Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
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Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 7 — Savings and investment income: gains from contracts for life insurance etc. (personal portfolio bonds)
558

(b)
to extend the term of the policy or contract.
      (2)
Any exercise of rights conferred by a policy or contract counts as its variation
for the purposes of this paragraph.
The first selection condition
122
A policy or contract meets the first selection condition at any time if for the
5
whole of the period beginning with 6th April 1994 and ending with that time
it has not been possible to determine the whole or any part of the benefits
under the policy or contract by reference to—
(a)
an index other than a permitted index (see paragraph 126), or
(b)
property other than permitted property (see paragraph 127).
10
The second selection condition
123   (1)
A policy or contract meets the second selection condition at any time if it
meets conditions A to C.
      (2)
Condition A is that for some or all of the period beginning with 6th April
1994 and ending with that time it has been possible to determine the whole
15
or any part of the benefits under the policy or contract by reference to—
(a)
an index other than a permitted index, or
(b)
property other than permitted property.
      (3)
Condition B is that at no time during that period have the benefits under the
policy or contract actually been determined by reference to such property or
20
such an index.
      (4)
Condition C is that the terms of the policy or contract were varied before the
end of the first insurance year in relation to the policy or contract which
began on or after 6th April 1999 so that, since that variation,—
(a)
the only index which it has been possible to select as mentioned in
25
section 516(4) is a permitted index, and
(b)
the only property which it has been possible to select as mentioned
in section 516(4) is permitted property.
      (5)
Condition C is subject to paragraphs 124 and 125 (which modify it in cases
where any holder of the policy or contract was not UK resident on 17th
30
March 1998 and has become UK resident since that date).
Policy holders becoming UK resident after 17th March 1998
124   (1)
This paragraph applies to a policy or contract if—
(a)
any holder of the policy or contract on 17th March 1998 was not UK
resident on that date,
35
(b)
such a holder has become UK resident since that date, and
(c)
the holder did not intend, on the date of the holder’s arrival in the
United Kingdom by virtue of which the holder became UK
resident—
(i)
to become permanently UK resident, or
40
(ii)
to stay in the United Kingdom for at least two years.
      (2)
The policy or contract meets condition C in the second selection condition if
it has been varied as described in that condition before the later of—

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 7 — Savings and investment income: gains from contracts for life insurance etc. (personal portfolio bonds)
559

(a)
the end of the first insurance year in relation to the policy or contract
beginning on or after 6th April 1999, and
(b)
the end of the first insurance year in relation to the policy or contract
beginning after the date since 17th March 1998 on which the holder
of the policy or contract first became UK resident.
5
      (3)
No gain is treated as arising from the policy or contract under section 525
(chargeable events where annual personal portfolio calculations show gains)
in relation to any insurance year which ends—
(a)
on or after the date since 17th March 1998 on which the holder of the
policy or contract first became UK resident, and
10
(b)
before the insurance year in which the variation was made.
Policy holders becoming permanently UK resident after 17th March 1998
125   (1)
This paragraph applies to a policy or contract if—
(a)
any holder of the policy or contract on 17th March 1998 was a non-
UK resident individual on that date,
15
(b)
such a holder has become UK resident since that date, and
(c)
the holder intended, on the date of the holder’s arrival in the United
Kingdom by virtue of which the holder became UK resident,—
(i)
to become permanently UK resident, or
(ii)
to stay in the United Kingdom for at least two years.
20
      (2)
The policy or contract meets condition C in the second selection condition if
it has been varied as described in that condition before the later of—
(a)
the end of the first insurance year in relation to the policy or contract
beginning on or after 6th April 1999, and
(b)
the end of the first insurance year in relation to the policy or contract
25
beginning on or after the date mentioned in sub-paragraph (1)(c).
      (3)
No gain is treated as arising from the policy or contract under section 525 in
relation to any insurance year which ends—
(a)
on or after the date since 17th March 1998 on which the holder of the
policy or contract first became UK resident, and
30
(b)
before the insurance year in which the variation was made.
Meaning of “permitted index”
126
In this Part of this Schedule “permitted index” means an index falling within
a category listed in section 518.
Meaning of “permitted property”
35
127   (1)
In this Part of this Schedule “permitted property”, in relation to a policy or
contract, means any of the following—
(a)
property falling within any of the categories listed in the table in
section 520(2),
(b)
shares or securities listed on a recognised stock exchange, and
40
(c)
subject to sub-paragraph (2), shares or securities of a company which
are dealt in on the Unlisted Securities Market or the Alternative
Investment Market.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 8 — Miscellaneous income
560

      (2)
Shares or securities of a company which fall within sub-paragraph (1)(c) are
not permitted property at any time at which—
(a)
the whole or any part of the benefits under the policy or contract may
be determined by reference to shares or securities of the company
which represent more than 10% of its issued share capital, or
5
(b)
the amount invested in shares or securities of the company under the
policy or contract exceeds 10% of the total amount of premiums paid
up to that time under the policy or contract.
Other definitions
128   (1)
In this Part of this Schedule “security” has the same meaning as in section
10
132(3)(b) of TCGA 1992.
      (2)
Any references in this Part of this Schedule to shares or securities include a
reference to any option, warrant or other right to acquire shares or securities.
      (3)
In sub-paragraph (3) “warrant” has the same meaning as in paragraph 14 of
Schedule 2 to FISMA 2000.
15
Part 8
Miscellaneous income
Intellectual property: contributions to expenditure not made by public bodies nor eligible for
tax relief
129
Section 604 applies with the omission of subsection (3)(b) in relation to
20
contributions made before 27th July 1989.
Certain telecommunication rights
130
Chapter 4 of Part 5 does not apply to an indefeasible right to use a
telecommunications cable system (“IRU”) acquired before 21st March 2000.
131   (1)
That Chapter also does not apply to an IRU acquired by a person on or after
25
that date (directly or indirectly) from an associate or an associated company
if the associate or associated company acquired the IRU before that date.
      (2)
In sub-paragraph (1)—
“associate” has the meaning given by section 417(3) and (4) of ICTA, and
“associated company”—
30
(a)
in relation to another company, has the meaning given by
section 416(1) of that Act, and
(b)
in relation to any other person, means a company of which that
person has control within the meaning of subsections (2) to (6)
of that section.
35
Income treated as income of settlor: exception for pension income
132   (1)
Subject to sub-paragraph (4), section 627 applies before 6th April 2006 with
the following amendments.
      (2)
In subsection (2)(c) for “a relevant pension scheme” substitute “an approved
pension arrangement”.
40

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 8 — Miscellaneous income
561

      (3)
For subsection (3) substitute—
“(3)
In subsection (2) an “approved pension arrangement” means—
(a)
an approved scheme or exempt approved scheme,
(b)
a relevant statutory scheme,
(c)
a retirement benefits scheme set up by a government outside
5
the United Kingdom for the benefit, or primarily for the
benefit, of its employees,
(d)
a contract or scheme which is approved under Chapter 3 of
Part 14 of ICTA (retirement annuities),
(e)
a personal pension scheme which is approved under Chapter
10
4 of that Part,
(f)
an annuity purchased for the purpose of giving effect to
rights under a scheme falling within any of paragraphs (a) to
(c) and (e), or
(g)
any pension arrangements of any description prescribed by
15
regulations made under section 11(2)(h) of the Welfare
Reform and Pensions Act 1999 (c. 30) or Article 12(2)(h) of the
Welfare Reform and Pensions (Northern Ireland) Order 1999
(S.I. 1999/3147 (N.I. 11)).
(4)
In subsection (3) “approved scheme”, “exempt approved scheme”,
20
“relevant statutory scheme” and “retirement benefits scheme” have
the same meaning as in Chapter 1 of Part 14 of ICTA (retirement
benefit schemes).”
      (4)
The power of the Treasury to make an order under section 281 or 283 of FA
2004 has effect as if Schedule 35 to that Act contained an amendment
25
substituting section 627 of this Act for that section as amended by sub-
paragraphs (2) and (3) above.
Amounts treated as income of settlor: income paid to unmarried minor children of settlor
133   (1)
In relation to income which—
(a)
arises under a settlement made or entered into before 9th March
30
1999, and
(b)
does not arise directly or indirectly from funds provided on or after
that date,

section 629 applies with the omission from subsection (1) of paragraph (b)
and the word “or” before that paragraph.
35
      (2)
Where subsection (1) of section 629 applies for a tax year only in relation to
such income as is mentioned in sub-paragraph (1), that section applies with
the substitution for subsections (3) and (4) of—
“(3)
Income paid to or for the benefit of a child of a settlor is not treated
as provided in subsection (1) for a tax year in which the total amount
40
paid to or for the benefit of that child which but for this subsection
would be so treated does not exceed £100.”
      (3)
Where subsection (1) of section 629 applies for a tax year in relation to such
income as is mentioned in sub-paragraph (1) above and other income, that

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 8 — Miscellaneous income
562

section applies with the substitution for subsection (4) of—
“(4)
In subsection (3) a child’s “relevant settlement income” means
income which (apart from that subsection) would be treated as
income of the settlor under subsection (1) and which—
(a)
so far as consisting of such income as is mentioned in
5
paragraph 133 of Schedule 2, is income paid to or for the
benefit of the child, and
(b)
so far as consisting of other income, is income paid to or for
the benefit of, or otherwise treated as income of, the child.”
      (4)
Any apportionment required for the purposes of sub-paragraph (1)(b) is to
10
be made on a just and reasonable basis.
Amounts treated as income of settlor: capital sums paid to settlor by trustees of settlement
134   (1)
In relation to any case which involves any previous tax years before 1995-96,
subsection (3) of section 635 applies in accordance with sub-paragraphs (2)
and (3) below.
15
      (2)
So far as that subsection applies in relation to those previous tax years, for
paragraph (c) substitute—
“(c)
so much of any income arising under the settlement in any
previous year which has not been distributed as is shown to
consist of income which has been treated as income of the
20
settlor by virtue of section 671, 672, 674, 674A or 683 of ICTA,
(d)
any income arising under the settlement in any previous year
which has been treated as the income of the settlor by virtue
of section 673 of ICTA,
(e)
any sums paid by virtue or in consequence of the settlement,
25
to the extent that they are not allowable, by virtue of section
676 of ICTA, as deductions in computing the settlor's income
for any previous year,
(f)
any sums paid by virtue or in consequence of the settlement
in any previous year which have been treated as the income
30
of the settlor by virtue of section 664(2)(b) of ICTA,
(g)
any sums included in the income arising under the settlement
as amounts which have been or could have been apportioned
to a beneficiary as mentioned in section 681(1)(b) of ICTA,
and”
35
      (3)
For paragraph (d) of that subsection substitute—
“(h)
an amount equal to the sum of tax at the rate applicable to
trusts on—
(i)
the total amount of income arising under the
settlement in that year and any previous year which
40
has not been distributed, less
(ii)
the total amount of the income and sums referred to
in paragraph (c) (in relation to tax years 1995-96
onwards) and paragraphs (c), (d), (e), (f) and (g) as
substituted by paragraph 134 of Schedule 2 (in
45
relation to tax years before 1995-96).”

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 8 — Miscellaneous income
563

      (4)
In relation to any sum paid before 6th April 1995, subsection (3) of section
634 applies with the substitution of “in one of the events specified in section
673(3) of ICTA” for paragraphs (a) and (b).
      (5)
Subsection (5)(a) of section 634 does not apply if the direction or assignment
was given or made before 6th April 1981.
5
Amounts treated as income of settlor: capital sums paid to settlor by body connected with
settlement
135
In relation to any capital sum paid to the settlor before tax year 1995-96,
section 641 applies with the insertion after subsection (6) of—
“(6A)
Where a capital sum is paid to the settlor in a tax year by a body
10
corporate connected with the settlement in that year it is to be
assumed until the contrary is shown that an associated payment of
an amount not less than that of the capital sum has been made to that
body by the trustees of the settlement.”
Beneficiaries’ income from estates in administration: basic amounts
15
136   (1)
Sub-paragraph (2) applies if any previous tax year to which regard is to be
had for the purposes of section 665 (assumed income entitlement) is a tax
year before 2005-06 (an “old tax year”).
      (2)
In relation to the old tax year, the reference in step 4 in subsection (1) of that
section to basic amounts relating to the person’s absolute interest in respect
20
of which the person is liable to income tax for that year is to be taken as a
reference to the amount deemed to have been paid to that person as income
for that year in respect of that interest by virtue of section 696 of ICTA.
      (3)
Sub-paragraph (4) applies if one or more of the absolute interests referred to
in section 671(1) (successive absolute interests) was held in one or more old
25
tax years.
      (4)
The reference in section 671(2)(b) to the basic amounts relating to any
previous such interest includes a reference to the amounts deemed to have
been paid to the previous holder as income for the old tax years in respect of
that interest by virtue of section 696 of ICTA.
30
      (5)
Sub-paragraph (6) applies if any of the limited interests referred to in section
672(1)(d) (successive interests: assumed income entitlement of holder of
absolute interest following limited interest) was held in one or more old tax
years.
      (6)
The reference in section 672(4) to the basic amounts relating to any previous
35
such interest includes a reference to the amounts deemed to have been paid
to the holders of any such interests as income for the old tax years in respect
of those interests by virtue of section 695 of ICTA.
      (7)
In the case of a UK estate, references in this paragraph to the amounts
deemed to have been paid are references to the amounts that would be
40
deemed to have been paid apart from sections 695(4)(a) and 696(4) of ICTA
(grossing up).

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 9 — Exempt income
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Beneficiaries’ income from estates in administration: income treated as bearing income tax
137
A sum treated as part of the aggregate income of an estate by virtue of
section 547(1)(c) of ICTA (gains from life insurance contracts etc.) as the
result of an event that occurred before 6th April 2004 is treated for the
purposes mentioned in section 680 of this Act as bearing income tax at the
5
basic rate.
Part 9
Exempt income
Ulster savings certificates
138
In the case of certificates acquired before 27th July 1981, section 693(5)
10
applies with the substitution for “the Department of Finance and Personnel”
of “the Treasury”.
SAYE interest
139
Any scheme which was certified as mentioned in section 326(2)(c), (3)(b) or
(4)(b) of ICTA before 1st December 1994 is treated as a certified SAYE
15
savings arrangement for the purposes of Chapter 4 of Part 6 of this Act.
140
A European authorised institution arrangement is not an institutional
arrangement for the purposes of Chapter 4 of Part 6 if the arrangement was
established before 2nd May 1995.
141   (1)
Neither—
20
(a)
the Treasury specification rules, nor
(b)
the Treasury authorisation rules,

apply to any scheme which was certified as mentioned in section 326(3)(b),
(4)(b) or (5)(b) of ICTA before 31st July 1995.
      (2)
In sub-paragraph (1)—
25
“the Treasury specification rules” means sections 705(1)(b) and (2) to (4)
and 706 of this Act, and
“the Treasury authorisation rules” means sections 707 and 708 of this Act.
Venture capital trust dividends: shares acquired before the tax year 2004-05
142
In the case of dividends paid in respect of shares acquired before the tax year
30
2004-05, Chapter 5 of Part 6 (venture capital trust dividends) applies as if the
references in section 709(4) (annual acquisition limit) to £200,000 were
references to £100,000.
Purchased life annuity payments: old determinations concerning capital elements
143   (1)
Any determination in relation to an annuity as to the amount of the capital
35
element that was made under Chapter 5 of Part 14 of ICTA before 6th April
2005 and any decision on appeal that was so made against such a
determination have effect on and after that date, so far as is required for the
purposes of this Act, as a determination or decision as to the extent to which
annuity payments made under the annuity are within section 717(1)
40