the assumption that
there are participants who are individuals resident in the United
Kingdom, any sums which form part of the income of the
vehicle—

(a) would be chargeable to income tax on those assumed
40participants under a provision specified in section 830(2) of
ITTOIA 2005 in respect of such of those sums as would be
referable to their interests, or

(b) if any of that income is derived from assets within the
United Kingdom, would be so chargeable had the assets
45been outside the United Kingdom.

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(8) If an election is made under this paragraph in relation to a
collective investment vehicle—

(a) section 99 (application of Act to unit trust schemes) does
not apply in relation to the vehicle, and

(b) 5section 103D (tax transparent funds) does not apply in
relation to the vehicle.

Further provision about election

9 (1) An election under paragraph 8 in relation to an offshore collective
investment vehicle—

(a) 10has effect only if the participants in the vehicle at the time
at which it is made have consented to the making of the
election,

(b) must be made by notice given to an officer of Revenue and
Customs, and

(c) 15must be made before the end of the period of 12 months
beginning with the relevant acquisition date.

(2) For this purpose “the relevant acquisition date” means the earliest
date on which—

(a) an interest in UK land, or

(b) 20a right or interest in a company that is UK property rich,

forms part of the property that is the subject of or held by the
vehicle.

(3) An election under paragraph 8 is irrevocable.

Units in CIVs held by life insurance companies

10 (1) 25This paragraph applies if an election under paragraph 8 has effect
in relation to an offshore collective investment vehicle.

(2) The election is treated as having no effect for the purposes of this
Act in relation to any units in the vehicle which are held by an
insurance company for the purposes of its long-term business.

30Relationship to re-basing rules under Schedule 4AA for non-UK residents

11 (1) This paragraph applies if—

(a) an election under paragraph 8 has effect in relation to an
offshore collective investment vehicle, and

(b) as a result of the election, Part 3 or 4 of Schedule 4AA
35would (but for this paragraph) apply in relation to a
disposal made by a participant in the vehicle.

(2) The disposal is to be regarded for the purposes of Schedule 4AA
as if it were one to which Part 2 of that Schedule applies.

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Part 4 Exemption
Exemption for qualifying offshore CIV that is UK property rich etc

12 (1) An election may be made for a collective investment vehicle, or a
5company which is not a collective investment vehicle, to be
exempt from corporation tax on chargeable gains accruing to it
on—

(a) all direct disposals of UK land, and

(b) all indirect disposals of UK land.

(2) 10An election may be made in respect of a collective investment
vehicle if each of the following entitlement conditions is met—

(a) the vehicle is offshore,

(b) the vehicle is a company (whether as a result of paragraph
4 or otherwise),

(c) 15the vehicle is UK property rich,

(d) the vehicle meets all of the qualifying conditions set out in
paragraph 13, and

(e) if the vehicle is an AIF, it would also meet the definition of
a collective investment vehicle for another reason.

(3) 20An election may be made in respect of a company which is not a
collective investment vehicle if each of the following entitlement
conditions is met—

(a) the company is wholly (or almost wholly) owned by a
collective investment scheme which is constituted by two
25or more persons carrying on a trade or business in
partnership or is constituted by a CoACS,

(b) the appropriate entity is UK property rich, and

(c) the company meets all of the qualifying conditions set out
in paragraph 13,

30and it does not matter where the company is resident.

(4) In sub-paragraph (3)(b) the “appropriate entity” means—

(a) in a case where the collective investment scheme is
constituted by two or more persons carrying on a trade or
business in partnership, the company, and

(b) 35in a case where the collective investment scheme is
constituted by a CoACS, the CoACS.

(5) If an election is made under this paragraph in respect of a
collective investment vehicle—

(a) the vehicle is referred to in this Part of this Schedule as “a
40qualifying fund”, and

(b) any reference in this Part of this Schedule to a qualifying
fund, in relation to any time after the election is made
(including any time after the election ceases to have effect),
is to be read as a reference to the arrangements,
45undertaking or company which met the definition of
collective investment vehicle when the election was made.

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(6) If an election is made under this paragraph in respect of a
company which is not a collective investment vehicle—

(a) the company is referred to in this Part of this Schedule as
“a qualifying company”, and

(b) 5any reference in this Part of this Schedule to a qualifying
company, in relation to any time after the election is made
(including any time after the election ceases to have effect),
is to be read as a reference to the company.

(7) Section 103D (application of Act to tax transparent funds) does not
10apply for the purpose of determining whether sub-paragraph
(3)(a) applies.

(8) In this paragraph—

  • “AIF” has the meaning given by regulation 3 of the
    Alternative Investment Fund Managers Regulations 2013,
    15and

  • “CoACS” means an authorised contractual scheme which is a
    co-ownership scheme.

Qualifying conditions and information provided to HMRC

13 (1) For the purposes of paragraph 12(2), a collective investment
20vehicle meets the qualifying conditions in this paragraph at any
time if, at that time—

(a) it is a collective investment scheme and it meets the
genuine diversity of ownership condition,

(b) it is a company (otherwise than as a result of paragraph 4)
25and it meets the recognised stock exchange condition and
the non-close condition, or

(c) it is a collective investment vehicle (of any kind) and it
meets the UK tax condition and the non-close condition.

(2) For the purposes of paragraph 12(3), a company which is not a
30collective investment vehicle meets the qualifying conditions in
this paragraph at any time if, at that time, either—

(a) the company meets the UK tax condition and the non-close
condition, or

(b) the collective investment scheme which wholly (or almost
35wholly) owns the company meets the genuine diversity of
ownership condition.

(3) For the purposes of this paragraph a collective investment scheme
meets the genuine diversity of ownership condition at any time if,
at that time—

(a) 40it meets conditions A to C of regulation 75 of the Offshore
Funds (Tax) Regulations 2009, or

(b) it meets the condition in regulation 75(5) of those
Regulations,

and those Regulations apply for the purposes of this sub-
45paragraph as if any collective investment scheme which is not an
offshore fund were regarded as an offshore fund.

(4) For the purposes of this paragraph a company meets the
recognised stock exchange condition at any time if, at that time—

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(a) it has ordinary share capital, and

(b) the shares forming part of its ordinary share capital are
regularly traded on a recognised stock exchange.

(5) For the purposes of this paragraph a company meets the non-close
5condition at any time if, at that time, it—

(a) is not a close company, or

(b) is a close company but only because it has a qualifying
investor as a direct or indirect participator.

(6) Paragraph 46 (meaning of “close company”, “qualifying investor”
10and “direct or indirect participator”) applies for the purposes of
sub-paragraph (5).

(7) For the purposes of this paragraph a company meets the UK tax
condition at any time if, on the assumption that all of the shares in
it were disposed of for their market value at that time, the person
15making the election reasonably considers at that time that, as a
result solely of double taxation arrangements, no more than 25%
of the total proceeds would fall to be left out of account for the
purposes of this Act.

14 (1) An election under paragraph 12 has effect only if it is accompanied
20by information of such description as may be specified by an
officer of Revenue and Customs about disposals made by
participants in the relevant fund at any time in—

(a) the period of two years ending with the day before the day
on which the election is made, or

(b) 25if shorter, the period beginning with the constitution of the
relevant fund and ending with the day before the day on
which the election is made.

(2) Information is not required by sub-paragraph (1) to accompany
the election so far as—

(a) 30it has already been provided to an officer of Revenue and
Customs in a form and manner, and at times, specified by
an officer of Revenue and Customs, and

(b) the election sets out those occasions on which the
information has been so provided.

15 (1) 35An election under paragraph 12 has effect subject to such
conditions as to the provision of information or documents to an
officer of Revenue and Customs as may be specified by an officer
of Revenue and Customs.

(2) The information or documents must be provided to an officer of
40Revenue and Customs in respect of every period of account of the
relevant fund which ends at a time when the election has effect.

(3) The information or documents must be provided to an officer of
Revenue and Customs within the period of 12 months from the
end of the period of account.

(4) 45The conditions as to the provision of information or documents
may include—

(a) conditions relating to the participants in the relevant fund,
and

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(b) conditions requiring information or documents in respect
of the operation of any provision of this Schedule (or any
provision of this Act relevant to this Schedule).

(5) In the case of an election under paragraph 12

(a) 5a designated HMRC officer may revoke the election if, in
the officer’s opinion, there has been, without reasonable
excuse, a breach of any provision made by or under this
paragraph, but

(b) an officer of Revenue and Customs (whether or not
10designated) may waive a breach of any provision made by
or under this paragraph if, in the officer’s opinion, there is
no reasonable excuse for the breach but, having regard to
all the circumstances, the breach is nonetheless
insignificant.

(6) 15The circumstances to which the officer may have regard in
determining whether a breach is insignificant include the number
and seriousness of previous breaches.

(7) In this paragraph “period of account”, in relation to the relevant
fund, means any period for which accounts of the relevant fund
20are drawn up.

(8) If the period of account would otherwise be longer than 12
months, the period of account is to be treated for the purposes of
this paragraph as split into more than one period of account,
and—

(a) 25the first deemed period of account is to be 12 months long,
and

(b) any subsequent deemed period of account is to start when
the previous deemed period of account ends and is to end
12 months later or, if earlier, when the actual period of
30account ends.

Exemption for direct or indirect disposals of UK land by persons in which fund invests

16 (1) This paragraph applies if—

(a) an election under paragraph 12 has been made in respect
of a qualifying fund or qualifying company (“Q”),

(b) 35Q is UK property rich by reference (wholly or partly) to
particular interests in UK land (“the relevant UK
property”), and

(c) a person other than Q makes a disposal at a time when the
election has effect.

(2) 40If—

(a) the disposal is a direct disposal of any of the relevant UK
property by a person, and

(b) immediately before the disposal, Q has a 40% investment
in the person,

45the appropriate proportion of any gain accruing to the person on
the disposal is not a chargeable gain.

(3) If the disposal is an indirect disposal of UK land in a case where—