Finance Bill

House of Lords

Session 2013 - 14
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 45 — Statutory residence test
Part 4 — Anti-avoidance
566

(2)
Dividends within subsection (3) are to be treated for the purposes of
this Chapter as if they were received by the individual, or as if the
individual became entitled to them, in the period of return.
(3)
A dividend is within this subsection if—
(a)
the individual receives or becomes entitled to it in the
5
temporary period of non-residence,
(b)
it is a dividend of a company that would be a close company
if the company were UK resident,
(c)
the individual receives or becomes entitled to it by virtue of
being at a relevant time—
10
(i)
a material participator in the company, or
(ii)
an associate of a material participator in the company,
and
(d)
ignoring this section, the individual—
(i)
is not liable for tax under this Chapter in respect of the
15
dividend, but
(ii)
would have been so liable if the individual had
received the dividend, or become entitled to it, in the
period of return.
(4)
For the purposes of subsection (3)—
20
(a)
“associate” and “participator” have the same meanings as in
Part 10 of CTA 2010 (see sections 448 and 454),
(b)
a “material participator” is a participator who has a material
interest in the company, as defined in section 457 of that Act,
(c)
“relevant time” means—
25
(i)
any time in the year of departure or, if the year of
departure is a split year as respects the individual, the
UK part of that year, or
(ii)
any time in one or more of the 3 tax years preceding
that year, and
30
(d)
paragraph (d)(i) includes a case where the individual could
be relieved of liability on the making of a claim under section
6 of TIOPA 2010 (double taxation relief), even if no claim is in
fact made.
(5)
If section 809B, 809D or 809E of ITA 2007 (remittance basis) applies
35
to the individual for the year of return, any dividend within
subsection (3) that was remitted to the United Kingdom in the
temporary period of non-residence is to be treated as remitted to the
United Kingdom in the period of return.
(6)
This section does not apply to a dividend within subsection (3) to the
40
extent that it is paid in respect of post-departure trade profits.
(7)
“Post-departure trade profits” are—
(a)
trade profits of the company arising in an accounting period
that begins after the start of the temporary period of non-
residence, and
45
(b)
so much of any trade profits of the company arising in an
accounting period that straddles the start of that temporary
period as is attributable (on a just and reasonable basis) to a
time after the start of that temporary period.

Finance Bill
Schedule 45 — Statutory residence test
Part 4 — Anti-avoidance
567

(8)
The extent to which a dividend is paid in respect of post-departure
trade profits is to be determined on a just and reasonable basis.
(9)
If section 406 or 407 applies, references in this section to a dividend
being received by the individual are to a cash dividend being paid
over to the individual or (as the case may be) a dividend being
5
treated as paid to the individual.
(10)
In this section—
“remitted to the United Kingdom” has the meaning given in
Chapter A1 of Part 14 of ITA 2007;
“trade profits of the company” means the profits of any trade
10
carried on by the company, as they would be calculated in
accordance with Part 3 of CTA 2009 (trading income) if the
company were UK resident.”
135
In Chapter 5 (stock dividends from UK resident companies), after section
413 insert—
15
“413A
Temporary non-residents
(1)
This section applies if—
(a)
an individual is temporarily non-resident,
(b)
relevant stock dividend income is treated under this Chapter
as arising to the individual in the temporary period of non-
20
residence,
(c)
the tax year in which it is treated as arising (“the arising
year”) is a tax year for which the individual is UK resident,
and
(d)
the amount of income tax charged on the relevant stock
25
dividend income under this Chapter is less than it would
have been if the existence of double taxation relief
arrangements were disregarded.
(2)
Subsections (3) and (4) have effect in cases where the arising year is
not the year of return.
30
(3)
The total income (see Step 1 of the calculation in section 23 of ITA
2007) on which the individual is charged to income tax for the year
of return is to be increased by an amount equal to the amount on
which tax would be charged under this Chapter in respect of the
relevant stock dividend income disregarding any double taxation
35
relief arrangements.
(4)
But the notional UK tax on that relevant stock dividend income is to
be allowed as a credit against the individual’s liability to income tax
for the year of return under Step 6 of the calculation in section 23.
(5)
If the arising year is the year of return, the tax charged under this
40
Chapter in respect of the relevant stock dividend income is to be
charged and assessed without regard to the existence of double
taxation relief arrangements.
(6)
Stock dividend income is “relevant stock dividend income” if—
(a)
the UK resident company that issues the share capital or
45
bonus share capital is a close company, and

Finance Bill
Schedule 45 — Statutory residence test
Part 4 — Anti-avoidance
568

(b)
the individual is beneficially entitled to that share capital or
bonus share capital by virtue of being at a relevant time—
(i)
a material participator in the company, or
(ii)
an associate of a material participator in the company.
(7)
But stock dividend income within subsection (6) is not “relevant
5
stock dividend income” to the extent that the share capital or bonus
share capital is issued in respect of post-departure trade profits.
(8)
“Post-departure trade profits” are—
(a)
trade profits of the close company arising in an accounting
period that begins after the start of the temporary period of
10
non-residence, and
(b)
so much of any trade profits of the close company arising in
an accounting period that straddles the start of that
temporary period as is attributable (on a just and reasonable
basis) to a time after the start of that temporary period.
15
(9)
The extent to which share capital or bonus share capital is issued in
respect of post-departure trade profits is to be determined on a just
and reasonable basis.
(10)
The “notional UK tax” on the relevant stock dividend income is so
much of the income tax paid by the individual for the arising year as
20
is attributable on a just and reasonable basis to that income.
(11)
In this section—
“associate” and “participator” have the same meanings as in
Part 10 of CTA 2010 (see sections 448 and 454);
“material participator” means a participator who has a material
25
interest in the company, as defined in section 457 of that Act;
“relevant time” means—
(a)
any time in the year of departure or, if the year of
departure is a split year as respects the individual, the
UK part of that year, or
30
(b)
any time in one or more of the 3 tax years preceding
that year;
“trade profits of the close company” means the profits of any
trade carried on by the close company, as calculated in
accordance with Part 3 of CTA 2009 (trading income).”
35
136
In Chapter 6 (release of loan to participator in close company), after section
420 insert—
“420A
Temporary non-residents
(1)
This section applies if an individual is temporarily non-resident.
(2)
Debts within subsection (3) are to be treated for the purposes of this
40
Chapter as if they had been released or written off in the period of
return.
(3)
A debt is within this subsection if—
(a)
it is the debt, or a part of the debt, in respect of a loan or
advance made by a company to the individual,
45

Finance Bill
Schedule 45 — Statutory residence test
Part 4 — Anti-avoidance
569

(b)
it is released or written off in the temporary period of non-
residence, and
(c)
ignoring this section, the individual—
(i)
is not liable for tax under this Chapter in respect of the
release or write-off, but
5
(ii)
would have been so liable, had the release or write-off
taken place in the period of return.
(4)
Subsection (3)(c)(i) includes a case where the individual could be
relieved of liability on the making of a claim under section 6 of
TIOPA 2010 (double taxation relief), even if no claim is in fact made.”
10
137
In Chapter 8 of Part 5 of that Act (income not otherwise charged), after
section 689 insert—
“689A
Temporary non-residents
(1)
This section applies if an individual is temporarily non-resident.
(2)
Distributions within subsection (3) are to be treated for the purposes
15
of this Chapter as if they had been received by the individual, or as
if the individual had become entitled to them, in the period of return.
(3)
A distribution is within this subsection if—
(a)
the individual receives or becomes entitled to it in the
temporary period of non-residence,
20
(b)
it is a distribution of a company that is a close company or
that would be a close company if the company were UK
resident,
(c)
the individual receives or becomes entitled to the distribution
by virtue of being at a relevant time—
25
(i)
a material participator in the company, or
(ii)
an associate of a material participator in the company,
and
(d)
ignoring this section, the individual—
(i)
is not liable for tax under this Chapter in respect of the
30
distribution, but
(ii)
would have been so liable if the individual had
received the distribution, or become entitled to it, in
the period of return.
(4)
For the purposes of subsection (3)—
35
(a)
“associate” and “participator” have the same meanings as in
Part 10 of CTA 2010 (see sections 448 and 454),
(b)
a “material participator” is a participator who has a material
interest in the company, as defined in section 457 of that Act,
(c)
“relevant time” means—
40
(i)
any time in the year of departure or, if the year of
departure is a split year as respects the individual, the
UK part of that year, or
(ii)
any time in one or more of the 3 tax years preceding
that year, and
45
(d)
paragraph (d)(i) includes a case where the individual could
be relieved of liability on the making of a claim under section

Finance Bill
Schedule 45 — Statutory residence test
Part 4 — Anti-avoidance
570

6 of TIOPA 2010 (double taxation relief), even if no claim is in
fact made.
(5)
If section 809B, 809D or 809E of ITA 2007 (remittance basis) applies
to the individual for the year of return, any distribution within
subsection (3) that is relevant foreign income and is remitted to the
5
United Kingdom in the temporary period of non-residence is to be
treated as remitted to the United Kingdom in the period of return.
(6)
In this section, “remitted to the United Kingdom” has the meaning
given in Chapter A1 of Part 14 of ITA 2007.”
138
In Chapter 1 of Part 14 of ITA 2007 (limits on liability to income tax of non-
10
UK residents), after section 812 insert—
“812A
Temporary non-residents
(1)
This section applies if—
(a)
an individual is temporarily non-resident,
(b)
the individual’s liability to income tax for a tax year is limited
15
under section 811,
(c)
that tax year (“the non-resident year”) falls within the
temporary period of non-residence, and
(d)
the individual’s income for that tax year includes relevant
investment income.
20
(2)
The total income (see Step 1 of the calculation in section 23) on which
the individual is charged to income tax for the year of return is to be
increased by an amount equal to the amount of that relevant
investment income.
(3)
But the notional UK tax on that relevant investment income is to be
25
allowed as a credit against the individual’s liability to income tax for
the year of return under Step 6 of the calculation in section 23.
(4)
Income is “relevant investment income” if—
(a)
it is chargeable under Chapter 3 or 5 of Part 4 of ITTOIA 2005
(dividends etc from UK resident companies and stock
30
dividends from UK resident companies),
(b)
the distributing company is a close company, and
(c)
the income arises or is treated as arising to the individual
because the individual was at a relevant time—
(i)
a material participator in that company, or
35
(ii)
an associate of a material participator in the company.
(5)
But income within subsection (4) in the form of a cash or stock
dividend is not “relevant investment income” to the extent that the
dividend is paid, or the share capital is issued, in respect of post-
departure trade profits.
40
(6)
“Post-departure trade profits” are—
(a)
trade profits of the distributing company arising in an
accounting period that begins after the start of the temporary
period of non-residence, and
(b)
so much of any trade profits of the distributing company
45
arising in an accounting period that straddles the start of that

Finance Bill
Schedule 45 — Statutory residence test
Part 4 — Anti-avoidance
571

temporary period as is attributable (on a just and reasonable
basis) to a time after the start of that temporary period.
(7)
The “notional UK tax” on relevant investment income is—
(a)
the total of any sums in respect of that income that were
included within amount A in determining the limit under
5
section 811, less
(b)
any credit for foreign tax paid in respect of that income that
was allowed under Chapter 2 of Part 2 of TIOPA 2010 against
the individual’s liability to income tax for the non-resident
year.
10
(8)
The following matters are to be determined on a just and reasonable
basis—
(a)
the extent to which a dividend is paid, or share capital is
issued, in respect of post-departure trade profits, and
(b)
the extent to which a sum included within amount A is a sum
15
in respect of relevant investment income.
(9)
Nothing in any double taxation arrangements is to be read as
preventing the individual from being chargeable to income tax by
virtue of this section (or as preventing a charge to that tax from
arising as a result).
20
(10)
Part 4 of Schedule 45 to FA 2013 (statutory residence test: anti-
avoidance) explains—
(a)
when an individual is to be regarded as “temporarily non-
resident”, and
(b)
what “the temporary period of non-residence”, “the year of
25
departure” and “the period of return” mean.
(11)
In this section—
“associate” and “participator” have the same meanings as in
Part 10 of CTA 2010 (see sections 448 and 454);
“the distributing company” means the UK resident company
30
mentioned in section 383(1) or, as the case may be, 410(1) of
ITTOIA 2005;
“material participator” means a participator who has a material
interest in the company, as defined in section 457 of CTA
2010;
35
“relevant time” means—
(a)
any time in the year of departure or, if the year of
departure is a split year as respects the individual, the
UK part of that year, or
(b)
any time in one or more of the 3 tax years preceding
40
that year;
“trade profits of the distributing company” means the profits of
any trade carried on by the distributing company, as
calculated in accordance with Part 3 of CTA 2009 (trading
income);
45
“year of return” means the tax year consisting of or including
the period of return.”

Finance Bill
Schedule 45 — Statutory residence test
Part 4 — Anti-avoidance
572

New special rule: chargeable event gains
139
Chapter 9 of Part 4 of ITTOIA 2005 (gains from contracts for life insurance
etc) is amended as follows.
140
After section 465A insert—
“465B
Temporary non-residents
5
(1)
This section applies if an individual is temporarily non-resident.
(2)
The individual is liable for tax under this Chapter for the year of
return in respect of any gain that meets the conditions in subsection
(3).
(3)
The conditions are—
10
(a)
the gain arose in the temporary period of non-residence,
(b)
it arose from a policy issued in respect of an insurance made,
or from a contract made, before the start of that period,
(c)
the chargeable event giving rise to it was neither a death nor
a chargeable event treated as occurring under section 525(2),
15
(d)
no-one is liable under section 466 or 467 in respect of the gain,
(e)
no-one is liable by virtue of section 468 for either the year of
return or an earlier tax year as a result of the gain, and
(f)
the individual would have been liable under section 465 in
respect of the gain, applying the assumptions in subsection
20
(4).
(4)
The assumptions are—
(a)
the individual was UK resident for the tax year in which the
gain arose, and
(b)
that tax year was not a split year as respects the individual.
25
(5)
If the individual is liable by virtue of subsection (2) in respect of a
gain—
(a)
the amount of the gain in respect of which he or she is liable
is the amount on which tax would have been charged under
this Chapter applying the assumptions in subsection (4), but
30
(b)
in determining that amount, section 528 must be applied
ignoring those assumptions.
(6)
That amount is treated as income of the individual for the year of
return.
(7)
If the gain arises from a policy or contract treated under section 473A
35
as a single policy or contract, the date, for the purposes of subsection
(3)(b), on which the insurance or contract is made is the date on
which the first insurance is made in respect of which the connected
policies were issued or, as the case may be, the date on which the first
of the connected contracts is made.
40
(8)
This section does not apply to a gain if—
(a)
in relation to the policy or contract from which the gain
arises, a terminal event occurs in the temporary period of
non-residence or in the period of return,