Finance Bill

House of Commons

Session 2002 - 03
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Finance Bill

Finance Bill
Schedule 26 — Offshore funds
430

Kingdom and which under that law create rights in the
nature of co-ownership (without restricting that expression
to its meaning in the law of any part of the United Kingdom).
(2)
Subsection (1) has effect subject to—

section 756B (treatment of umbrella funds), and
5

section 756C (treatment of funds comprising more than one
class of interest).
(3)
In this section “collective investment scheme” has the meaning given
by section 235 of the Financial Services and Markets Act 2000.
756B   Treatment of umbrella funds
10
(1)
In this Chapter, an “umbrella fund” means an offshore fund—
(a)
which provides arrangements for separate pooling of the
contributions of the participants and the profits or income
out of which payments are made to them; and
(b)
under which the participants are entitled to exchange rights
15
in one pool for rights in another;

and references in this Chapter to a part of an umbrella fund are to
such of the arrangements as relate to a separate pool.
(2)
For the purposes of this Chapter (except subsection (1))—
(a)
each part of an umbrella fund shall be regarded as a separate
20
offshore fund, and
(b)
the umbrella fund as a whole shall not be regarded as an
offshore fund.
(3)
In this Chapter, in relation to a part of an umbrella fund—
(a)
a reference to the assets of an offshore fund is to such of the
25
assets of the umbrella fund as under the arrangements form
part of the separate pool to which that part of the umbrella
fund relates;
(b)
a reference to the income of an offshore fund is to the income
arising from those assets;
30
(c)
a reference to a person having an interest in an offshore fund
is to a person for the time being having an interest in that
separate pool; and
(d)
a reference to an offshore fund being a non-qualifying fund
shall be read in relation to times before the coming into force
35
of this section as a reference to the umbrella fund being a non-
qualifying fund.
756C   Treatment of funds comprising more than one class of interest
(1)
For the purposes of this Chapter where there is more than one class
of interest in an offshore fund (the “main fund”)—
40
(a)
each class of interest shall be regarded as a separate offshore
fund, and
(b)
the main fund shall not be regarded as an offshore fund.
(2)
In this section, references to a class of interest in an offshore fund do
not include—
45
(a)
a part of an umbrella fund which is regarded as an offshore
fund by virtue of section 756B, or

Finance Bill
Schedule 26 — Offshore funds
431

(b)
a class of interest in an offshore fund which by virtue of
section 759(5), (6) or (8) is not a material interest in the fund.
(3)
In this Chapter, in relation to a class of interest in an offshore fund—
(a)
a reference to the assets of an offshore fund is to the assets of
the main fund;
5
(b)
a reference to the income of an offshore fund is to such of the
income of the main fund as is attributable to interests of that
class under the arrangements constituting the main fund;
(c)
a reference to a person having an interest in an offshore fund
is to a person for the time being having an interest of that
10
class; and
(d)
a reference to an offshore fund being a non-qualifying fund
shall be read in relation to times before the coming into force
of this section as a reference to the main fund being a non-
qualifying fund.”.
15
4     (1)
Section 757 of that Act (disposal of material interests in offshore funds) is
amended as follows.
      (2)
In subsection (1)(b) for the words from “the company or unit trust scheme”
to the end substitute “the interest was a material interest in a non-qualifying
offshore fund”.
20
      (3)
In subsection (5)—
(a)
for the words from “if the company that is company A” to the end of
the first sentence substitute “to the extent that—
(a)
the interest in the entity that is company A for the
purposes of that section that is exchanged is or was at
25
a material time an interest in a non-qualifying
offshore fund, and
(b)
the interest in the entity that is company B for those
purposes that is exchanged is not an interest in such a
fund.”;
30
(b)
in the second sentence, for the words in brackets substitute “(of
interests in or of an entity that are or were at a material time interests
in a non-qualifying offshore fund)”.
      (4)
In subsection (6)—
(a)
for the words from “so as to require persons” to the end of the first
35
sentence substitute “to the extent that—
(a)
the interest in the entity that is company A for the
purposes of that section that is exchanged is or was at
a material time an interest in a non-qualifying
offshore fund, and
40
(b)
the interest in the entity that is company B for those
purposes that is exchanged is not an interest in such a
fund.”;
(b)
in the second sentence, for the words in brackets substitute “(of
interests in or of an entity that are or were at a material time interests
45
in a non-qualifying offshore fund)”.
5
In section 758 of that Act (offshore funds operating equalisation

Finance Bill
Schedule 26 — Offshore funds
432

arrangements), after subsection (6) insert—
“(7)
The Treasury may make provision by regulations as to the
application of the provisions of this section in relation to—
(a)
a part of an umbrella fund which is treated as an offshore
fund under section 756B, or
5
(b)
a class of interest in an offshore fund which is treated as an
offshore fund under section 756C.
(8)
Regulations under subsection (7) may—
(a)
make different provision for different cases, and
(b)
include such supplementary, incidental, consequential or
10
transitional provisions (including provisions modifying the
effect of other enactments) as appear to the Treasury to be
necessary or expedient.”.
6     (1)
Section 759 of that Act (material interests in offshore funds) is amended as
follows.
15
      (2)
Omit subsections (1) and (1A).
      (3)
In subsection (2) for “a company, unit trust scheme or arrangements”
substitute “an offshore fund”.
      (4)
In subsection (3) for the words from “the assets of” to the end substitute “the
assets of the fund”.
20
      (5)
In subsection (5) for “a company, scheme or arrangements” substitute “an
offshore fund”.
      (6)
In subsections (6) and (8)—
(a)
for “falling within subsection (1)(a) above” substitute “that is not
resident in the United Kingdom”;
25
(b)
after “material interest” insert “in an offshore fund”.
7     (1)
Section 760 of that Act (non-qualifying offshore funds) is amended as
follows.
      (2)
In subsection (10)—
(a)
in paragraph (a) for “falling within section 759(1)(a)” substitute “that
30
is not resident in the United Kingdom”, and
(b)
in paragraph (b) for “falling within section 759(1)(b)” substitute “of
which the trustees are not resident in the United Kingdom”.
      (3)
After subsection (10) insert—
“(10A)
For the purposes of this Chapter, in relation to—
35
(a)
a part of an umbrella fund which is treated as an offshore
fund under section 756B, or
(b)
a class of interest in an offshore fund which is treated as an
offshore fund under section 756C,

references to an account period of the offshore fund are to an account
40
period of the umbrella fund or the main fund (as the case may be).”.
8     (1)
Schedule 27 to that Act (distributing funds: supplementary) is amended as
follows.
      (2)
In paragraph 3(1) for “section 759(1)(b) or (c)” substitute “section 756A(1)(b)
or (c)”.
45
      (3)
In paragraph 11—

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Schedule 26 — Offshore funds
433

(a)
in sub-paragraph (2)(a) for “section 759(1)(a)” substitute “section
756A(1)(a)”;
(b)
in sub-paragraph (2)(b) for “section 759(1)(b)” substitute “section
756A(1)(b)”;
(c)
in sub-paragraph (2)(c) for “section 759(1)(c)” substitute “section
5
756A(1)(c)”.
      (4)
After paragraph 20 insert—
“Application of this Schedule in relation to umbrella funds and funds comprising
more than one class of interest
21    (1)
The Treasury may make provision by regulations as to the
10
application of the provisions of this Schedule in relation to—
(a)
a part of an umbrella fund which is treated as an offshore
fund under section 756B, or
(b)
a class of interest in an offshore fund which is treated as an
offshore fund under section 756C.
15
      (2)
Regulations under this paragraph may—
(a)
make different provision for different cases, and
(b)
include such supplementary, incidental, consequential or
transitional provisions (including provisions modifying
the effect of other enactments) as appear to the Treasury to
20
be necessary or expedient.”.
9
In Schedule 28 to that Act (computation of offshore income gains) after
paragraph 8 insert—
“Part 3
Supplementary
25
Application of this Schedule in relation to umbrella funds and funds comprising
more than one class of interest
9     (1)
The Treasury may make provision by regulations as to the
application of the provisions of this Schedule in relation to—
(a)
a part of an umbrella fund which is treated as an offshore
30
fund under section 756B, or
(b)
a class of interest in an offshore fund which is treated as an
offshore fund under section 756C.
      (2)
Regulations under this paragraph may—
(a)
make different provision for different cases, and
35
(b)
include such supplementary, incidental, consequential or
transitional provisions (including provisions modifying
the effect of other enactments) as appear to the Treasury to
be necessary or expedient.”.
10
In section 587B of the Taxes Act 1988 (gifts of shares, securities and real
40
property to charities etc.) in subsection (9), for the definition of “offshore
fund” substitute—

““offshore fund” has the same meaning as in Chapter 5 of Part
17;”.

Finance Bill
Schedule 26 — Offshore funds
434

11
In section 212 of the Taxation of Chargeable Gains Act 1992 (c. 12) (annual
deemed disposal of holdings of unit trusts etc.) in subsection (6A)—
(a)
in paragraph (a), for “paragraphs (a) to (c) of subsection (1) of section
759” substitute “paragraphs (a) to (c) of subsection (1) of section
756A”;
5
(b)
in paragraph (b), for “that section” substitute “section 759 of that
Act”.
12    (1)
Schedule 10 to the Finance Act 1996 (c. 8) (loan relationships: collective
investment schemes) is amended as follows.
      (2)
In paragraph 7, for “paragraphs (b) and (c) of subsection (1) of section 759”
10
substitute “paragraphs (b) and (c) of subsection (1) of section 756A”.
      (3)
In paragraph 8 after sub-paragraph (7E) insert—
    “(7F)
In this paragraph “offshore fund” has the same meaning as in
Chapter 5 of Part 17 of the Taxes Act 1988 and references to the
assets of an offshore fund shall be construed in accordance with
15
that Chapter.”.
Investment conditions to be met by funds seeking certification as distributing fund
13    (1)
Section 760 of the Taxes Act 1988 (non-qualifying offshore funds) is
amended as follows.
      (2)
In subsection (3) omit paragraphs (b) to (d) and the word “or” preceding
20
paragraph (b).
      (3)
Omit subsections (4) to (7).
14    (1)
In Schedule 27 to the Taxes Act 1988 (distributing funds), Part 2
(modifications of conditions for certification in certain cases) is amended as
follows.
25
      (2)
In paragraph 6—
(a)
in sub-paragraph (1)(b) for the words from the beginning to “section
760” substitute “those interests are such that, by virtue of section
760(3)(a)”;
(b)
in the words following paragraph (c) of sub-paragraph (1), for
30
“section 760(3)(a) to (c)” substitute “section 760(3)(a)”;
(c)
in sub-paragraph (3)(a) for “section 760(3)(a) to (c)” substitute
“section 760(3)(a)”.
      (3)
In paragraph 7 for “section 760(3)(a) to (c)” (in both places) substitute
“section 760(3)(a)”.
35
      (4)
Omit paragraph 10.
      (5)
In paragraph 11—
(a)
in sub-paragraphs (1) and (4), omit “section 760(3) and”, and
(b)
in sub-paragraph (1) for “sub-paragraph (3)” substitute “sub-
paragraph (4)”.
40
      (6)
Omit paragraphs 12 and 13.
      (7)
In paragraph 14, for “any of the conditions in paragraphs (a) to (c) of section
760(3)” substitute “the condition in section 760(3)(a)”.
      (8)
In paragraph 16(1), omit “by a trustee or officer thereof”.

Finance Bill
Schedule 26 — Offshore funds
435

Exchange of interests of different classes
15    (1)
After section 762 of the Taxes Act 1988 insert—
“762A   Exchange of interests of different classes
(1)
This section applies where—
(a)
classes of interest in an offshore fund (the “main fund”) are
5
treated as separate offshore funds under section 756C; and
(b)
as the result of—
(i)
a reorganisation within the meaning of section 126 of
the 1992 Act, or
(ii)
a conversion of securities within the meaning of
10
section 132 of that Act,

a person exchanges an interest of one class (A) in the main
fund for an interest of another class (B) in that fund.
(2)
Where—
(a)
the interest of class A—
15
(i)
is at the time of the exchange an interest in a non-
qualifying offshore fund, or
(ii)
has been an interest in such a fund at any material
time, and
(b)
the interest of class B is at the time of the exchange an interest
20
in a fund which is certified by the Board as a distributing
offshore fund,

section 127 of the 1992 Act (equation of original shares and new
holding) shall not prevent the exchange constituting a disposal for
the purposes of this Chapter.
25
(3)
Any such disposal shall be treated as a disposal for a consideration
equal to the market value of the rights at the time of the exchange.
(4)
In this section—

“class of interest” has the same meaning as in section 756C(1);

“material time” has the same meaning as in section 757.”.
30
      (2)
In section 763 of the Taxes Act 1988 (deduction of offshore income gain in
determining capital gain), after subsection (6) insert—
“(6A)
Where the disposal to which this Chapter applies constitutes such a
disposal by virtue of section 762A (exchange of interests of different
classes), the 1992 Act shall have effect as if an amount equal to the
35
offshore income gain to which that disposal gives rise were given (by
the person making the exchange) as consideration for the new
holding (within the meaning of section 128 of that Act (consideration
given or received for new holding on a reorganisation)).”
Correction of cross-reference
40
16    (1)
In section 763(6) of the Taxes Act 1988 (offshore income gain treated as
consideration given on certain disposals), for “section 757(6)” substitute
“section 757(5) or (6)”.
      (2)
Sub-paragraph (1) has effect, and shall be deemed always to have had effect,
in relation to disposals on or after 17th April 2002.
45

Finance Bill
Schedule 27 — Meaning of “offshore installation”
Part 1 — The new definition
436

Transitional provision
17    (1)
This paragraph applies for the purposes of determining whether an offshore
fund that is—
(a)
a part of an umbrella fund (which is treated as an offshore fund
under section 756B of the Taxes Act 1988), or
5
(b)
a class of interest in a part of an umbrella fund (which is treated as an
offshore fund under section 756C of that Act),

may be certified as a distributing fund under Chapter 5 of Part 17 of that Act
in respect of an account period ending on or after the day on which this Act
is passed and on or before 31st December 2005.
10
      (2)
Where this paragraph applies—
(a)
subsection (3) of section 760 of the Taxes Act 1988 shall not have
effect, and
(b)
the fund shall not be certified as a distributing fund in respect of a
period if at any time in that period—
15
(i)
more than 5 per cent by value of the assets of that offshore
fund consists of interests in other offshore funds, and
(ii)
more than 5 per cent by value of the assets of the umbrella
fund consists of interests in other offshore funds.
      (3)
Where this paragraph applies, references to subsection (3) of section 760 of
20
the Taxes Act 1988 shall have effect as references to sub-paragraph (2)(b)
above.
      (4)
Words used in Chapter 5 of Part 17 of the Taxes Act 1988 have the same
meaning in this paragraph as they have in that Chapter.
Schedule 27
25
Section 143

Meaning of “offshore installation”
Part 1
The new definition
1
In Part 19 of the Taxes Act 1988 (supplemental provisions), after section 837B
insert—
30
“837C Meaning of “offshore installation”
(1)
For the purposes of the Tax Acts, unless the context otherwise
requires, “offshore installation” means a structure which is, is to be,
or has been, put to a use specified in subsection (2) while—
(a)
standing in any waters,
35
(b)
stationed (by whatever means) in any waters, or
(c)
standing on the foreshore or other land intermittently
covered with water.
(2)
The uses are—
(a)
use for the purposes of exploiting mineral resources by
40
means of a well;