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

(a) the interests in UK land in question consist of or include
any of the relevant UK property, and

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

5the appropriate proportion of any gain accruing to the person on
the disposal is not a chargeable gain.

(4) For the purposes of this paragraph the “appropriate proportion”
means the proportion that so much of the consideration for the
disposal as forms part (directly or indirectly) of the assets of Q
10bears to the total consideration for the disposal.

(5) For the purposes of this paragraph a person has a 40% 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 40%, the person would be regarded as having a
1540% investment in the company immediately before the disposal.

(6) In this paragraph—

• “the interests in UK land in question” means the interests in
  UK land taken into account in determining whether the
  disposal is an indirect disposal of UK land, and

• 20“the company in question”, in relation to a disposal of a right
  or interest in a company by the person, means that
  company.

(7) If an officer of Revenue and Customs considers that the operation
of this paragraph would otherwise result in the total proportion of
25a gain that is not a chargeable gain exceeding the whole of the
gain, the officer may make such adjustments to the appropriate
proportion of a gain accruing to any person as the officer considers
just and reasonable to prevent that result.

Making of election and period for which it has effect

17 (1) 30An election under paragraph 12—

(a) must be made by the relevant fund manager, and

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

(2) An election under paragraph 12 must specify the day from which
35it is to have effect.

(3) The election has effect in relation to disposals on or after the day
specified in the election.

(4) A day may be specified in the election even if it falls before the day
on which the election is made.

(5) 40But a day that falls more than 12 months before the day on which
the election is made may be specified only if an officer of Revenue
and Customs consents.

(6) For this purpose—

(a) consent may be given generally (for example, by
45describing, in a notice published by an officer of Revenue

and Customs, cases in which consent is deemed to be
given), or

(b) consent may be given in relation to particular cases.

Revocation of election

18 (1) 5In addition to the case set out in paragraph 15(5)(a), a designated
HMRC officer may revoke an election under paragraph 12 if, in
order to safeguard the public revenue, the officer considers it is
appropriate to revoke the election.

(2) In the case of an election under paragraph 12 which is revoked by
10a designated HMRC officer (whether under this paragraph or
paragraph 15), the revocation must be made by notice given by a
designated HMRC officer to the relevant fund manager.

(3) The relevant fund manager may revoke an election under
paragraph 12 by giving notice of the revocation to an officer of
15Revenue and Customs.

(4) A notice of revocation of an election under paragraph 12 must
specify the day from which the election is to cease to have effect.

(5) The election ceases to have effect in relation to disposals made on
or after the day specified in the notice of revocation.

(6) 20The relevant fund manager may specify a day in a notice of
revocation even if the day falls before the day on which the notice
is given but only if an officer of Revenue and Customs consent.

(7) For this purpose—

(a) consent may be given generally (for example, by
25describing, in a notice published by an officer of Revenue
and Customs, cases in which consent is deemed to be
given), or

(b) consent may be given in relation to particular cases.

19 (1) A notice of revocation given by a designated HMRC officer under
30paragraph 15 or 18 must state the grounds for revoking the
election under paragraph 12.

(2) The relevant fund manager may bring an appeal against the
revocation of the election.

(3) The appeal must be made by notice given to the designated
35HMRC officer during the period of 30 days beginning with the day
on which the notice of revocation is given.

(4) In the case of an appeal which is notified to the tribunal (see Part
5 of the Management Act), the tribunal must not allow the appeal
unless it considers that a designated HMRC officer could not
40reasonably have been satisfied that there were grounds for
revoking the election.

Qualifying fund or company ceasing to meet applicable exemption conditions

20 (1) This paragraph applies if—

(a) an election under paragraph 12 has been made at any time
in respect of a qualifying fund or qualifying company, and

(b) at any subsequent time, the qualifying fund or qualifying
company ceases to meet the applicable exemption
5conditions.

(2) The election ceases to have effect from that subsequent time in
relation to disposals made at or after that time.

(3) This paragraph needs to be read with—

(a) paragraph 27 (temporary period of no more than 30 days
10during which certain of applicable exemption conditions
not met),

(b) paragraph 28 (temporary period of no more than 9 months
during which applicable exemption conditions not met),
and

(c) 15paragraph 30 (steps taken by relevant fund manager to
wind up relevant fund).

Deemed disposal: payments not otherwise taxable where value derived from direct or
indirect disposals of UK land

21 (1) This paragraph applies if—

(a) 20an election under paragraph 12 that has been made in
respect of a qualifying fund or qualifying company has
effect at any time,

(b) a participant in the relevant fund is entitled to receive an
amount at that time (“the relevant time”) which represents,
25in substance, value derived (directly or indirectly) from a
direct disposal of UK land or from the UK land component
of an indirect disposal of UK land, and

(c) the amount is regarded as being of a revenue nature and
does not fall to be taken into account for the purposes of
30income tax or corporation tax on income.

(2) In the case of an election made in respect of a qualifying fund, the
participant in the relevant fund is deemed for the purposes of this
Act—

(a) to have sold its units in the relevant fund immediately
35before the relevant time at their market value immediately
before that time, and

(b) to have reacquired those units immediately after the
relevant time at their market value immediately after that
time.

(3) 40In the case of an election made in respect of a qualifying company,
the participant in the relevant fund is deemed for the purposes of
this Act—

(a) to have sold its rights and interests in the company
immediately before the relevant time at their market value
45immediately before that time, and

(b) to have reacquired those rights and interests immediately
after the relevant time at their market value immediately
after that time.

(4) In this paragraph “the UK land component” of an indirect disposal
of UK land means the interests in UK land taken into account in
determining whether the disposal is an indirect disposal of UK
land.

5Deemed disposal if election ceases to have effect

22 (1) This paragraph applies if at any time an election which has been
made under paragraph 12 in respect of a qualifying fund or
qualifying company ceases to have effect.

(2) In the case of an election made in respect of a qualifying fund, each
10participant in the relevant fund is deemed for the purposes of this
Act—

(a) to have sold its units in the relevant fund immediately
before that time, and

(b) to have immediately reacquired those rights and interests,

15at their market value immediately before that time.

(3) In the case of an election made in respect of a qualifying company,
each participant in the relevant fund is deemed for the purposes of
this Act—

(a) to have sold its rights and interests in the company
20immediately before that time, and

(b) to have immediately reacquired those rights and interests,

at their market value immediately before that time.

Gains accruing on disposals under paragraph 21 or 22

23 (1) This paragraph applies if a disposal of an asset is deemed to have
25been made by a person at any time under—

(a) paragraph 21, or

(b) paragraph 22 but only as a result of paragraph 20
(qualifying fund or qualifying company ceasing to meet
the applicable exemption conditions).

(2) 30Any gain (“the deemed gain”) accruing to the person on the
disposal is treated as accruing to the person in accordance with the
rules set out in the remainder of this paragraph.

(3) If, at the time of the deemed disposal or a subsequent time—

(a) the person actually disposes of a unit in the relevant fund,
35or

(b) the person receives an amount of a kind mentioned in
paragraph 21(1),

the appropriate portion of the deemed gain is treated as accruing
to the person at the time of the actual disposal or the time of the
40receipt.

(4) For this purpose “the appropriate portion” means the proportion
which—

(a) the consideration for the actual disposal, or

(b) the amount of the receipt,

45bears to the amount of the deemed gain.

(5) If some of the deemed gain has accrued on one or more previous
occasions, the appropriate portion is restricted so that, when
added to the appropriate portion or portions on the previous
occasion or occasions, it does not exceed 100%.

(6) 5In determining the appropriate proportion, so much (if any) of the
consideration for the actual disposal or the amount of the receipt
as exceeds the amount of the deemed gain is to be ignored.

(7) In the case of a disposal under paragraph 21, the remainder of the
deemed gain is treated as accruing to the person (unless the whole
10amount has already accrued) when the relevant fund is wound up.

(8) In the case of a disposal under paragraph 22, the remainder of the
deemed gain is treated as accruing to the person (unless the whole
amount has already accrued) at—

(a) the end of the period of three years beginning with the
15time of the deemed disposal, or

(b) if earlier, when the relevant fund is wound up.

Relief for expenses in the case of deemed disposals under paragraph 21 or 22

24 (1) This paragraph applies if a disposal is deemed to have been made
by a person as a result of paragraph 21 or 22.

(2) 20The person is treated for the purposes of section 38(1)(c) as having
incurred incidental costs of making the deemed disposal equal to
the notional costs.

(3) The reference here to the notional costs is to the incidental costs —

(a) which the person would reasonably have expected to have
25incurred if the deemed sale under paragraph 21 or 22 had
been an actual sale, and

(b) which would have been allowable under section 38(1)(c) if
there had been an actual sale.

Notification to participants in relation to deemed disposals under paragraph 21 or 22

25 (1) 30This paragraph applies if—

(a) a disposal is deemed to have been made by a person under
paragraph 21,

(b) a disposal is deemed to have been made by a person under
paragraph 22 as a result of the revocation of an election, or

(c) 35an amount is treated as accruing to a person under
paragraph 23(7) or (8).

(2) The relevant fund manager must notify the person of the matters
mentioned in sub-paragraph (1)(a), (b) or (c).

(3) The notification—

(a) 40must be in writing, and

(b) must be given within the period of 30 days beginning with
the relevant time.

(4) If this paragraph applies as result of sub-paragraph (1)(a) or (b),
“the relevant time” means the time at which the deemed disposal
is made.

(5) If this paragraph applies as result of sub-paragraph (1)(c), “the
5relevant time” is the time at which the amount is treated as
accruing.

26 (1) A person who fails to comply with paragraph 25 is liable to a
penalty not exceeding £3,000.

(2) If—

(a) 10there is a failure to comply with that paragraph, and

(b) there are two or more persons who are the relevant fund
managers each of whom is subject to the duty to notify
under that paragraph,

the total amount of the penalties to which those managers (taken
15together) are liable is not to exceed £3,000.

(3) If a person becomes liable to a penalty under this paragraph, an
officer of Revenue and Customs must—

(a) assess the penalty, and

(b) notify the person.

(4) 20The assessment must be made within the period of 12 months
beginning with the day on which an officer of Revenue and
Customs first becomes aware that the person has failed to comply
with paragraph 25.

(5) A person may, by notice, appeal against a decision of an officer of
25Revenue and Customs that a penalty is payable under this
paragraph.

(6) Notice of appeal under this paragraph must specify the grounds
of appeal.

(7) Notice of appeal under this paragraph must be given—

(a) 30within 30 days after the penalty was notified to the person,

(b) to the officer of Revenue and Customs who notified the
person.

(8) A penalty under this paragraph must be paid before the end of the
period of 30 days beginning with—

(a) 35the day on which the person was notified of the penalty, or

(b) if notice of appeal against the penalty is given, the day on
which the appeal is finally determined or withdrawn.

Temporary period during which applicable exemption conditions not met

27 (1) This paragraph applies if—

(a) 40an election under paragraph 12 has been made in respect
of a qualifying fund or qualifying company (“Q”),

(b) Q ceases at any time (“the relevant time”) to meet the
applicable exemption conditions otherwise than as a result
of the vehicle or appropriate entity ceasing to be UK
45property rich (see paragraph 12(2)(c) or (3)(b)),

(c) the election would (but for this paragraph) have,
accordingly, ceased to have had effect under paragraph 20
from the relevant time,

(d) the relevant fund manager expects Q to meet the
5applicable exemption conditions within 30 days, and

(e) Q does meets those conditions within 30 days.

(2) The failure by Q to meet the applicable exemption conditions is to
be ignored for the purposes of this Part of this Schedule.

(3) In this paragraph any reference to Q meeting the applicable
10exemption conditions within 30 days is to Q meeting those
conditions before the end of the period of 30 days beginning with
the day on which the relevant time falls.

(4) This paragraph does not apply on more than four occasions in any
period of 12 months.

28 (1) 15This paragraph applies if—

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

(b) but for this paragraph, the election would, as a result of
paragraph 20, have ceased to have effect from a particular
20time for all purposes of this Part of this Schedule (“the
relevant time”),

(c) the relevant fund manager expects the failure to meet the
applicable exemption conditions to last for a temporary
period, and

(d) 25at the end of the temporary period, the qualifying fund or
qualifying company does meet those conditions.

(2) It is to be assumed that, for the purposes of any provision of this
Part of this Schedule other than paragraph 22, the qualifying fund
or qualifying company continues to meet the applicable
30exemption conditions during the temporary period.

(3) Accordingly—

(a) a deemed disposal occurs under paragraph 22 by reference
to the failure to meet the applicable exemption conditions,
but

(b) 35subject to that, the election continues to have effect during
the temporary period.

(4) A period is not to be regarded as a temporary period for the
purposes of this paragraph if it is longer than a period of 9 months
beginning with the relevant time.

(5) 40This paragraph does not apply if paragraph 27 applies.

29 (1) This paragraph applies if paragraph 28 has applied in relation to a
qualifying fund or qualifying company on one or more occasions.

(2) Paragraph 23(8) has effect as if, for the words from “at—” to the
end, there were substituted “when the relevant fund is wound
45up.”

Steps taken by relevant fund manager to wind up relevant fund

30 (1) This paragraph applies if—

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

(b) 5but for this paragraph, the election would, as a result of
paragraph 20, have ceased to have effect from a particular
time (“the relevant time”) for all purposes of this Part of
this Schedule, and

(c) the relevant time occurs at a time when the relevant fund
10manager is taking steps with a view to the disposal of all of
the assets of the relevant fund so that it can be wound up.

(2) It is to be assumed that, for the purposes of any provision of this
Part of this Schedule other than paragraph 22, the qualifying fund
or qualifying company continues to meet the applicable
15exemption conditions until the relevant fund is wound up.

(3) Accordingly—

(a) a deemed disposal occurs under paragraph 22 by reference
to the failure to meet the applicable exemption conditions,
but

(b) 20subject to that, the election continues to have effect until
the relevant fund is wound up.

Deemed disposals of UK land by companies previously owned by fund

31 (1) This paragraph applies if—

(a) an election under paragraph 12 has been made in respect
25of a qualifying fund or qualifying company (“Q”),

(b) Q, or a company covered by the election, disposes of all of
its rights and interests in another company (“C”) which is
UK property rich, and

(c) C is covered by the election.

(2) 30C is deemed for the purposes of this Act—

(a) to have sold, at the relevant time, the appropriate
proportion of every qualifying asset the actual disposal of
which by C would be a direct or indirect disposal of UK
land, and

(b) 35to have reacquired the appropriate proportion of the asset
immediately after the relevant time,

at its market value at the relevant time.

(3) In the case of a disposal, a company is “covered by the election” for
the purposes of this paragraph if the disposal is one to which
40paragraph 16 applies where the election concerned is the one
referred to in this paragraph.

(4) For the purposes of this paragraph “the appropriate proportion”
of an asset is equal to whatever would be, for the purposes of
paragraph 16, the appropriate portion of any gain if it is
45assumed—

(a) that C had sold the asset at the relevant time, and

(b) that the total consideration for that sale was such that it
results in a gain of £100 accruing to C.

(5) For the purposes of this paragraph, an asset is a “qualifying asset”
if, throughout the period of one year ending with the day on
5which the disposal of the asset is made, the asset has been held by
C or any other company covered by the election or by Q.

(6) In this paragraph “the relevant time” means the time immediately
before the disposal of all the rights and interests in C.

Deemed disposals of UK land by company or fund ceasing to be qualifying etc

32 (1) 10This paragraph applies if—

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

(b) the election has had effect for a continuous period of at
least five years, and

(c) 15either the election ceases to have effect (otherwise than in
disqualifying circumstances) or the relevant fund manager
starts to take steps with a view to the disposal of all of the
assets of the relevant fund so that it can be wound up.

(2) Q is deemed for the purposes of this Act—

(a) 20to have sold, at the relevant time, every asset the actual
disposal of which by Q would be a direct or indirect
disposal of UK land, and

(b) to have reacquired the asset immediately after the relevant
time,

25at its market value at the relevant time.

(3) In the case of any asset covered by the election for 12 months and
held by a company at the relevant time, the company is deemed
for the purposes of this Act—

(a) to have sold, at the relevant time, the appropriate
30proportion of the asset, and

(b) to have reacquired the appropriate proportion of the asset
immediately after the relevant time,

at its market value at the relevant time.

(4) For the purposes of sub-paragraph (3) an asset held by a company
35at the relevant time has been “covered by the election for 12
months” if, assuming the asset were disposed of at the relevant
time, the disposal would have been one to which paragraph 16
applied by reference to the election.

(5) For the purposes of sub-paragraph (3) “the appropriate
40proportion” of an asset is equal to whatever would be, for the
purposes of paragraph 16, the appropriate portion of any gain if it
is assumed—

(a) that the company had sold the asset at the relevant time,
and

(b) 45that the total consideration for that sale was such that it
results in a gain of £100 accruing to it.

(6) For the purposes of this paragraph the election ceases to have
effect in “disqualifying circumstances” if—

(a) it ceases to have effect as a result of a notice of revocation
under paragraph 15(5)(a) in a case where a designated
5officer of Revenue and Customs is of the opinion that there
have been at least three serious breaches of provision made
by or under paragraph 15 during the period for which the
election has had effect, or

(b) it ceases to have effect as a result of a notice of revocation
10under paragraph 18(1).

(7) In this paragraph “the relevant time” means the time immediately
before—

(a) the election ceases to have effect, or

(b) the relevant fund manager starts to take steps with a view
15to the disposal of all or the assets of the relevant fund so
that it can be wound up.

(8) For the purposes of this paragraph an election made under
paragraph 12 in respect of Q is taken to be the same election as one
made at a subsequent time in respect of another qualifying fund or
20qualifying company (“A”) if, at the subsequent time, Q is wholly
owned by A.

Exemption for disposals by companies wholly owned by certain investors

33 (1) This paragraph applies if an election under paragraph 12 has been
made in respect of a qualifying fund or qualifying company.

(2) 25If—

(a) a participant in the relevant fund disposes of a unit in the
relevant fund,

(b) the participant is a company which is wholly owned by
one or more investors to which this paragraph applies, and

(c) 30the participant is not a collective investment vehicle,

any gain accruing on the disposal is not a chargeable gain.

(3) Nothing in paragraph 21 is to result in a deemed disposal of an
asset held by any investor to which this paragraph applies other
than an insurance company.

(4) 35Each of the following is an investor to which this paragraph
applies—

(a) any person who is a qualifying institutional investor
within the meaning of Schedule 7AC (substantial
shareholding exemption),

(b) 40a company carrying on life assurance business where,
immediately before the disposal, its right or interest in the
participant is an asset which, applying the rules in section
138 of the Finance Act 2012, is wholly matched to a liability
of its life assurance business that is not BLAGAB,

(c) 45a company carrying on long-term business none of which
is BLAGAB where, immediately before the disposal, its
right or interest in the participant is an asset held for the
purposes of its long-term business, and