Finance Bill

House of Lords

Session 2013 - 14
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Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 45 — Statutory residence test
Part 3 — Split year treatment
538

(a)
in the case of a tax year that is not a split year, the full
amount of the overseas earnings for that year, and
(b)
in the case of a split year, so much of the full amount
of the overseas earnings for that year as is attributable
to the UK part of the year.”
5
      (3)
In that subsection, in step 2, for “those earnings” substitute “the earnings
identified under step 1”.
      (4)
After that subsection insert—
“(4)
Any attribution required for the purposes of step 1 or step 2 in
subsection (3) is to be done on a just and reasonable basis.”
10
61    (1)
Section 24 (limit on chargeable overseas earnings where duties of associated
employment performed in UK) is amended as follows.
      (2)
After subsection (2) insert—
“(2A)
If the tax year is a split year as respects the employee, subsection (2)
has effect as if for “the aggregate earnings for that year from all the
15
employments concerned” there were substituted “so much of the
aggregate earnings for that year from all the employments concerned
as is attributable to the UK part of that year”.”
      (3)
After subsection (3) insert—
“(3A)
Any attribution required for the purposes of subsection (2A) is to be
20
done on a just and reasonable basis.”
62    (1)
Section 26 (foreign earnings for year when remittance basis applies and
employee meets section 26A requirement) is amended as follows.
      (2)
In subsection (1), for the words from “if the general earnings” to the end
substitute “if the general earnings meet all of the following conditions—
25
(a)
they are neither—
(i)
general earnings in respect of duties performed in the
United Kingdom, nor
(ii)
general earnings from overseas Crown employment
subject to United Kingdom tax, and
30
(b)
if the tax year is a split year as respects the employee, they are
attributable to the UK part of the year.”
      (3)
After subsection (5) insert—
“(5A)
Any attribution required for the purposes of subsection (1)(b) is to be
done on a just and reasonable basis.”
35
      (4)
For subsection (6) substitute—
“(6)
Section 15(1) does not apply to general earnings within subsection
(1).”
63
In section 232 (giving effect to mileage allowance relief), after subsection (6)
insert—
40
“(6A)
If the earnings from which a deduction allowed under this section is
deductible include earnings that are “excluded” within the meaning
of section 15(1A)—

Finance Bill
Schedule 45 — Statutory residence test
Part 3 — Split year treatment
539

(a)
the amount of the deduction allowed is a proportion of the
amount that would be allowed under this section if the tax
year were not a split year, and
(b)
that proportion is equal to the proportion that the part of the
earnings that is not “excluded” bears to the total earnings.”
5
64    (1)
Section 329 (deduction from earnings not to exceed earnings) is amended as
follows.
      (2)
After subsection (1) insert—
“(1A)
If the earnings from which a deduction allowed under this Part is
deductible include earnings that are “excluded” within the meaning
10
of section 15(1A)—
(a)
the amount of the deduction allowed is a proportion of the
amount that would be allowed under this Part if the tax year
were not a split year, and
(b)
that proportion is equal to the proportion that the part of the
15
earnings that is not “excluded” bears to the total earnings.”
      (3)
In subsection (2), after “those earnings” insert “(or, in a case within
subsection (1A), the part of those earnings that is not “excluded”)”.
      (4)
In subsection (3), after “the earnings” insert “(or, in a case within subsection
(1A), the part of the earnings that is not “excluded”)”.
20
65    (1)
Section 394 (charge on employer-financed retirement benefits) is amended
as follows.
      (2)
In subsection (4C), omit “or” at the end of paragraph (b) and after that
paragraph insert—
“(ba)
an amount which would count as employment income of the
25
employee or former employee under that Chapter but for the
application of section 554Z5 (overlap with earlier relevant
step), or”.
      (3)
In that subsection, for paragraph (c) substitute—
“(c)
an amount which would be within paragraph (a), (b) or (ba)
30
apart from—
(i)
the employee or former employee having been non-
UK resident for any tax year, or
(ii)
any tax year having been a split year as respects the
employee or former employee.”
35
66    (1)
Section 421E (income relating to securities: exclusions about residence etc) is
amended as follows.
      (2)
For subsection (1) substitute—
“(1)
Chapters 2, 3 and 4 do not apply in relation to employment-related
securities if the acquisition occurs in a tax year that is not a split year
40
as respects the employee and—
(a)
the earnings from the employment for that tax year are not
general earnings to which section 15, 22 or 26 applies
(earnings for year when employee UK resident), or

Finance Bill
Schedule 45 — Statutory residence test
Part 3 — Split year treatment
540

(b)
had there been any earnings from the employment for that
tax year, they would not have been general earnings to which
any of those sections applied.
(1A)
Chapters 2, 3 and 4 do not apply in relation to employment-related
securities if the acquisition occurs in the UK part of a tax year that is
5
a split year as respects the employee and—
(a)
the earnings from the employment attributable to that part of
the year are not general earnings to which section 15, 22 or 26
applies, or
(b)
had there been any earnings from the employment
10
attributable to that part of the year, they would not have been
general earnings to which any of those sections applied.
(1B)
Chapters 2, 3 and 4 do not apply in relation to employment-related
securities if the acquisition occurs in the overseas part of a tax year
that is a split year as respects the employee.”
15
      (3)
After subsection (2) insert—
“(2A)
But Chapters 3A to 3D do apply in relation to employment-related
securities in relation to which they are disapplied by subsection (2)
if—
(a)
the acquisition takes place in the overseas part of a tax year
20
that is a split year as respects the employee,
(b)
the tax year is a split year because the circumstances of the
case fall within Case 1, Case 2 or Case 3 as described in Part 3
of Schedule 45 to FA 2013 (split year treatment: cases
involving actual or deemed departure from the United
25
Kingdom), and
(c)
had it not been a split year—
(i)
the earnings from the employment for that tax year
(or some of them) would have been general earnings
to which section 15, 22 or 26 applied, or
30
(ii)
if there had been any earnings from the employment
for that tax year, they (or some of them) would have
been general earnings to which any of those sections
applied.”
67
In section 474 (cases where Chapter 5 of Part 7 does not apply), for
35
subsection (1) substitute—
“(1)
This Chapter (apart from sections 473 and 483) does not apply in
relation to an employment-related securities option if the acquisition
occurs in a tax year that is not a split year as respects the employee
and—
40
(a)
the earnings from the employment are not general earnings
to which section 15, 22 or 26 applies (earnings for year when
employee UK resident), or
(b)
had there been any earnings from the employment, they
would not have been general earnings to which any of those
45
sections applied.
(1A)
This Chapter (apart from sections 473 and 483) does not apply in
relation to an employment-related securities option if the acquisition

Finance Bill
Schedule 45 — Statutory residence test
Part 3 — Split year treatment
541

occurs in the UK part of a tax year that is a split year as respects the
employee and—
(a)
the earnings from the employment attributable to that part of
the year are not general earnings to which section 15, 22 or 26
applies (earnings for year when employee UK resident), or
5
(b)
had there been any earnings from the employment
attributable to that part of the year, they would not have been
general earnings to which any of those sections applied.
(1B)
This Chapter (apart from sections 473 and 483) does not apply in
relation to an employment-related securities option if the acquisition
10
occurs in the overseas part of a tax year that is a split year as respects
the employee.”
68    (1)
Section 554Z4 (residence issues) is amended as follows.
      (2)
For subsections (3) to (5) substitute—
“(3)
Subsection (4) applies if the value of the relevant step, or a part of it,
15
is “for”—
(a)
a tax year for which A is non-UK resident, or
(b)
a tax year that is a split year as respects A.
(4)
The value, or the part of it, is to be reduced—
(a)
in a case within subsection (3)(a), by so much of the value, or
20
the part of it, as is not in respect of UK duties, and
(b)
in a case within subsection (3)(b), by so much of the value, or
the part of it, as is both—
(i)
attributable to the overseas part of the tax year, and
(ii)
not in respect of UK duties.
25
(5)
The extent to which—
(a)
the value, or the part of it, is not in respect of UK duties, or
(b)
so much of the value, or the part of it, as is attributable to the
overseas part of the tax year is not in respect of UK duties,

is to be determined on a just and reasonable basis.”
30
      (3)
After subsection (5) insert—
“(5A)
Any attribution required for the purposes of subsection (4)(b)(i) is to
be done on a just and reasonable basis.
(5B)
“UK duties” means duties performed in the United Kingdom.”
69
In section 554Z6 (overlap with certain earnings), in subsection (1)(a), after
35
“UK resident” insert “(and, in the case of a tax year that is a split year as
respects A, are not “excluded” by virtue of section 15(1A)(a) and (b)(i))”.
70
In section 554Z9 (remittance basis: A is ordinarily UK resident), in
subsection (5)—
(a)
in paragraph (b), after “that income” insert “(or of so much of it as is
40
attributable to the UK part of the relevant tax year, if it was a split
year as respects A)”, and
(b)
in paragraph (c), after “tax year” insert “(or the UK part of it)”.
71    (1)
Section 554Z10 (remittance basis: A is not ordinarily resident) is amended as
follows.
45

Finance Bill
Schedule 45 — Statutory residence test
Part 3 — Split year treatment
542

      (2)
In subsection (1), for paragraph (a) substitute—
“(a)
the value of the relevant step, or a part of it, is “for” a tax year
(“the relevant tax year”) as determined under section
554Z4,”.
      (3)
For subsection (2) substitute—
5
“(2)
The overseas portion of (as the case may be)—
(a)
A’s employment income by virtue of section 554Z2(1), or
(b)
the relevant part of A’s employment income by virtue of that
section,

is “taxable specific income” in a tax year so far as the overseas portion
10
is remitted to the United Kingdom in that year.”
      (4)
After that subsection insert—
“(2A)
“The overseas portion” of A’s employment income by virtue of
section 554Z2(1), or of the relevant part of that income, is so much of
that income, or of the relevant part of it, as is not in respect of UK
15
duties.
(2B)
“UK duties” means duties performed in the United Kingdom.”
      (5)
In subsection (3), for “this purpose” substitute “the purposes of this section”.
      (6)
For subsection (4) substitute—
“(4)
The extent to which—
20
(a)
the employment income, or the relevant part of it, is not in
respect of UK duties, or
(b)
so much of the employment income, or of the relevant part of
it, as is attributable to the UK part of the relevant tax year is
not in respect of UK duties,
25

is to be determined on a just and reasonable basis.”
Special charging rules for pension income
72    (1)
Section 575 of ITEPA 2003 (foreign pensions: taxable pension income) is
amended as follows.
      (2)
In subsection (1), after “subsections” insert “(1A),”.
30
      (3)
After that subsection insert—
“(1A)
If the person liable for the tax under this Part is an individual and the
tax year is a split year as respects that individual, the taxable pension
income for the tax year is the full amount of the pension income
arising in the UK part of the year, subject to subsections (2) and (3)
35
and section 576A.”
      (4)
In subsection (2), after “tax year” insert “or, as the case may be, the UK part
of the tax year”.
PAYE income
73    (1)
Section 690 of ITEPA 2003 (employee non-residents etc) is amended as
40
follows.

Finance Bill
Schedule 45 — Statutory residence test
Part 3 — Split year treatment
543

      (2)
In subsection (1), omit “only”.
      (3)
After that subsection insert—
“(1A)
This section also applies in relation to an employee in a tax year if it
appears to an officer of Revenue and Customs that—
(a)
the tax year is likely to be a split year as respects the
5
employee, and
(b)
the employee works or will work in the United Kingdom and
also works or is likely to work outside the United Kingdom.”
Special charging rules for trading income
74
ITTOIA 2005 is amended as follows.
10
75
In section 6 (territorial scope of charge to tax), after subsection (2) insert—
“(2A)
If the tax year is a split year as respects a UK resident individual, this
section has effect as if, for the overseas part of that year, the
individual were non-UK resident.”
76    (1)
Section 17 (effect of becoming or ceasing to be UK resident) is amended as
15
follows.
      (2)
For subsection (1) substitute—
“(1)
This section applies if—
(a)
an individual carries on a trade otherwise than in
partnership, and
20
(b)
there is a change of residence.
(1A)
For the purposes of this section there is a “change of residence” if—
(a)
the individual becomes or ceases to be UK resident, or
(b)
a tax year is, as respects the individual, a split year.
(1B)
The change of residence occurs—
25
(a)
in a case falling within subsection (1A)(a), at the start of the
tax year for which the individual becomes or ceases to be UK
resident, and
(b)
in a case falling within subsection (1A)(b), at the start of
whichever of the UK part or the overseas part of the tax year
30
is the later part.”
      (3)
In subsection (2), at the beginning insert “If this section applies and the
individual does not actually cease permanently to carry on the trade
immediately before the change of residence occurs,”.
77
In section 243 (post-cessation receipts: extent of charge to tax), after
35
subsection (5) insert—
“(6)
If the tax year is a split year as respects a UK resident individual, this
section has effect as if, for the overseas part of that year, the
individual were non-UK resident.”
78
In section 849 (calculation of firm’s profits or losses), after subsection (3)
40

Finance Bill
Schedule 45 — Statutory residence test
Part 3 — Split year treatment
544

insert—
“(3A)
For any tax year that is a split year as respects the partner, this section
has effect as if the partner were non-UK resident in the overseas part
of the year.”
79    (1)
Section 852 (carrying on by partner of notional trade) is amended as follows.
5
      (2)
For subsection (6) substitute—
“(6)
If there is a change of residence, the partner is treated as permanently
ceasing to carry on one notional trade when that change of residence
occurs and starting to carry on another immediately afterwards.”
      (3)
After subsection (7) insert—
10
“(8)
Subsections (1A) and (1B) of section 17 apply for the purposes of
subsection (6).”
80    (1)
Section 854 (carrying on by partner of notional business) is amended as
follows.
      (2)
For subsection (5) substitute—
15
“(5)
If there is a change of residence, the partner is treated as permanently
ceasing to carry on one notional business when that change of
residence occurs and starting to carry on another immediately
afterwards.”
      (3)
After that subsection insert—
20
“(5A)
Subsections (1A) and (1B) of section 17 apply for the purposes of
subsection (5).”
Special charging rules for property income
81
In section 270 of ITTOIA 2005 (profits of property businesses: income
charged), after subsection (2) insert—
25
“(3)
If, as respects an individual carrying on an overseas property
business, the tax year is a split year—
(a)
tax is charged under this Chapter on so much of the profits
referred to in subsection (1) as arise in the UK part of the tax
year, and
30
(b)
the portion of the profits arising in the overseas part of the tax
year is, accordingly, not chargeable to tax under this Chapter.
(4)
In determining how much of the profits arise in the UK part of the tax
year—
(a)
determine first how much of the non-CAA profits arise in the
35
UK part by apportioning the non-CAA profits between the
UK part and the overseas part on a just and reasonable basis,
and
(b)
then adjust the portion of the non-CAA profits arising in the
UK part by deducting any CAA allowances for the year and
40
adding any CAA charges for the year.
(5)
In subsection (4)—