Finance Bill

House of Commons

Session 2002 - 03
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Finance Bill

Finance Bill
Schedule 21 — Chargeable gains: restriction of gifts relief etc
402

(ii)
proceeds of income from that property, or
(c)
income from property which is derived property by virtue of
paragraph (b) above.
169G
Meaning of “arrangement” in sections 169B to 169E and information
power
5
(1)
In sections 169B to 169E “arrangement” or “arrangements” includes
any scheme, agreement or understanding, whether or not legally
enforceable.
(2)
An officer of the Board may by notice require any person to whom
subsection (3) or (4) below applies to give him within such time as he
10
may direct, not being less than 28 days, such particulars as he thinks
necessary for the purposes of sections 169B to 169F.
(3)
This subsection applies to a person who is or has been—
(a)
a trustee of a settlement,
(b)
a beneficiary under a settlement, or
15
(c)
a settlor in relation to a settlement.
(4)
This subsection applies to a person who—
(a)
is the spouse of a settlor in relation to a settlement, or
(b)
has at any time on or after the making of the relevant disposal
been the spouse of such a settlor.
20
(5)
In subsection (4) above “relevant disposal” means the disposal—
(a)
to which section 169B(1), 169C(1) or 169D(1) or (2) applies or
may apply, and
(b)
in connection with which the notice is given.”.
Gifts on which inheritance tax is chargeable etc
25
5     (1)
Section 260 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended
as follows.
      (2)
In subsection (1) (circumstances in which subsection (3) applies, subject to
certain provisions) after “169” insert “, 169B, 169C”.
      (3)
Omit subsection (6A) (unnecessary provision for preventing reduction in
30
case of disposal which is chargeable event for purposes of Schedule 5B).
      (4)
Omit subsection (6B) (unnecessary provision for preventing reduction in
case of disposal which is chargeable event for purposes of Schedule 5C).
      (5)
In subsection (7) (deduction to be allowed in computing chargeable gain on
subsequent disposal by transferee, where disposal by transferor is
35
chargeable transfer for inheritance tax purposes) after “subsection (2)(a)
above” insert “(whether or not subsection (3) above applies in relation to it)”.
Payment by instalments of tax on gifts
6     (1)
Section 281 of the Taxation of Chargeable Gains Act 1992 is amended as
follows.
40
      (2)
In subsection (2) (option to pay capital gains tax by instalments by giving
notice to inspector) for “the inspector” substitute “an officer of the Board”.

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Schedule 21 — Chargeable gains: restriction of gifts relief etc
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      (3)
After subsection (7) insert—
“(8)
Subsection (2) above applies in relation to a chargeable gain accruing
to a transferor under section 169C(7) (clawback of relief under
section 165 or 260 if settlement becomes settlor-interested etc) as it
applies in relation to a gain accruing to a person on a disposal if—
5
(a)
the relevant disposal (within the meaning of section 169C) in
question was a disposal of the whole or any part of any assets
to which this section applies, and
(b)
at the material time (within the meaning of that section), no
part of the subject-matter of that relevant disposal has been
10
disposed of for valuable consideration under a subsequent
disposal (whether made by the trustees to whom that
relevant disposal was made or by some other person).
(9)
Where subsection (2) above so applies, subsections (4) to (7) above
apply accordingly but as if for paragraphs (a) and (b) of subsection
15
(7) there were substituted “any part of the subject-matter of the
relevant disposal in question is disposed of for valuable
consideration under a subsequent disposal (whether made by the
trustees to whom that relevant disposal was made or by some other
person).”.
20
Recovery of tax from donee
7     (1)
Section 282 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended
as follows.
      (2)
After subsection (4) insert—
“(5)
This section applies in relation to a chargeable gain accruing to a
25
transferor under section 169C(7) (clawback of relief under section
165 or 260 if settlement becomes settlor-interested etc) as it applies in
relation to a chargeable gain accruing to a person on the disposal of
an asset by way of gift.
(6)
For the purposes of this section as applied by subsection (5) above—
30
(a)
the transferor shall be taken to be the donor, and
(b)
the trustees to whom the relevant disposal (within the
meaning of section 169C) in question was made shall be taken
to be the donee.”.
Application of taper relief
35
8     (1)
Schedule A1 to the Taxation of Chargeable Gains Act 1992 is amended as
follows.
      (2)
In paragraph 16 (special rules for postponed gains) in sub-paragraph (2) (list
of enactments involving postponed gains) after paragraph (d) insert—
“(da)
section 169C(7),”.
40
Relief for gifts of business assets
9     (1)
Schedule 7 to the Taxation of Chargeable Gains Act 1992 is amended as
follows.

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Schedule 22 — Chargeable gains: private residence relief
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      (2)
In paragraph 2(1) (circumstances in which section 165(4) applies, subject to
certain provisions, in relation to disposals by trustees of settlement) for “and
169” substitute “, 169, 169B and 169C”.
Commencement
10    (1)
The amendment in paragraph 1(2) of this Schedule has effect in relation to
5
any notice given—
(a)
after the passing of this Act, and
(b)
in respect of the year 2003‑04 or any subsequent year of assessment.
      (2)
The amendment in paragraph 2(2) of this Schedule has effect in relation to
the provision of property on or after 10th December 2003.
10
      (3)
The amendments in paragraphs 2(3) and 6(2) of this Schedule have effect in
relation to any notice given in respect of the year 2004‑05 or any subsequent
year of assessment.
      (4)
The amendments in paragraphs 3(2), 4, 5(2), 6(3), 7(2), 8(2) and 9(2) of this
Schedule have effect in relation to disposals on or after 10th December 2003
15
(whenever any earlier disposal as mentioned in section 169B(3)(b) or
169C(3)(b) was made).
      (5)
The amendment in paragraph 3(3) of this Schedule has effect in relation to
disposals on or after 21st October 2003.
      (6)
The amendment in paragraph 3(4) of this Schedule has effect in relation to
20
the year 2004‑05 and subsequent years of assessment.
      (7)
The amendment in paragraph 3(5) of this Schedule has effect in relation to
disposals on or after 10th December 2003.
      (8)
The amendments in paragraph 5(3) and (4) of this Schedule have effect in
relation to gains accruing on or after 6th April 2004.
25
      (9)
The amendment in paragraph 5(5) of this Schedule has effect in relation to
disposals on or after 6th April 2004.
Schedule 22
Section 117

Chargeable gains: private residence relief
Relief on disposal of private residence
30
1     (1)
Section 222 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended
as follows.
      (2)
In subsection (5)(a) (notice to inspector to determine which of two or more
residences is individual’s main residence) for “the inspector” (on both
occasions) substitute “an officer of the Board”.
35
Amount of relief
2     (1)
Section 223 of the Taxation of Chargeable Gains Act 1992 is amended as
follows.
      (2)
In subsection (4) (dwelling-house let as residential accommodation) in
paragraph (a), omit the unnecessary words “or those provisions as applied
40
by section 225”.

Finance Bill
Schedule 22 — Chargeable gains: private residence relief
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      (3)
After subsection (7) insert—
“(8)
This section is subject to—
(a)
section 224 (amount of relief: further provisions), and
(b)
section 226A (private residence relief: cases where relief
obtained under section 260).”.
5
Amount of relief: further provisions
3     (1)
Section 224 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended
as follows.
      (2)
In subsection (1) (gain accruing from disposal of dwelling-house part of
which is used exclusively for purposes of trade etc: relief to apply only to
10
portion of gain) for “accrues from” substitute “accrues on”.
Private residence occupied under terms of settlement
4     (1)
Section 225 of the Taxation of Chargeable Gains Act 1992 is amended as
follows.
      (2)
In the opening words—
15
(a)
for “a trustee” substitute “the trustees of a settlement”, and
(b)
for “the trustee” substitute “the trustees”.
      (3)
In paragraph (a), for “the trustee” substitute “the trustees”.
      (4)
In paragraph (b)—
(a)
for “the inspector” substitute “an officer of the Board”, and
20
(b)
for “the trustee” substitute “the trustees”.
      (5)
At the end of that paragraph insert “;

but section 223 (as so applied) shall apply only on the making of a
claim by the trustees.”.
Private residence held by personal representatives
25
5
After section 225 of the Taxation of Chargeable Gains Act 1992 insert—
“225A
Private residence held by personal representatives
(1)
Sections 222 to 224 shall also apply in relation to a gain accruing to
the personal representatives of a deceased person on a disposal of an
asset within section 222(1) if the following conditions are satisfied.
30
(2)
The first condition is that, immediately before and immediately after
the death of the deceased person, the dwelling-house or part of the
dwelling-house mentioned in section 222(1) was the only or main
residence of one or more individuals.
(3)
The second condition is that—
35
(a)
that individual or one of those individuals has a relevant
entitlement, or two or more of those individuals have
relevant entitlements, and
(b)
the relevant entitlement accounts for, or the relevant
entitlements together account for, 75% or more of the net
40
proceeds of disposal;

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Schedule 22 — Chargeable gains: private residence relief
406


and for this purpose “relevant entitlement” means an entitlement as
legatee of the deceased person to, or to an interest in possession in,
the whole or any part of the net proceeds of disposal.
(4)
In subsection (3) above “net proceeds of disposal” means—
(a)
the proceeds of the disposal of the asset realised by the
5
personal representatives,
  less
(b)
any incidental costs allowable as a deduction in accordance
with section 38(1)(c) in computing the gain accruing to the
personal representatives on that disposal,
10

but on the assumption that none of the proceeds is required to meet
the liabilities of the deceased person’s estate (including any liability
to inheritance tax).
(5)
In sections 222 to 224 as applied by this section—
(a)
references to the individual shall be taken as references to the
15
personal representatives except in relation to the occupation
of the dwelling-house or part of the dwelling-house, and
(b)
the notice which may be given to an officer of the Board
under section 222(5)(a) shall be a joint notice by the personal
representatives and the individual or individuals entitled to
20
occupy the dwelling-house or part of the dwelling-house.
(6)
But section 223 (as so applied) shall apply only on the making of a
claim by the personal representatives.”.
Private residence relief: cases where relief obtained under section 260
6
After section 226 of the Taxation of Chargeable Gains Act 1992 (c. 12)
25
insert—
“226A
Private residence relief: cases where relief obtained under section 260
(1)
This section applies where—
(a)
section 223 applies, or would apart from this section apply, in
relation to a gain or part of a gain accruing to an individual
30
or the trustees of a settlement (“the transferor”) on a disposal
(the “later disposal”),
(b)
in computing the chargeable gain which would, apart from
section 223, accrue to the transferor on the later disposal, the
allowable expenditure would fall to be reduced, and
35
(c)
that reduction would to any extent fall to be made in
consequence, directly or indirectly, of a claim or claims under
section 260 in respect of one or more earlier disposals
(whether or not made to the transferor).
(2)
If a claim for relief under section 260 in respect of—
40
(a)
the earlier disposal, or
(b)
if there were two or more such disposals, any of them,

is made on or before the making of the later disposal, section 223
shall not apply in relation to the gain or part of a gain accruing on the
later disposal.
45
(3)
If a claim for relief under section 260 in respect of—

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Schedule 22 — Chargeable gains: private residence relief
407

(a)
the earlier disposal, or
(b)
if there were two or more such disposals, any of them,

is made after the making of the later disposal and subsection (2)
above does not apply, it is to be assumed for the purposes of capital
gains tax that section 223 never applied in relation to the gain or part
5
of a gain accruing on the later disposal.
(4)
All such adjustments shall be made, whether by discharge or
repayment of tax, the making of assessments or otherwise, as are
required to give effect to subsection (3) above (notwithstanding any
limitation on the time within which any adjustment may be made).
10
(5)
Where the later disposal is made by the trustees of a settlement, the
references in subsections (2) and (3) above to the making of the later
disposal shall be read as references to the making of a claim for relief
under section 223 in respect of the gain or part of a gain accruing on
that disposal.
15
(6)
If a claim for relief under section 260 in respect of an earlier disposal
is revoked, this section shall apply as if the claim had never been
made.
(7)
This section is subject to section 226B (exception for maintenance
funds for historic buildings).
20
226B
Exception to section 226A
(1)
Section 226A shall not apply in relation to a later disposal made by
the trustees of a settlement if the trustees have elected that section
691(2) of the Taxes Act (certain income of maintenance funds for
historic buildings not to be income of settlor etc) shall have effect in
25
the case of—
(a)
the settlement, or
(b)
any part of the settlement,

in relation to each year of assessment in which a relevant earlier
disposal is made.
30
(2)
In this section “relevant earlier disposal”, in relation to a later
disposal, means an earlier disposal in respect of which a claim
mentioned in section 226A(1)(c) is made.
(3)
This section is to be construed as one with section 226A.”.
Commencement
35
7     (1)
The amendments in paragraphs 1(2) and 4(4)(a) of this Schedule have effect
in relation to any notice given on or after 10th December 2003.
      (2)
The amendments in paragraphs 2(2), 3(2), 4(2), (3), (4)(b) and (5) and 5 of this
Schedule have effect in relation to disposals made on or after 10th December
2003.
40
      (3)
Subject to paragraph 8 of this Schedule, the amendments in paragraphs 2(3)
and 6 of this Schedule have effect in relation to gains or parts of gains
accruing on later disposals (within the meaning of the section 226A inserted
by paragraph 6 of this Schedule) made on or after 10th December 2003
(whenever any relevant earlier disposal was made).
45

Finance Bill
Schedule 22 — Chargeable gains: private residence relief
408

      (4)
In sub-paragraph (3) above “relevant earlier disposal”, in relation to a later
disposal (within the meaning of the section 226A inserted by paragraph 6 of
this Schedule), means an earlier disposal in respect of which a claim
mentioned in subsection (1)(c) of that section is made.
Transitional provision
5
8     (1)
This paragraph has effect where section 226A of the Taxation of Chargeable
Gains Act 1992 (c. 12) (as inserted by paragraph 6 of this Schedule) (“section
226A”) applies in circumstances in which—
(a)
the relevant earlier disposal, or
(b)
if there were two or more such disposals, each of them,
10

was made before 10th December 2003.
      (2)
Section 226A shall have effect subject to the following modifications.
      (3)
In subsection (2), omit “not” and at the end insert “subject to the
modifications set out in subsections (2A) to (2C) below”.
      (4)
After subsection (2) insert—
15
“(2A)
Section 223(1) shall not apply.
(2B)
For the purposes of section 223(2)(a) and (3)—
(a)
the dwelling-house or the part of the dwelling-house in
question is to be taken not to have been the individual’s only
or main residence during the post-commencement period or
20
any part of that period, and
(b)
the words “but inclusive of the last 36 months of the period of
ownership in any event” shall not have effect in respect of so
much of that period of 36 months as falls within the post-
commencement period.
25
(2C)
In subsection (2B) above “post-commencement period” means the
period beginning on 10th December 2003 and ending on the date of
the later disposal.”.
      (5)
In subsection (3), omit “never” and at the end insert “subject to the
modifications set out in subsections (2A) to (2C) above”.
30
      (6)
In this paragraph “relevant earlier disposal”, in relation to a later disposal,
means an earlier disposal in respect of which a claim mentioned in
subsection (1)(c) of section 226A is made.
      (7)
This paragraph is to be construed as one with section 226A.
      (8)
Subsections (5) and (6) of section 223 of the Taxation of Chargeable Gains Act
35
1992 apply in relation to the subsection (2B)(b) treated as inserted by sub-
paragraph (4) above as they apply in relation to subsections (1) and (2)(a) of
that section.