Finance Bill

House of Commons

Session 2003 - 04
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Finance Bill

Finance Bill
Schedule 15 — Charge to income tax on benefits received by former owner of property
344

      (3)
Where this paragraph applies in respect of the whole or part of a year of
assessment, an amount equal to the chargeable amount determined under
paragraph 9 is to be treated as income of the chargeable person chargeable
to income tax.
9     (1)
For any taxable period the chargeable amount in relation to the relevant
5
property is N minus T where—
N is the amount of the interest that would be payable for the taxable
period if interest were payable at the prescribed rate on an amount
equal to the value of the relevant property at the valuation date, and
T is the amount of any income tax or capital gains tax payable by the
10
chargeable person in respect of the taxable period by virtue of
section 660A of the Taxes Act 1988 or section 77 of the Taxation of
Chargeable Gains Act 1992 (c. 12), so far as attributable to the
relevant property.
      (2)
Regulations may, in relation to any valuation date, provide for a valuation
15
of the relevant property by reference to an earlier valuation date to apply
subject to any prescribed adjustments.
      (3)
In this paragraph—
“the taxable period” means the year of assessment, or part of a year of
assessment, during which paragraph 8 applies to the chargeable
20
person;
“the valuation date”, in relation to a year of assessment, means such
date as may be prescribed.
Excluded transactions
10    (1)
For the purposes of this Schedule, the disposal of any property is an
25
“excluded transaction” in relation to any person (“the chargeable person”)
if—
(a)
it was a disposal of his whole interest in the property, except for any
right expressly reserved by him over the property, either—
(i)
by a transaction made at arm’s length with a person not
30
connected with him, or
(ii)
by a transaction such as might be expected to be made at
arm’s length between persons not connected with each other,
(b)
it was a disposal by way of gift, by virtue of which the property
became settled property in which he is beneficially entitled to an
35
interest in possession,
(c)
the property was transferred to his spouse (or where the transfer has
been ordered by a court, to his former spouse), or
(d)
the property became by virtue of the disposal settled property in
which his spouse or former spouse is beneficially entitled to an
40
interest in possession.
      (2)
A disposal is not an excluded transaction—
(a)
by virtue of sub-paragraph (1)(b), if the interest in possession of the
chargeable person has come to an end, and
(b)
by virtue of sub-paragraph (1)(d), if the interest in possession of the
45
spouse or former spouse has come to an end otherwise than on the
death of the spouse or former spouse.

Finance Bill
Schedule 15 — Charge to income tax on benefits received by former owner of property
345

Exemptions from charge
11    (1)
Paragraph 3 (land), paragraph 6 (chattels) and paragraph 8 (intangible
property) do not apply to a person by reference to any property at a time
when the property—
(a)
would fall to be treated by virtue of any provision of Part 5 of the
5
1986 Act (inheritance tax) as property which in relation to him is
property subject to a reservation,
(b)
would fall to be so treated but for any of paragraphs (d) to (i) of
subsection (5) of section 102 of the 1986 Act (certain cases where
disposal by way of gift is an exempt transfer for purposes of
10
inheritance tax),
(c)
would fall to be so treated but for subsection (4) of section 102B of the
1986 Act (gifts with reservation: share of interest in land), or would
have fallen to be so treated but for that subsection if the disposal by
way of gift of an undivided share of an interest in land had been
15
made on or after 9th March 1999, or
(d)
would fall to be so treated but for paragraph 6 of Schedule 20 to the
1986 Act (exclusion of benefit).
      (2)
Paragraph 8 does not apply to a person by reference to any settled property
if—
20
(a)
the property became settled property by virtue of a disposal by way
of gift made by him, and
(b)
he is beneficially entitled to an interest in possession in the settled
property.
      (3)
Sub-paragraph (1)(b) does not exclude the application of paragraph 3, 6 or 8
25
in a case falling within section 102(5)(h) of the 1986 Act unless the property
remains subject to trusts which comply with the requirements of paragraph
3(1) of Schedule 4 to IHTA 1984.
Chargeable person resident or domiciled outside the United Kingdom
12    (1)
This Schedule does not apply in relation to any person for any year of
30
assessment during which he is not resident in the United Kingdom.
      (2)
Where in any year of assessment a person is resident in the United Kingdom
but is domiciled outside the United Kingdom, this Schedule applies to him
only in respect of property situated in the United Kingdom.
      (3)
In the application of this Schedule to a person who was at any time
35
domiciled outside the United Kingdom, no regard is to be had to any interest
in property which he had disposed of before becoming domiciled in the
United Kingdom.
      (4)
For the purposes of this paragraph, a person is to be treated as domiciled in
the United Kingdom at any time only if he would be so treated for the
40
purposes of IHTA 1984.
Exemption in cases where aggregate notional annual values do not exceed £2,500
13    (1)
This paragraph applies where, in relation to any person who would (apart
from this paragraph) be chargeable under this Schedule for any year of
assessment, the aggregate of the amounts specified in sub-paragraph (2) in
45
respect of that year does not exceed £2,500.
      (2)
Those amounts are—

Finance Bill
Schedule 15 — Charge to income tax on benefits received by former owner of property
346

(a)
in relation to any land to which paragraph 3 applies in respect of
him, the appropriate rental value as determined under paragraph
4(2),
(b)
in relation to any chattel to which paragraph 6 applies in respect of
him, the appropriate amount as determined under paragraph 7(2),
5
and
(c)
in relation to any intangible property to which paragraph 8 applies
in respect of him, the chargeable amount determined under
paragraph 9.
      (3)
Where this paragraph applies, the person is not chargeable for that year of
10
assessment under any of the following provisions—
(a)
paragraph 3(5) (land),
(b)
paragraph 6(4) (chattels), or
(c)
paragraph 8(2) (intangible property).
Power of Treasury to confer further exemptions by regulations
15
14
Regulations may confer further exemptions from the charges to income tax
imposed by paragraphs 3, 6 and 8.
Valuation
15
Except as otherwise provided by this Schedule, the value of any property
shall for the purposes of this Schedule be the price which the property might
20
reasonably be expected to fetch if sold in the open market at that time; but
that price shall not be assumed to be reduced on the ground that the whole
property is to be placed on the market at one and the same time.
Changes in distribution of deceased’s estate
16
Where by virtue of any of sections 142 to 147 of IHTA 1984 (changes in
25
distribution of deceased’s estate) anything occurring after a person’s death
is treated for the purposes of that Act as affecting the dispositions taking
effect on his death, any disposition taking effect on the death which by virtue
of any of those provisions falls to be disregarded for the purposes of that Act
is also to be disregarded for the purposes of this Schedule.
30
Persons chargeable under different provisions by reference to same property
17    (1)
Where, in any year of assessment, a person (“the chargeable person”) is
(apart from this paragraph) chargeable to income tax both—
(a)
under paragraph 3 (land) or paragraph 6 (chattels) by reason of his
occupation of any land or his possession or use of any chattel, and
35
(b)
under paragraph 8 (intangible property) by reference to any
intangible property which derives its value (whether in whole or
part) from the land or the chattel,

he is to be charged to income tax under whichever provision produces the
higher chargeable amount in relation to him.
40
      (2)
Where sub-paragraph (1) applies, only the amount under the paragraph
under which he is chargeable is to be taken into account in relation to the
chargeable person for the purposes of paragraph 13(2).

Finance Bill
Schedule 15 — Charge to income tax on benefits received by former owner of property
347

Relationship with Part 3 of Income Tax (Earnings and Pensions) Act 2003
18
Where, in any year of assessment, a person is (apart from this paragraph)
chargeable, in respect of his occupation of any land or his possession or use
of any chattel, to income tax both—
(a)
under this Schedule, and
5
(b)
under Part 3 of the Income Tax (Earnings and Pensions) Act 2003
(c. 1),

the provisions of that Part shall have priority and he shall not be chargeable
to income tax under this Schedule, except to the extent that the amount
chargeable under this Schedule exceeds the amount to be treated as earnings
10
under that Part.
Regulations
19    (1)
Regulations under this Schedule may—
(a)
make different provision for different cases, and
(b)
include transitional provisions and savings.
15
      (2)
Any power conferred by this Schedule to prescribe a rate of interest includes
power—
(a)
to prescribe different rates in relation to property of different
descriptions, and
(b)
to prescribe a rate by reference to a rate specified in the regulations.
20
Transitional provisions
20    (1)
This paragraph applies to a person (“the chargeable person”) by reference to
any property (“the relevant property”) if he—
(a)
is (apart from this paragraph) chargeable during the year of
assessment 2005-06 under paragraph 3 (land) or paragraph 6
25
(chattels) by reference to the relevant property, or
(b)
would (apart from this paragraph) be so chargeable by reference to
the relevant property if he enjoyed the property in that year.
      (2)
The chargeable person may elect in accordance with paragraph 22 that—
(a)
the preceding provisions of this Schedule shall not apply to him by
30
reference to the relevant property during the year of assessment
2005-06 and subsequent years of assessment, but
(b)
so long as the chargeable person continues to enjoy the relevant
property or any property which is substituted for the relevant
property—
35
(i)
the property is to be treated for the purposes of Part 5 of the
1986 Act (in relation to the chargeable person) as property
subject to a reservation, and
(ii)
section 102(3) and (4) of that Act shall apply.
      (3)
For the purposes of this paragraph a person “enjoys” property if—
40
(a)
in the case of an interest in land, he occupies the land, and
(b)
in the case of an interest in a chattel, he is in possession of, or has the
use of, the chattel.
21    (1)
This paragraph applies to a person (“the chargeable person”) by reference to
any property (“the relevant property”) if he is (apart from this paragraph)
45

Finance Bill
Schedule 16 — Relief where national insurance contributions met by employee
348

chargeable during the year of assessment 2005-06 under paragraph 8
(intangible property).
      (2)
The chargeable person may elect in accordance with paragraph 22 that—
(a)
the preceding provisions of this Schedule shall not apply to him by
reference to the relevant property during the year of assessment
5
2005-06 and subsequent years of assessment, but
(b)
so long as the conditions in sub-paragraph (3) are satisfied—
(i)
the property shall be treated for the purposes of Part 5 of the
1986 Act (in relation to the chargeable person) as property
subject to a reservation, and
10
(ii)
section 102(3) and (4) of the 1986 Act shall apply.
      (3)
The conditions referred to in sub-paragraph (2)(b) are—
(a)
that the relevant property (or, in any case where there has been a
disposal of the relevant property, any property which is substituted
for the relevant property) remains comprised in the settlement, and
15
(b)
that any income arising under the settlement would be treated by
virtue of section 660A of the Taxes Act 1988 as income of the
chargeable person.
22    (1)
In this paragraph “election” means an election under paragraph 20 or 21.
      (2)
The election must be made in the prescribed manner.
20
      (3)
The election must be made on or before 31st January 2007, unless the
chargeable person can show a reasonable excuse for the failure to make the
election by that date.
      (4)
Where the chargeable person can show reasonable excuse for the failure to
make the election on or before 31st January 2007, the election must be made
25
on or before such later date as may be prescribed.
      (5)
The election may be withdrawn or amended, during the life of the
chargeable person, at any time before 31st January 2007.
Schedule 16
Section 85

Relief where national insurance contributions met by employee
30
Income tax relief: restricted securities
1     (1)
Chapter 2 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1)
(employment income: restricted securities) is amended as follows.
      (2)
In section 426 (charge on occurrence of chargeable event), for subsections (1)
to (4) substitute—
35
“(1)
If a chargeable event occurs in relation to the employment-related
securities, the taxable amount counts as employment income of the
employee for the relevant tax year.
(2)
For this purpose—
(a)
“chargeable event” has the meaning given by section 427,
40
(b)
“the taxable amount” is the amount determined under
section 428, and

Finance Bill
Schedule 16 — Relief where national insurance contributions met by employee
349

(c)
“the relevant tax year” is the tax year in which the chargeable
event occurs.
(3)
Relief may be available under section 428A (relief for secondary
Class 1 contributions met by employee) against an amount counting
as employment income under this section.”.
5
      (3)
After section 428 insert—
“428A
  Relief for secondary Class 1 contributions met by employee
(1)
Relief is available under this section against an amount counting as
employment income under section 426 (“the employment income
amount”) if—
10
(a)
an agreement having effect under paragraph 3A of Schedule
1 to the Contributions and Benefits Act has been entered into
allowing the secondary contributor to recover from the
employee the whole or part of any secondary Class 1
contribution in respect of that amount, or
15
(b)
an election having effect under paragraph 3B of that Schedule
is in force which has the effect of transferring to the employee
the whole or part of the liability to pay secondary Class 1
contributions in respect of that amount.
(2)
The amount of the relief is the total of—
20
(a)
any amount that under the agreement referred to in
subsection (1)(a) is recovered in respect of the employment
income amount by the secondary contributor before 5th June
in the tax year following that in which the chargeable event
occurs, and
25
(b)
the amount of any liability in respect of the employment
income amount that, by virtue of the election referred to in
subsection (1)(b), has become the employee’s liability.
(3)
If notice of withdrawal of approval of the election is given, the
amount of the liability referred to in subsection (2)(b) is limited to the
30
amount met before 5th June in the tax year following that in which
the chargeable event occurs.
(4)
Relief under this section is given by way of deduction from the
amount otherwise counting as employment income.
(5)
Relief under this section does not affect the amount to be taken into
35
account—
(a)
as employment income in determining contributions payable
under the Contributions and Benefits Act, or
(b)
as relevant employment income for the purposes of
paragraph 3A or 3B of Schedule 1 to that Act.
40
(6)
In this section—

“approval”, in relation to an election, means approval by the
Inland Revenue under paragraph 3B of Schedule 1 to the
Contributions and Benefits Act, and

“secondary contributor” has the same meaning as in that Act
45
(see section 7).”.

Finance Bill
Schedule 16 — Relief where national insurance contributions met by employee
350

Income tax relief: convertible securities
2     (1)
Chapter 3 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1)
(employment income: convertible securities) is amended as follows.
      (2)
In section 438 (charge on occurrence of chargeable event), for subsections (1)
to (4) substitute—
5
“(1)
If a chargeable event occurs in relation to the employment-related
securities, the taxable amount counts as employment income of the
employee for the relevant tax year.
(2)
For this purpose—
(a)
“chargeable event” has the meaning given by section 439,
10
(b)
“the taxable amount” is the amount determined under
section 440, and
(c)
“the relevant tax year” is the tax year in which the chargeable
event occurs.
(3)
Relief may be available under section 442A (relief for secondary
15
Class 1 contributions met by employee) against an amount counting
as employment income under this section.”.
      (3)
After section 442 insert—
“442A
  Relief for secondary Class 1 contributions met by employee
(1)
Relief is available under this section against an amount counting as
20
employment income under section 438 (“the employment income
amount”) if—
(a)
an agreement having effect under paragraph 3A of Schedule
1 to the Contributions and Benefits Act has been entered into
allowing the secondary contributor to recover from the
25
employee the whole or part of any secondary Class 1
contribution in respect of that amount, or
(b)
an election having effect under paragraph 3B of that Schedule
is in force which has the effect of transferring to the employee
the whole or part of the liability to pay secondary Class 1
30
contributions in respect of that amount.
(2)
The amount of the relief is the total of—
(a)
any amount that under the agreement referred to in
subsection (1)(a) is recovered in respect of the employment
income amount by the secondary contributor before 5th June
35
in the tax year following that in which the chargeable event
occurs, and
(b)
the amount of any liability in respect of the employment
income amount that, by virtue of the election referred to in
subsection (1)(b), has become the employee’s liability.
40
(3)
If notice of withdrawal of approval of the election is given, the
amount of the liability referred to in subsection (2)(b) is limited to the
amount met before 5th June in the tax year following that in which
the gain is realised.
(4)
Relief under this section is given by way of deduction from the
45
amount otherwise counting as employment income.