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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

320

 

settlement and its sub-fund settlements shall be the exempt

amount available to the trustees of the principal settlement in

relation to the year, determined in accordance with paragraph 1 or

2 above as if no sub-fund elections had been made.

      (2)  

But if there are two or more non-excluded settlements in the class

5

consisting of a principal settlement and its sub-fund settlements,

the exempt amount available to the trustees of each settlement in

the class in relation to the year shall be the amount specified in

sub-paragraph (1) above divided by the number of non-excluded

settlements in the class.

10

      (3)  

In this paragraph—

“excluded settlement” has the meaning given by paragraph

2(7) above, and

references to a settlement having sub-fund settlements, and

similar expressions, are references to a settlement being the

15

principal settlement in respect of which one or more sub-

fund elections are treated as having taken effect.”

45         

Paragraphs 42 to 44 shall have effect in relation to years of assessment

beginning on or after 6th April 2006.

Amendments of other Acts

20

46    (1)  

In the first column of the table in section 98 of TMA 1970 (failure to make

required returns, etc) insert at the appropriate place—

“paragraph 14 of Schedule 4ZA to the 1992 Act”.

      (2)  

In the second column of the table in section 98 of TMA 1970 insert at the

appropriate place—

25

“paragraph 12 of Schedule 4ZA to the 1992 Act”.

      (3)  

This paragraph shall come into force on 6th April 2006.

47    (1)  

For section 761(7)(b) of ICTA (offshore income gain: trustee residence

condition) substitute—

“(b)   

at the time of the disposal referred to in paragraph (a) above

30

the trustees of the settlement are neither resident nor

ordinarily resident in the United Kingdom for the purposes

of the 1992 Act,”.

      (2)  

This paragraph shall have effect in relation to disposals made on or after 6th

April 2007 (in relation to settlements whenever created).

35

48    (1)  

In section 30 of FA 2005 (trusts for vulnerable persons: capital gains)—

(a)   

after subsection (1) insert—

“(1A)   

For the purposes of subsection (1)(b) the effect of section 77(1)

of TCGA 1992 shall be disregarded if the settlor is treated as

having an interest in the settlement by reason only of the

40

application of section 77(2A) of that Act.”, and

(b)   

after subsection (3) insert—

“(3A)   

If this section has effect in relation to chargeable gains

accruing to the trustees of a settlement in a tax year, section

77 of TCGA 1992 shall not have effect in relation to the gains,

45

 

 

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

321

 

(but this subsection shall not affect the operation of section

31(2)).”

      (2)  

In section 34(3) of that Act (disabled persons) for the words from “the

powers” to the end of the subsection substitute “—

(a)   

a power conferred on the trustees by section 32 of the Trustee

5

Act 1925 (c. 19) or section 33 of the Trustee Act (Northern

Ireland) 1958 (c. 23 (N.I.)) (powers of advancement),

(b)   

a power conferred on the trustees by the law of a jurisdiction

other than England and Wales or Northern Ireland which

makes provision similar to the provisions specified in

10

paragraph (a), or

(c)   

a power of advancement which is conferred on the trustees

by the instrument creating the settlement, or by another

instrument made in accordance with the terms of the

settlement, and which is subject to the same restrictions as

15

those specified in section 32(1)(a) and (c) of the Trustee Act

1925.”

      (3)  

In section 35(4) of that Act (relevant minors) for the words from “the

powers” to the end of the subsection substitute “—

(a)   

a power conferred on the trustees by section 32 of the Trustee

20

Act 1925 or section 33 of the Trustee Act (Northern Ireland)

1958 (c. 23 (N.I.)) (powers of advancement),

(b)   

a power conferred on the trustees by the law of a jurisdiction

other than England and Wales or Northern Ireland which

makes provision similar to the provisions specified in

25

paragraph (a), or

(c)   

a power of advancement which is conferred on the trustees

by the instrument creating the settlement, or by another

instrument made in accordance with the terms of the

settlement, and which is subject to the same restrictions as

30

those specified in section 32(1)(a) and (c) of the Trustee Act

1925.”

      (4)  

After section 37(6) of that Act (vulnerable person election) insert—

“(7)   

Where—

(a)   

a vulnerable person election has effect in relation to

35

qualifying trusts,

(b)   

the property held on those trusts is treated for the purposes

of TCGA 1992 and of the Tax Acts as comprised in a sub-fund

settlement, and

(c)   

the vulnerable person election was not made by the trustees

40

of the sub-fund settlement,

   

the vulnerable person election shall have effect, in relation to the

trusts mentioned in paragraph (a), in respect of matters arising at or

after the time when the sub-fund election is treated as having taken

effect, as if it had been made by the trustees of the sub-fund

45

settlement and the vulnerable person.

(8)   

In relation to matters arising before the time when the sub-fund

election is treated as having taken effect, nothing in subsection (7)—

 

 

Finance (No.2) Bill
Schedule 13 — Settlements: amendments to ICTA and ITTOIA 2005 etc
Part 1 — Principal amendments

322

 

(a)   

relieves the trustees of the settlement which is the principal

settlement in relation to the sub-fund settlement of their

obligation under subsection (6), or

(b)   

prevents a notice from being given to those trustees under

section 40(1) or (3).

5

(9)   

In this section—

(a)   

“principal settlement” has the meaning given by paragraph 1

of Schedule 4ZA to TCGA 1992,

(b)   

“sub-fund election” has the meaning given by paragraph 2 of

that Schedule,

10

(c)   

“sub-fund settlement” has the meaning given by paragraph 1

of that Schedule, and

(d)   

the time when a sub-fund election is treated as having taken

effect shall be the time when it is treated as having taken

effect under paragraph 2 of that Schedule.”

15

      (5)  

This paragraph shall come into force on 6th April 2006 (in relation to

vulnerable person elections whenever made).

Schedule 13

Section 89

 

Settlements: amendments to ICTA and ITTOIA 2005 etc

Part 1

20

Principal amendments

1     (1)  

Before section 686 of ICTA (rate of tax applicable to trusts) insert—

“685A   

Meaning of “settled property”

(1)   

For the purposes of the Tax Acts, unless the context otherwise

requires,

25

(a)   

“settled property” means any property held in trust other

than—

(i)   

property held by a person as nominee for another,

(ii)   

property held by a person as trustee for another

person who is absolutely entitled as against the

30

trustee, and

(iii)   

property held by a person as trustee for another

person who would be absolutely entitled as against

the trustee if he were not an infant or otherwise under

a disability, and

35

(b)   

references, however expressed, to property comprised in a

settlement are references to settled property.

(2)   

For the purposes of the Tax Acts, a reference to a person who is or

would be absolutely entitled to property as against the trustee—

(a)   

means a person who has the exclusive right (subject to

40

satisfying the right of the trustees to resort to the property for

the payment of duty, taxes, costs or other outgoings) to direct

how the property shall be dealt with, and

 

 

Finance (No.2) Bill
Schedule 13 — Settlements: amendments to ICTA and ITTOIA 2005 etc
Part 1 — Principal amendments

323

 

(b)   

includes two or more persons who are or would be jointly

absolutely entitled as against the trustee.

685B    

Meaning of “settlor”

(1)   

In the Tax Acts, unless the context otherwise requires—

(a)   

“settlor” in relation to a settlement means the person, or any

5

of the persons, who has made or is treated for the purposes of

the Tax Acts as having made the settlement, and

(b)   

a person is a settlor of property which—

(i)   

is settled property by reason of his having made the

settlement (or by reason of an event which causes him

10

to be treated under this Act as having made the

settlement), or

(ii)   

derives from property to which sub-paragraph (i)

applies.

(2)   

A person is treated for the purposes of the Tax Acts as having made

15

a settlement if—

(a)   

he has made or entered into the settlement, directly or

indirectly, or

(b)   

the settled property, or property from which the settled

property is derived, is or includes property of which he was

20

competent to dispose immediately before his death and the

settlement arose on his death, whether by will, on his

intestacy, or otherwise.

(3)   

A person is, in particular, treated for the purposes of the Tax Acts as

having made a settlement if—

25

(a)   

he has provided property directly or indirectly for the

purposes of the settlement, or

(b)   

he has undertaken to provide property directly or indirectly

for the purposes of the settlement.

(4)   

Where one person (A) makes or enters into a settlement in

30

accordance with reciprocal arrangements with another person (B),

for the purposes of the Tax Acts—

(a)   

B shall be treated as having made the settlement, and

(b)   

A shall not be treated as having made the settlement by

reason only of the reciprocal arrangements.

35

(5)   

In subsection (2)(b) the reference to property of which a deceased

person was competent to dispose is a reference to property of the

deceased which (otherwise than in right of a power of appointment

or of the testamentary power conferred by statute to dispose of

entailed interests) he could, if of full age and capacity, have disposed

40

of by his will, assuming that all the property were situated in

England and, if he was not domiciled in the United Kingdom, that he

was domiciled in England, and includes references to his severable

share in any property to which, immediately before his death, he was

beneficially entitled as a joint tenant.

45

(6)   

A person who has been a settlor in relation to a settlement shall be

treated for the purposes of the Tax Acts as having ceased to be a

settlor in relation to the settlement if—

 

 

Finance (No.2) Bill
Schedule 13 — Settlements: amendments to ICTA and ITTOIA 2005 etc
Part 1 — Principal amendments

324

 

(a)   

no property of which he is the settlor is comprised in the

settlement,

(b)   

he has not undertaken to provide property directly or

indirectly for the purposes of the settlement in the future, and

(c)   

he has not made reciprocal arrangements with another

5

person for that other person to enter into the settlement in the

future.

(7)   

For the purpose of this section and sections 685C and 685D property

is derived from other property—

(a)   

if it derives (directly or indirectly and wholly or partly) from

10

that property or any part of it, and

(b)   

in particular, if it derives (directly or indirectly and wholly or

partly) from income from that property or any part of it.

(8)   

In this section “arrangements” includes any scheme, agreement or

understanding, whether or not legally enforceable.

15

685C    

Transfer between settlements: identification of settlor

(1)   

This section applies in relation to a transfer of property from the

trustees of one settlement (“Settlement 1”) to the trustees of another

(“Settlement 2”) otherwise than—

(a)   

for full consideration, or

20

(b)   

by way of a bargain made at arm’s length.

(2)   

In this section “transfer of property” means—

(a)   

a disposal of property by the trustees of Settlement 1, and

(b)   

the acquisition by the trustees of Settlement 2 of—

(i)   

property disposed of by the trustees of Settlement 1,

25

or

(ii)   

property created by the disposal;

   

and a reference to transferred property is a reference to property

acquired by the trustees of Settlement 2 on the disposal.

(3)   

For the purposes of the Tax Acts, except where the context otherwise

30

requires—

(a)   

the settlor (or each settlor) of the property disposed of by the

trustees of Settlement 1 shall be treated from the time of the

disposal as having made Settlement 2, and

(b)   

if there is more than one settlor of the property disposed of by

35

the trustees of Settlement 1, each settlor shall be treated in

relation to Settlement 2 as the settlor of a proportionate part

of the transferred property.

(4)   

For the purposes of the Tax Acts, except where the context otherwise

requires, if and to the extent that the property disposed of by the

40

trustees of Settlement 1 was provided for the purposes of Settlement

1, or is derived from property provided for the purposes of

Settlement 1, the transferred property shall be treated from the time

of the disposal as having been provided for the purposes of

Settlement 2.

45

(5)   

If transferred property is treated by virtue of subsection (4) as having

been provided for the purposes of Settlement 2—

 

 

Finance (No.2) Bill
Schedule 13 — Settlements: amendments to ICTA and ITTOIA 2005 etc
Part 1 — Principal amendments

325

 

(a)   

the person who provided the property disposed of by the

trustees of Settlement 1, or property from which it was

derived, for the purposes of Settlement 1 shall be treated as

having provided the transferred property, and

(b)   

if more than one person provided the property disposed of

5

by the trustees of Settlement 1, or property from which it was

derived, for the purposes of Settlement 1, each of them shall

be treated as having provided a proportionate part of the

transferred property.

(6)   

But subsections (3) and (4) do not apply in relation to a transfer of

10

property—

(a)   

which occurs by reason only of the assignment or assignation

by a beneficiary under Settlement 1 of an interest in that

settlement to the trustees of Settlement 2,

(b)   

which occurs by reason only of the exercise of a general

15

power of appointment, or

(c)   

to which section 685D(6) applies.

(7)   

There is an acquisition or disposal of property for the purposes of

this section if there would be an acquisition or disposal of property

for the purposes of the 1992 Act.

20

685D    

Variation of will or intestacy, etc: identification of settlor

(1)   

This section applies where—

(a)   

a disposition of property following a person’s death is varied,

and

(b)   

section 62(6) of the 1992 Act applies in respect of the

25

variation.

(2)   

Where property becomes settled property in consequence of the

variation (and would not, but for the variation, have become settled

property), a person mentioned in subsection (3) shall be treated for

the purposes of the Tax Acts, except where the context otherwise

30

requires—

(a)   

as having made the settlement, and

(b)   

as having provided the property for the purposes of the

settlement.

(3)   

Those persons are—

35

(a)   

a person who immediately before the variation was entitled

to the property, or to property from which it derives,

absolutely as legatee,

(b)   

a person who would have become entitled to the property, or

to property from which it derives, absolutely as legatee but

40

for the variation,

(c)   

a person who immediately before the variation would have

been entitled to the property, or to property from which it

derives, absolutely as legatee but for being an infant or other

person under a disability, and

45

(d)   

a person who would, but for the variation, have become

entitled to the property, or to property from which it derives,

absolutely as legatee if he had not been an infant or other

person under a disability.

 

 

Finance (No.2) Bill
Schedule 13 — Settlements: amendments to ICTA and ITTOIA 2005 etc
Part 1 — Principal amendments

326

 

(4)   

For the purposes of this section—

(a)   

“legatee” includes any person taking under a testamentary

disposition or on an intestacy or partial intestacy, whether he

takes beneficially or as trustee,

(b)   

property taken under a testamentary disposition or on an

5

intestacy or partial intestacy includes any property

appropriated by the personal representatives in or towards

satisfaction of a pecuniary legacy or any other interest or

share in the property devolving under the disposition or

intestacy, and

10

(c)   

a person taking under a donatio mortis causa shall be treated

as a legatee and his acquisition as made at the time of the

donor’s death.

(5)   

Where—

(a)   

property would have become comprised in a settlement—

15

(i)   

which arose on the deceased person’s death (whether

in accordance with his will, on his intestacy or

otherwise, or

(ii)   

which was already in existence on the deceased

person’s death (whether or not the deceased person

20

was a settlor in relation to that settlement), but

(b)   

in consequence of the variation the property, or property

derived from it, becomes comprised in another settlement,

   

the deceased person shall be treated for the purposes of the Tax Acts,

except where the context otherwise requires, as having made the

25

other settlement.

(6)   

Where—

(a)   

immediately before the variation property is comprised in a

settlement and is property of which the deceased person is a

settlor, and

30

(b)   

immediately after the variation the property, or property

derived from it, becomes comprised in another settlement,

   

the deceased person shall be treated for the purposes of the Tax Acts,

except where the context otherwise requires, as having made the

other settlement.

35

(7)   

If a person is treated as having made a settlement under subsection

(5) or (6), for the purposes of the Tax Acts he shall be treated as

having made the settlement immediately before his death.

(8)   

But subsection (7) does not apply in relation to a settlement which

arose on the person’s death.

40

685E    

Trustees of settlements

(1)   

For the purposes of the Tax Acts the trustees of a settlement shall,

unless the context otherwise requires, together be treated as if they

were a single person (distinct from the persons who are the trustees

of the settlement from time to time).

45

(2)   

The deemed person referred to in subsection (1) shall be treated for

the purposes of the Tax Acts as resident and ordinarily resident in

the United Kingdom at any time when a condition in subsection (3)

or (4) is satisfied.

 

 

 
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