Finance (No.2) Bill

House of Commons

Session 2005 - 06
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Finance (No.2) Bill

Finance (No.2) Bill
Schedule 12 — Settlements: amendment of TCGA 1992 etc
Part 3 — Consequential and minor amendments
313

      (2)
After section 63 insert—
“63A
Death: application of law in Northern Ireland
(1)
The provisions of this Act, so far as relating to the consequences of
the death of a person to whom property in Northern Ireland stands
limited for life (“the deceased”), shall have effect subject to the
5
provisions of this section.
(2)
A person who acquires property in fee simple absolute or fee tail in
possession as a consequence of the deceased’s death shall be deemed
to have acquired all the assets forming part of the property at the
date of the deceased’s death for a consideration equal to their market
10
value at that date.”
      (3)
The provisions of this paragraph shall have effect in relation to a death
occurring on or after 6th April 2006.
12    (1)
In section 64(1) (expenses in administration)—
(a)
for the words from “an asset” to the beginning of paragraph (a)
15
substitute “an asset held by another person as trustee, or as a
personal representative of a deceased person, to which he became
absolutely entitled as legatee or as against the trustee”, and
(b)
in paragraphs (a) and (b) for “personal representatives or trustees”
substitute “personal representative or trustee”.
20
      (2)
This paragraph shall have effect in relation to disposals made on or after 6th
April 2006.
13    (1)
In section 77(1) (charge on settlor with interest in settlement), in the words
following paragraph (c), after “those” insert “gains”.
      (2)
For section 77(8) (meaning of “derived property”) substitute—
25
“(8)
In this section “derived property”, in relation to any property,
means—
(a)
income from that property,
(b)
property directly or indirectly representing—
(i)
proceeds of that property, or
30
(ii)
proceeds of income from that property, or
(c)
income from property which is derived property by virtue of
paragraph (b) above.”
      (3)
This paragraph shall be deemed always to have had effect.
14    (1)
In section 79B(1) (attribution to trustees of gains of non-resident company)
35
before “trustees of a settlement” insert “the”.
      (2)
This paragraph shall have effect in relation to gains accruing on or after 6th
April 2006.
15    (1)
In section 97(7) (supplementary provisions for offshore settlements:
interpretation)—
40
(a)
omit “the preceding provisions of”,
(b)
for the definition of “settlement” and “settlor” substitute—
““settlement” has the meaning given by section 620 of
ITTOIA 2005, and

Finance (No.2) Bill
Schedule 12 — Settlements: amendment of TCGA 1992 etc
Part 3 — Consequential and minor amendments
314

“settled property” and references (however expressed)
to property comprised in a settlement shall be
construed accordingly.”
      (2)
After section 97(7) insert—
“(7A)
In this section, sections 86A to 96 and Schedule 4C “trustee”, in
5
relation to a settlement in relation to which there would be no
trustees apart from this subsection, means any person in whom the
settled property or its management is for the time being vested (and
a person who is treated as a trustee of the settlement by virtue of this
subsection shall be treated as a trustee of the settlement for the
10
purposes of section 69).”
      (3)
This paragraph shall come into force on 6th April 2006 (in relation to
settlements whenever created).
16    (1)
In section 98(2) (information: application of section 745 of ICTA)—
(a)
for “(2) to (5)” substitute “(2) to (6)”,
15
(b)
omit “and” at the end of paragraph (a), and
(c)
omit paragraph (b).
      (2)
This paragraph shall come into force on 6th April 2006 (in relation to
settlements whenever created).
17    (1)
In section 104(1) (share pooling) after “for the purposes of this Act” insert
20
“(subject to express provision to the contrary)”.
      (2)
This paragraph shall come into force on 6th April 2006.
18    (1)
In section 109(2)(a) (share pooling: pre-1982 holdings) after “for the
purposes of this Act” insert “(subject to express provision to the contrary)”.
      (2)
This paragraph shall come into force on 6th April 2006.
25
19    (1)
In section 169D(5) after “(3)” insert “and to an individual’s dependent child
in section 169F(2A)”.
      (2)
This paragraph shall come into force on 6th April 2006.
20    (1)
In section 217 (building societies: successor companies)—
(a)
in subsection (3)(a)—
30
(i)
for “trustees” substitute “the trustees of a settlement”, and
(ii)
omit the word “and” at the end of the paragraph,
(b)
omit subsection (3)(b), and
(c)
in subsection (5) for “arising” substitute “accruing”.
      (2)
This paragraph shall have effect in relation to a transfer falling within
35
section 216(1) which is effected on or after 6th April 2006.
21    (1)
In section 227(2) (employee share ownership trusts: conditions for roll-over
relief) for “the trustees of a trust” substitute “the trustees of a settlement”.
      (2)
This paragraph shall have effect in relation to disposals made on or after 6th
April 2006.
40
22    (1)
In section 228(5)(b) (employee share ownership trusts: unauthorised
arrangement) for “a beneficiary under the trust” substitute “a beneficiary
under the settlement”.

Finance (No.2) Bill
Schedule 12 — Settlements: amendment of TCGA 1992 etc
Part 3 — Consequential and minor amendments
315

      (2)
In section 228(7) (qualifying employee share ownership trust) for “whether
a trust is” substitute “whether a settlement is”.
      (3)
Sub-paragraph (1) shall have effect in relation to arrangements which allow
an acquisition to be made on or after 6th April 2006 (irrespective of when the
arrangements were made).
5
      (4)
Sub-paragraph (2) shall have effect for the purposes of determining what
constitutes a qualifying share ownership trust for the purpose of section 227
on or after 6th April 2006.
23    (1)
In section 251(5) (debts: trustee creditors)—
(a)
for “Where the original creditor is a trustee and the debt, when
10
created, is settled property” substitute “Where the trustees of a
settlement are the original creditor”, and
(b)
for “as against the trustee” substitute “as against the trustees”.
      (2)
This paragraph shall have effect in relation to debts created on or after 6th
April 2006.
15
24    (1)
In section 283(4) (repayment supplements)—
(a)
for “a trust or,” substitute “the trustees of a settlement or”, and
(b)
omit “as such (within the meaning of section 701(4) of that Act)”.
      (2)
Sub-paragraph (1)(a) shall have effect in relation to a repayment made on or
after 6th April 2006.
20
      (3)
Sub-paragraph (1)(b) shall have effect in relation to a repayment made on or
after 6th April 2006 (irrespective of the date on which the deceased person
died).
25    (1)
In section 286(3) (connected persons: trustees) omit the words following
paragraph (c).
25
      (2)
After section 286(3) insert—
“(3ZA)
For the purpose of subsection (3) above—
(a)
“settlement” has the same meaning as in section 620 of
ITTOIA 2005, and
(b)
“trustee”, in relation to a settlement in relation to which there
30
would be no trustees apart from this paragraph, means any
person in whom the settled property or its management is for
the time being vested.”
      (3)
This paragraph shall come into force (in relation to settlements whenever
created) on 6th April 2006.
35
26    (1)
In section 288(8) (interpretation) at the appropriate places insert—

““Principal settlement”... ...
Sch.4ZA para. 1”,

““Settlor” ...    ...    ...   ...   ...
S.68A”,

““Settlor of property”...   ...
S.68A”,

““Sub-fund”...   ...   ...   ...
Sch.4ZA para. 1”,

40

Finance (No.2) Bill
Schedule 12 — Settlements: amendment of TCGA 1992 etc
Part 3 — Consequential and minor amendments
316

““Sub-fund election”... ...
Sch.4ZA para. 2”,

““Sub-fund settlement” ...
Sch.4ZA para. 1”.

      (2)
This paragraph shall come into force on 6th April 2006 (in relation to
settlements whenever created).
27    (1)
For paragraph 17(4) of Schedule A1 (taper relief: meaning of “derived
5
property”) substitute—
    “(4)
In this paragraph “derived property”, in relation to any property,
means—
(a)
income from that property,
(b)
property directly or indirectly representing—
10
(i)
proceeds of that property, or
(ii)
proceeds of income from that property, or
(c)
income from property which is derived property by virtue
of paragraph (b) above.”
      (2)
In paragraph 17(5) of Schedule A1 (property settled by company) for
15
“section” substitute “paragraph”.
      (3)
Paragraph 17(6) of Schedule A1 (meaning of “settlor) shall cease to have
effect.
      (4)
In paragraph 20(2) of Schedule A1 (application of section 79 to paragraph
20(1)) for “Subsections (1) to (5)” substitute “Subsections (1) to (5A)”.
20
      (5)
Sub-paragraphs (1) and (3) shall have effect for the purpose of determining
whether a company which is a settlor in relation to a settlement (whenever
created) is to be regarded as having an interest in the settlement for the
purposes of paragraph 17(1) of Schedule A1 on or after 6th April 2006.
      (6)
Sub-paragraph (4) shall have effect to determine any question arising on or
25
after 6th April 2006 as to whether, for the purposes of Schedule A1, settled
property in relation to a settlement (whenever created) originated from
more than one settlor (irrespective of when the property was provided).
28    (1)
In paragraph 1(6) of Schedule 1 (exempt amount: interpretation) for the
words ““settlor” and “excluded settlement” have the same meanings”
30
substitute ““excluded settlement” has the same meaning”.
      (2)
In paragraph 2(7) of that Schedule (meaning of “settlor” and “excluded
settlement”) omit the words from “settlor” to “intestate and”.
      (3)
This paragraph shall have effect for the purposes of determining, for the
purposes of Schedule 1, whether a person is a settlor in relation to a
35
settlement (whenever created) on or after 6th April 2006.
29    (1)
In paragraph 12 of Schedule 4A (meaning of “settlor”) for “(3) to (5)”
substitute “(3) to (5A)”.
      (2)
This paragraph shall have effect to determine any question arising on or
after 6th April 2006 as to whether, for the purposes of Schedule 4A, a person
40
is a settlor in relation to a settlement (whenever created).

Finance (No.2) Bill
Schedule 12 — Settlements: amendment of TCGA 1992 etc
Part 3 — Consequential and minor amendments
317

Residence of trustees
30    (1)
In each of the provisions set out in sub-paragraph (2) for “not resident or
ordinarily resident in the United Kingdom” substitute “neither resident nor
ordinarily resident in the United Kingdom”.
      (2)
Those provisions are—
5
(a)
section 76(1B)(a) (disposal of interest in settled property),
(b)
section 86(2)(a) (attribution of gains to settlors: residence condition),
and
(c)
paragraphs 2(1)(c), 3(1)(a) and 4(1)(a) of Schedule 5A (settlements
with foreign element).
10
      (3)
In paragraph (2)(1)(d) of Schedule 5A for “resident or ordinarily resident”
substitute “resident and ordinarily resident”.
      (4)
The amendments to sections 76(1B)(a) and 86(2)(a) shall come into force on
6th April 2007 (in relation to settlements whenever created).
      (5)
The amendments to paragraph 2(1)(c) and (d) of Schedule 5A shall have
15
effect in relation to transfers of property made on or after 6th April 2007 (in
relation to settlements whenever created).
      (6)
The amendments to paragraphs 3(1)(a) and 4(1)(a) of Schedule 5A shall have
effect in relation to settlements created on or after 6th April 2007.
31
In section 77(7) (settlor with interest in settlement) for “the settlor is, and the
20
trustees are, either resident in the United Kingdom during any part of the
year or ordinarily resident in the United Kingdom during the year”
substitute “—
(a)
the settlor is either resident in the United Kingdom during
any part of the year or ordinarily resident in the United
25
Kingdom during the year, and
(b)
the trustees are resident and ordinarily resident in the United
Kingdom during any part of the year.”
32
In section 83A(3) (trustee residence: split years)—
(a)
in paragraph (a)—
30
(i)
after “resident” insert “and ordinarily resident”, and
(ii)
at the end omit “or”, and
(b)
omit paragraph (b).
33
Paragraphs 31 and 32 shall come into force on 6th April 2007 (in relation to
settlements whenever created).
35
34    (1)
In each of the provisions set out in sub-paragraph (2) for “resident or
ordinarily resident in the United Kingdom” substitute “resident and
ordinarily resident in the United Kingdom”.
      (2)
Those provisions are—
(a)
section 83A(4)(b) (trustees to be treated as non-resident),
40
(b)
section 85A(3) (attribution of gains to beneficiaries on transfer of
value to trustees),
(c)
section 86(3) (assumption as to residence),
(d)
section 87(2) (computation of gains),
(e)
paragraph 5(2) of Schedule 4A (dual resident trustees),
45

Finance (No.2) Bill
Schedule 12 — Settlements: amendment of TCGA 1992 etc
Part 3 — Consequential and minor amendments
318

(f)
paragraphs 4(2) and 10(1) and (3) of Schedule 4C (trustees:
chargeable amount and residence), and
(g)
paragraphs 3(1)(b) and 4(1)(b) of Schedule 5A (settlement with
foreign element: information).
      (3)
The amendments to sections 83A(4)(b), 85A(3), 86(3) and 87(2), paragraph
5
5(2) of Schedule 4A and paragraphs 4(2) and 10(1) and (3) of Schedule 4C
shall come into force on 6th April 2007 (in relation to settlements whenever
created).
      (4)
The amendments to paragraphs 3(1)(b) and 4(1)(b) of Schedule 5A shall have
effect in relation to settlements created on or after 6th April 2007.
10
35    (1)
In each of the provisions set out in sub-paragraph (2)—
(a)
for “resident in the United Kingdom during any part of the year or
ordinarily resident in the United Kingdom during the year”
substitute “resident and ordinarily resident in the United Kingdom
during any part of the year”, and
15
(b)
for “such residence or ordinary residence” substitute “such residence
and ordinary residence”.
      (2)
Those provisions are—
(a)
section 86(2)(b) (trustees resident outside United Kingdom),
(b)
section 88(1) (gains of dual resident settlements), and
20
(c)
paragraph 5(1) of Schedule 4C (chargeable amount: dual resident
settlement).
      (3)
Sub-paragraph (2)(c) shall have effect in relation to a transfer of value made
on or after 6th April 2007 (in relation to settlements whenever created).
36    (1)
In each of the provisions set out in sub-paragraph (2) for “at no time resident
25
or ordinarily resident in the United Kingdom” substitute “at no time
resident and ordinarily resident in the United Kingdom”.
      (2)
Those provisions are—
(a)
section 87(1) (attribution of gains to beneficiaries), and
(b)
paragraph 4(1) of Schedule 4C (chargeable amount: non-resident
30
settlement).
      (3)
Sub-paragraph (2)(b) shall have effect in relation to a transfer of value made
on or after 6th April 2007 (in relation to settlements whenever created).
37    (1)
In section 169(3)(a) (availability of hold-over relief)—
(a)
for “fall to be treated, under section 69, as” substitute “are”, and
35
(b)
omit the words from “, although” to the end of the paragraph.
      (2)
In section 169(3)(b)(ii) (notional disposal) for “arising” substitute “accruing”.
      (3)
This paragraph shall have effect in relation to relevant disposals (within the
meaning given by section 169(2)) made on or after 6th April 2007 (in relation
to settlements whenever created).
40
38
In paragraph 2(7)(a) of Schedule 1 (meaning of “excluded settlement”) omit
“treated under section 69(1) as”.
39
In paragraph 5(1) of Schedule 4A (residence of trustees) for the words from
“either” to the end of the sub-paragraph substitute “resident and ordinarily
resident in the United Kingdom during any part of the year”.
45

Finance (No.2) Bill
Schedule 12 — Settlements: amendment of TCGA 1992 etc
Part 3 — Consequential and minor amendments
319

40
In paragraph 10(2) of Schedule 4C (capital payments received by
beneficiaries when trustees resident in United Kingdom) for paragraphs (a)
and (b) substitute “during the whole of which the trustees are resident and
ordinarily resident in the United Kingdom”.
41
Paragraphs 35 to 40 shall, unless otherwise expressly provided, come into
5
force on 6th April 2007 (in relation to settlements whenever created).
Sub-fund settlements
42
After section 73(1) of TCGA 1992 (death of life tenant: exclusion of
chargeable gain) insert—
“(1A)
Subsection (1)(b) above shall be treated as having effect in relation to
10
a sub-fund settlement if the property does not revert to the trustees
of the principal settlement in relation to that sub-fund settlement by
reason only that—
(a)
a sub-fund election is or has been made in respect of another
sub-fund of the principal settlement, and
15
(b)
the property becomes comprised in that other sub-fund
settlement on the death of the person entitled to the interest
in possession.”
43
In section 286(3) of TCGA 1992 (connected persons: trustees)—
(a)
omit “and” at the end of paragraph (b), and
20
(b)
after paragraph (c) insert—
“(d)
if the settlement is the principal settlement in relation
to one or more sub-fund settlements, the trustees of
the sub-fund settlements, and
(e)
if the settlement is a sub-fund settlement in relation to
25
a principal settlement, the trustees of any other sub-
fund settlements in relation to the principal
settlement.”
44    (1)
At the beginning of Schedule 1 to TCGA 1992 (trustees: exempt amount, etc)
insert—
30
“A1   (1)
In determining the exempt amount available to the trustees of a
settlement in relation to a year of assessment—
(a)
a principal settlement and its sub-fund settlements shall be
treated, for the purposes of paragraphs 1 and 2 below, as if
no sub-fund elections had been made, and
35
(b)
paragraph 3 below shall apply for the purposes of
determining the exempt amount available to each member
of the class consisting of a principal settlement and its sub-
fund settlements.
      (2)
The reference in sub-paragraph (1) above to a principal settlement
40
and its sub-fund settlements means a principal settlement in
respect of which one or more sub-fund elections are treated as
having taken effect.”
      (2)
After paragraph 2 of Schedule 1 to TCGA 1992 insert—
“3    (1)
The exempt amount available in relation to a year of assessment to
45
the trustees of each settlement in the class consisting of a principal