Finance Bill

House of Commons

Session 2002 - 03
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Finance Bill

Finance Bill
Schedule 15 — Charge to income tax on benefits received by former owner of property
360

any other currency; and, in relation to a non-exempt sale, “the appropriate
proportion” is—

where—
MV is the value of the interest in the chattel at the time of the sale;
P is the amount paid.
5
      (4)
Regulations may, in relation to any valuation date, provide for a valuation
of the chattel or any interest in the chattel by reference to an earlier valuation
date to apply subject to any prescribed adjustments.
      (5)
In this paragraph—
“the taxable period” means the year of assessment, or part of a year of
10
assessment, during which paragraph 6 applies to the chargeable
person;
“the valuation date”, in relation to a taxable period, means such date
as may be prescribed.
Intangible property comprised in settlement where settlor retains an interest
15
8     (1)
This paragraph applies where—
(a)
the terms of a settlement, as they affect any property comprised in
the settlement, are such that any income arising from the property
would be treated by virtue of section 660A of the Taxes Act 1988
(income arising under settlement where settlor retains an interest) as
20
income of a person (“the chargeable person”) who is for the purposes
of Part 15 of that Act the settlor,
(b)
any such income would be so treated even if subsection (2) of that
section did not include any reference to the spouse of the settlor, and
(c)
that property includes any property as respects which the condition
25
in sub-paragraph (2) is met (“the relevant property”).
      (2)
The condition mentioned in sub-paragraph (1)(c) is that the property is
intangible property which is or represents property which the chargeable
person settled, or added to the settlement, after 17th March 1986.
      (3)
Where this paragraph applies in respect of the whole or part of a year of
30
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
property is N minus T where—
35
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
chargeable person in respect of the taxable period by virtue of any
40
of the following provisions—
(a)
section 547 of the Taxes Act 1988,
(b)
section 660A of that Act,

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Schedule 15 — Charge to income tax on benefits received by former owner of property
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(c)
section 739 of that Act,
(d)
section 77 of the Taxation of Chargeable Gains Act 1992
(c. 12), and
(e)
section 86 of that Act,
so far as the tax is attributable to the relevant property.
5
      (2)
Regulations may, in relation to any valuation date, provide for a valuation
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
10
assessment, during which paragraph 8 applies to the chargeable
person;
“the valuation date”, in relation to a year of assessment, means such
date as may be prescribed.
Excluded transactions
15
10    (1)
For the purposes of paragraphs 3(2) and 6(2) (the disposal condition), the
disposal of any property is an “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—
20
(i)
by a transaction made at arm’s length with a person not
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)
the property was transferred to his spouse (or where the transfer has
25
been ordered by a court, to his former spouse),
(c)
it was a disposal by way of gift (or, where the transfer is for the
benefit of his former spouse, in accordance with a court order), by
virtue of which the property became settled property in which his
spouse or former spouse is beneficially entitled to an interest in
30
possession,
(d)
the disposal was a disposition falling within section 11 of IHTA 1984
(dispositions for maintenance of family), or
(e)
the disposal is an outright gift to an individual and is for the
purposes of IHTA 1984 a transfer of value that is wholly exempt by
35
virtue of section 19 (annual exemption) or section 20 (small gifts).
      (2)
For the purposes of paragraphs 3(3) and 6(3) (the contribution condition) the
provision by a person (“the chargeable person”) of consideration for
another’s acquisition of any property is an “excluded transaction” in relation
to the chargeable person if—
40
(a)
the other person was his spouse (or, where the transfer has been
ordered by the court, his former spouse),
(b)
on its acquisition the property became settled property in which his
spouse or former spouse is beneficially entitled to an interest in
possession,
45
(c)
the provision of the consideration constituted an outright gift of
money (in sterling or any other currency) by the chargeable person
to the other person and was made at least seven years before the

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Schedule 15 — Charge to income tax on benefits received by former owner of property
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earliest date on which the chargeable person met the condition in
paragraph 3(1)(a) or, as the case may be, 6(1)(a),
(d)
the provision of the consideration is a disposition falling within
section 11 of IHTA 1984 (dispositions for maintenance of family), or
(e)
the provision of the consideration is an outright gift to an individual
5
and is for the purposes of IHTA 1984 a transfer of value that is wholly
exempt by virtue of section 19 (annual exemption) or section 20
(small gifts).
      (3)
A disposal is not an excluded transaction by virtue of sub-paragraph (1)(c)
or (2)(b), if the interest in possession of the spouse or former spouse has
10
come to an end otherwise than on the death of the spouse or former spouse.
Exemptions from charge
11    (1)
Paragraph 3 (land), paragraph 6 (chattels) and paragraph 8 (intangible
property) do not apply to a person at a time when his estate for the purposes
of IHTA 1984 includes—
15
(a)
the relevant property, or
(b)
other property—
(i)
which derives its value from the relevant property, and
(ii)
whose value, so far as attributable to the relevant property, is
not substantially less than the value of the relevant property.
20
      (2)
Where the estate for the purposes of IHTA 1984 of a person to whom
paragraph 3, 6 or 8 applies includes property—
(a)
which derives its value from the relevant property, and
(b)
whose value, so far as attributable to the relevant property, is
substantially less than the value of the relevant property,
25

the appropriate rental value in paragraph 4, the appropriate amount in
paragraph 7 or the chargeable amount in paragraph 9 (as the case may be) is
to be reduced by such proportion as is reasonable to take account of the
inclusion of the property in his estate.
      (3)
Paragraphs 3, 6 and 8 do not apply to a person at a time when the relevant
30
property—
(a)
would fall to be treated by virtue of any provision of Part 5 of the
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
35
subsection (5) of section 102 of the 1986 Act (certain cases where
disposal by way of gift is an exempt transfer for purposes of
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
40
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
made on or after 9th March 1999, or
(d)
would fall to be so treated but for section 102C(3) of, and paragraph
6 of Schedule 20 to, the 1986 Act (exclusion of benefit).
45
      (4)
Where at any time the value of a person’s estate for the purposes of IHTA
1984 is reduced by an excluded liability affecting any property, that property
is not to be treated for the purposes of sub-paragraph (1) or (2) as comprised

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Schedule 15 — Charge to income tax on benefits received by former owner of property
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in his estate except to the extent that the value of the property exceeds the
amount of the excluded liability.
      (5)
For the purposes of sub-paragraph (4) a liability is an excluded liability if—
(a)
the creation of the liability, and
(b)
any transaction by virtue of which the person’s estate came to
5
include the relevant property or property which derives its value
from the relevant property or by virtue of which the value of
property in his estate came to be derived from the relevant property,

were associated operations, as defined by section 268 of IHTA 1984.
      (6)
In determining whether the relevant property falls within sub-paragraph
10
(3)(b), (c) or (d) in a case where the contribution condition in paragraph 3(3)
or 6(3) is met, paragraph 2(2)(b) of Schedule 20 (exclusion of gifts of money)
is to be disregarded.
      (7)
In sub-paragraphs (1) to (6) “the relevant property” means—
(a)
in relation to paragraphs 3 and 6—
15
(i)
where the disposal condition in paragraph 3(2) or 6(2) is met,
the property disposed of,
(ii)
where the contribution condition in paragraph 3(3) or 6(3) is
met, the property representing the consideration directly or
indirectly provided,
20
(b)
in relation to paragraph 8, the relevant property within the meaning
of that paragraph.
      (8)
Sub-paragraph (3)(b) does not exclude the application of paragraph 3, 6 or 8
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
25
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
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
30
but is domiciled outside the United Kingdom, this Schedule does not apply
to him unless the property falling within paragraph 3(1)(a), 6(1)(a) or 8(1)(c)
is situated in the United Kingdom.
      (3)
In the application of this Schedule to a person who was at any time
domiciled outside the United Kingdom, no regard is to be had to any
35
property which is for the purposes of IHTA 1984 excluded property in
relation to him by virtue of section 48(3)(a) of that Act.
      (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
purposes of IHTA 1984.
40
Exemption in cases where aggregate notional annual values do not exceed £5,000
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
respect of that year does not exceed £5,000.
45
      (2)
Those amounts are—

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(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(5) (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
Any disposition made by a person (“the chargeable person”) in relation to an
25
interest in the estate of a deceased person is to be disregarded for the
purposes of this Schedule if by virtue of section 17 of IHTA 1984 (changes in
distribution of deceased’s estate, etc.) the disposition is not treated for the
purposes of inheritance tax as a transfer of value by the chargeable person.
Guarantees
30
17
Where a person (“A”) acts as guarantor in respect of a loan made to another
person (“B”) by a third party in connection with B’s acquisition of any
property, the mere giving of the guarantee is not to be regarded as the
provision by A of consideration for B’s acquisition of the property.
Persons chargeable under different provisions by reference to same property
35
18    (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
(b)
under paragraph 8 (intangible property) by reference to any
40
intangible property which derives its value (whether in whole or
part) from the land or the chattel,

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Schedule 15 — Charge to income tax on benefits received by former owner of property
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he is to be charged to income tax under whichever provision produces the
higher chargeable amount in relation to him.
      (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).
5
Relationship with Part 3 of Income Tax (Earnings and Pensions) Act 2003
19
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
10
(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
15
under that Part.
Regulations
20    (1)
Regulations under this Schedule may—
(a)
make different provision for different cases, and
(b)
include transitional provisions and savings.
20
      (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.
25
Election for application of inheritance tax provisions
21    (1)
This paragraph applies where—
(a)
a person (“the chargeable person”) would (apart from this
paragraph) be chargeable under paragraph 3 (land) or paragraph 6
(chattels) for any year of assessment (“the initial year”) by reference
30
to any property (“the relevant property”), and
(b)
he has not been chargeable under the paragraph in question by
reference to the relevant property in respect of any previous year of
assessment.
      (2)
The chargeable person may elect in accordance with paragraph 23 that—
35
(a)
the preceding provisions of this Schedule shall not apply to him by
reference to the relevant property during the initial year 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
40
property—
(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.
45

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      (3)
For the purposes of this paragraph a person “enjoys” property if—
(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.
22    (1)
This paragraph applies where—
5
(a)
a person (“the chargeable person”) would (apart from this
paragraph) be chargeable under paragraph 8 (intangible property)
for any year of assessment (“the initial year”) by reference to any
property (“the relevant property”), and
(b)
he has not been chargeable under that paragraph by reference to the
10
relevant property in respect of any previous year of assessment.
      (2)
The chargeable person may elect in accordance with paragraph 23 that—
(a)
the preceding provisions of this Schedule shall not apply to him by
reference to the relevant property during the initial year and
subsequent years of assessment, but
15
(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
(ii)
section 102(3) and (4) of the 1986 Act shall apply.
20
      (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
(b)
that any income arising under the settlement would be treated by
25
virtue of section 660A of the Taxes Act 1988 as income of the
chargeable person.
23    (1)
In this paragraph—
“election” means an election under paragraph 21 or 22;
“the relevant filing date” means 31st January in the year of assessment
30
that immediately follows the initial year within the meaning of
paragraph 21 or (as the case requires) paragraph 22.
      (2)
The election must be made in the prescribed manner.
      (3)
The election must be made on or before the relevant filing date, unless the
chargeable person can show a reasonable excuse for the failure to make the
35
election by that date.
      (4)
Where the chargeable person can show reasonable excuse for the failure to
make the election on or before the relevant filing date, the election must be
made on or before such later date as may be prescribed.
      (5)
The election may be withdrawn or amended, during the life of the
40
chargeable person, at any time on or before the relevant filing date.