Finance (No.2) Bill

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Finance (No.2) Bill

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
396

(b)
the amount that would be found in relation to the pension
scheme under that subsection on another day in the tax year
on which the property is scheme-held taxable property,

the amount to be apportioned to the pension scheme under this
section is the average of the amounts produced by applying
5
subsection (2) in relation to the pension scheme on each day in the tax
year on which the property is scheme-held taxable property.
185E
Credit for tax paid
(1)
This section applies where—
(a)
the pension scheme holds the interest in the property
10
indirectly in the tax year,
(b)
a person who holds the interest directly receives profits
arising from the interest at a time in the tax year when the
property is scheme-held taxable property,
(c)
tax is payable on those profits by that person (assuming them
15
to be the highest part of the person’s income for the tax year
in which they are received), and
(d)
that tax has been paid.
(2)
The amount determined under subsection (3) is to be allowed as a
credit against any income tax charged under section 239 in respect of
20
the scheme chargeable payment treated as made by virtue of the
pension scheme holding the interest in the property in the tax year.
(3)
That amount is a proportion of the tax payable and paid determined
by reference to the proportion of the amount that would otherwise
be the amount of the scheme chargeable payment that is apportioned
25
to the pension scheme under section 185D.
(4)
Where—
(a)
by virtue of this section an amount is allowed as a credit
against income tax charged under section 239, and
(b)
the amount of tax payable and paid by reference to which the
30
amount of the credit was calculated is subsequently varied,

the amount of the credit is to be varied accordingly, and any
necessary adjustments are to be made to give effect to the variation
(whether by making assessments or otherwise).
185F
Gains from taxable property
35
(1)
An investment-regulated pension scheme is to be treated as having
made a scheme chargeable payment where—
(a)
in a tax year the pension scheme holds an interest in property
which is taxable property or which has been taxable property
at any time whilst the interest has been held by the pension
40
scheme (a “taxable interest”),
(b)
a gain is treated as accruing to the pension scheme in respect
of the taxable interest in the tax year, and
(c)
the total amount of gains treated as accruing to the pension
scheme in respect of taxable interests in the tax year exceeds
45
the total amount of losses treated as accruing to the pension
scheme in respect of taxable interests in the tax year.

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
397

(2)
The amount of the scheme chargeable payment is an amount equal
to the difference between—
(a)
the total amount of gains treated as accruing to the pension
scheme in respect of taxable interests in the tax year, and
(b)
the total amount of losses treated as accruing to the pension
5
scheme in respect of taxable interests in the tax year,

(but this is subject to section 185G(10)).
(3)
A gain or loss is treated as accruing to a pension scheme in respect of
a taxable interest in a tax year if—
(a)
by virtue of section 185G a chargeable gain or allowable loss
10
is treated for the purposes of this section as accruing in the tax
year to the person who holds the taxable interest directly, or
(b)
in the tax year the pension scheme or another vehicle ceases
to hold all or part of an interest in a vehicle through which the
pension scheme holds the taxable interest indirectly (see
15
section 185H).
185G
Disposal by person holding directly
(1)
For the purposes of this section the person (“the transferor”) who
holds the taxable interest directly is to be treated as holding an asset
(a “taxable asset”) consisting of the interest.
20
(2)
For the purpose of determining—
(a)
whether the transferor disposes of the taxable asset,
(b)
when such a disposal takes place, and
(c)
whether a chargeable gain or allowable loss is treated for the
purposes of section 185F as accruing to the transferor on a
25
disposal of the taxable asset in a tax year and, if so, the
amount of the chargeable gain or allowable loss,

TCGA 1992 is to be treated as applying to the transferor and the
taxable asset, but subject as follows.
(3)
TCGA 1992 is to be treated as applying as if—
30
(a)
throughout the tax year the transferor were resident,
ordinarily resident and domiciled in the United Kingdom,
(b)
no allowable losses accrued to the transferor in any previous
tax year,
(c)
for the purposes of section 2A (taper relief) of that Act the
35
transferor were not chargeable to corporation tax in respect
of any chargeable gain accruing to the transferor from a
disposal of the taxable asset and the taxable asset were at all
relevant times a non-business asset,
(d)
notice under section 16(2A) (losses) of that Act were given by
40
the transferor in relation to the year in respect of any loss
treated as accruing to the transferor in the year from a
disposal of the taxable asset,
(e)
section 45(1) (wasting assets) of that Act did not apply to a
disposal of the taxable asset,
45
(f)
for the purposes of section 53 (indexation allowance) of that
Act the transferor were not chargeable to corporation tax in
respect of any chargeable gain accruing to the transferor from
a disposal of the taxable asset,

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
398

(g)
section 171(1) (transfers within a group) of that Act did not
apply to a disposal of the taxable asset (so that no election
could be made in relation to such a disposal under section
171A (notional transfers within a group)), and
(h)
sections 222 to 224 (relief on disposal of private residence) of
5
that Act did not apply to a gain on a disposal of the taxable
asset by virtue of section 225 (private residence occupied
under terms of settlement) of that Act.
(4)
Where the taxable asset became taxable property whilst held directly
by the pension scheme, TCGA 1992 is to be treated as applying to a
10
disposal of the asset as if—
(a)
the asset had been acquired by the transferor at the time it
became taxable property, and
(b)
the amount deductible under section 38(1)(a) (consideration
for acquisition of asset) of that Act in respect of the disposal
15
were the amount of the unauthorised payment treated as
made by the pension scheme at that time.
(5)
Subsections (6) to (8) apply where the pension scheme holds the
taxable asset indirectly.
(6)
TCGA 1992 is to be treated as applying to a disposal of the asset as if
20
the amount deductible under section 38(1) of that Act in respect of
the disposal were—
(a)
the total amount of unauthorised payments treated as made
by the pension scheme in respect of the taxable asset up to the
time of the disposal, less
25
(b)
the amount found under paragraph (a) to the extent that it
has already been taken into account in calculating the gains
or losses accruing to the pension scheme in respect of the
taxable asset by virtue of this section or section 185H.
(7)
The amount that would otherwise be the amount of the
30
consideration for which the disposal is made (or treated as made) is
to be scaled down by applying paragraphs 41 to 43 of Schedule 29A
to it as if it were the total taxable amount in relation to an
unauthorised payment treated as made—
(a)
by the pension scheme,
35
(b)
in connection with the acquisition of the interest in the
property which constitutes the taxable asset, and
(c)
at the time of the disposal.
(8)
Subsection (6) is subject to section 42 of TCGA 1992; but in the
application of that section in relation to the taxable asset the amount
40
of the consideration for the disposal is to be taken to be that amount
apart from subsection (7).
(9)
Where the taxable asset was not taxable property for the whole
period beginning with—
(a)
the time when the pension scheme acquired the asset, or
45
(b)
if later, the time when the asset first became taxable property,

and ending with the disposal, the amount that would otherwise be
the amount of any chargeable gain or allowable loss treated as
accruing on a disposal of the asset is to be reduced by reference to the

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
399

proportion of the period for which the asset was not taxable
property.
(10)
Where—
(a)
the taxable asset is a wasting asset consisting of tangible
moveable property, and
5
(b)
by virtue of section 185F, a loss is treated as accruing to the
pension scheme from a disposal of the asset in a tax year,

the loss is only to be allowed as a deduction from any gains treated
as accruing to the pension scheme by virtue of that section from other
disposals in the year of taxable assets which are wasting assets
10
consisting of tangible moveable property.
185H
Disposal of interest in vehicle
(1)
This section applies for the purposes of section 185F where the
pension scheme or another vehicle ceases to hold all or part of an
interest in a vehicle through which the pension scheme holds the
15
taxable interest indirectly.
(2)
The pension scheme is to be treated as disposing of the interest in the
vehicle through which the pension scheme holds the taxable interest
indirectly.
(3)
The amount of the gain or loss treated as accruing to the pension
20
scheme on the disposal of the interest in the vehicle is the difference
between—
(a)
the deemed consideration received for the disposal of the
interest, and
(b)
the deemed consideration given for the interest.
25
(4)
The deemed consideration received for the disposal of the interest in
the vehicle is the difference between—
(a)
the market value of the taxable interest at the time of the
disposal, apportioned to the pension scheme in accordance
with subsection (5) immediately before that time, and
30
(b)
the market value of the taxable interest at the time of the
disposal, apportioned to the pension scheme in accordance
with subsection (5) immediately after that time.
(5)
An amount mentioned in subsection (4) is to be apportioned to the
pension scheme by applying paragraphs 41 to 43 of Schedule 29A to
35
it as if it were the total taxable amount in relation to an unauthorised
payment treated as made—
(a)
by the pension scheme,
(b)
in connection with the acquisition of the taxable interest, and
(c)
at the time at which the amount is to be apportioned to the
40
pension scheme in accordance with that subsection.
(6)
The deemed consideration given for the interest in the vehicle is—
(a)
the total amount of unauthorised payments treated as made
by the pension scheme in respect of the taxable interest up to
the time of the disposal, less
45
(b)
the amount found under paragraph (a) to the extent that it
has already been taken into account in calculating the gains

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
400

or losses accruing to the pension scheme in respect of the
taxable interest by virtue of section 185G or this section.
185I
Credit for tax paid
(1)
This section applies where by virtue of section 185F a pension
scheme is to be treated as making a scheme chargeable payment
5
which is to any extent attributable—
(a)
to a chargeable gain treated by virtue of section 185G as
accruing to another person on a disposal of a taxable asset, or
(b)
to a gain treated by virtue of section 185H as accruing to the
pension scheme as a result of another person disposing of an
10
interest in a vehicle through which the pension scheme holds
a taxable interest indirectly.
(2)
Where—
(a)
tax is payable in respect of the disposal by the person who
makes the disposal, and
15
(b)
that tax has been paid,

the amount determined under subsection (3) or (4) (as appropriate)
is to be allowed as a credit against any income tax charged under
section 239 in respect of the scheme chargeable payment.
(3)
In a case within paragraph (a) of subsection (1), that amount is a
20
proportion of the amount of tax paid and payable determined by
reference to the proportion of the amount of consideration for the
disposal that is apportioned under section 185G(7).
(4)
In a case within paragraph (b) of subsection (1), that amount is the
amount of tax paid and payable apportioned to the pension scheme
25
by applying paragraphs 41 to 43 of Schedule 29A to it as if it were the
total taxable amount in relation to an unauthorised payment treated
as made—
(a)
by the pension scheme,
(b)
in connection with an acquisition of the taxable interest by
30
the person disposing of the interest in the vehicle, and
(c)
at the time of the disposal.
(5)
Where—
(a)
by virtue of this section an amount is allowed as a credit
against income tax charged under section 239, and
35
(b)
the amount of tax payable and paid by reference to which the
amount of the credit was calculated is subsequently varied,

the amount of the credit is to be varied accordingly, and any
necessary adjustments are to be made to give effect to the variation
(whether by making assessments or otherwise).”
40
7
In section 186 (relief for income derived from scheme investments), after
subsection (2) insert—
“(2A)
The exemption provided by subsection (1) does not prevent the
income from being charged to tax by virtue of section 185A.”
8
In section 239 (scheme sanction charge) after subsection (5) insert—
45
“(6)
This section is subject to provision made by regulations under
section 273ZA (income and gains from taxable property).”

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
401

9
In section 241(1) (scheme chargeable payments), insert at the end “, and
(c)
a scheme chargeable payment which the pension scheme is to
be treated as having made by section 185A (income from
taxable property) or 185F (gains from taxable property).”
10
After section 273 insert—
5
“273ZA
  Income and gains from taxable property
(1)
The Treasury may make regulations in relation to cases where—
(a)
an investment-regulated pension scheme holds an interest in
taxable property,
(b)
the pension scheme is non-UK resident, and
10
(c)
the property is not located in the United Kingdom.
(2)
The regulations may make provision for a member of the pension
scheme for the purposes of whose arrangement the interest is held to
be liable to the scheme sanction charge so far as relating to a scheme
chargeable payment treated as made by the pension scheme—
15
(a)
under section 185A (income from taxable property) by virtue
of the pension scheme holding the interest in the property, or
(b)
under section 185F (gains from taxable property) by virtue of
a gain treated as accruing to the pension scheme in respect of
the interest in the property.
20
(3)
The regulations may make provision—
(a)
for the member to be liable to all of the scheme sanction
charge arising by virtue of the scheme chargeable payment or
to the charge to such extent as the regulations may provide,
(b)
for the charge to be apportioned between members of the
25
pension scheme where the interest in the property is held for
the purposes of more than one arrangement under the
pension scheme, and
(c)
for the scheme administrator not to be liable to the scheme
sanction charge or not to be liable to the charge to such extent
30
as the regulations may provide.
(4)
The regulations may make provision for cases where—
(a)
a member of a pension scheme would otherwise be liable to
the scheme sanction charge arising by virtue of a scheme
chargeable payment treated as made by the pension scheme
35
under section 185F in a tax year,
(b)
the member does not meet such conditions as to residence in
the tax year as the regulations may prescribe,
(c)
the member meets those conditions in a subsequent tax year,
and
40
(d)
such other conditions as the regulations may prescribe are
met.
(5)
The regulations may make provision for the member—
(a)
not to be liable to the scheme sanction charge in the tax year
in which the scheme chargeable payment is treated as made,
45
but

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
402

(b)
to be liable in a subsequent tax year to such extent as the
regulations may provide to the scheme sanction charge
arising by virtue of the payment.
(6)
The regulations may—
(a)
amend this Part (apart from this section),
5
(b)
include provision having effect in relation to times before
they are made,
(c)
contain transitional provisions and savings, and
(d)
make different provision for different cases.
(7)
For the purposes of this section a pension scheme is non-UK resident
10
if it is established in a country or territory outside the United
Kingdom.”
11
In section 278 (market value) after subsection (3) insert—
“(3A)
For the purposes of this Part the market value of taxable property, or
of an interest in taxable property, is to be determined in accordance
15
with section 272 of TCGA 1992.
(3B)
Subsection (3A) is subject to any provision made by regulations
under paragraph 36(2) of Schedule 29A.”
12
In section 280(2) (index of defined expressions), in the table, insert the
following entries at the appropriate places—
20

“acquiring an interest in
paragraphs 12 and 27 to 29 of

property (for the purposes of
Schedule 29A”;

the taxable property

provisions)

“building (for the purposes of
paragraph 7(2) of Schedule 29A”;

25

the taxable property

provisions)

“holding an interest in a person
paragraph 16(2) to (4) of Schedule

(for the purposes of the taxable
29A”;

property provisions)

30

“holding an interest in property
paragraph 13 of Schedule 29A”;

(for the purposes of the taxable

property provisions)

“holding directly an interest in
paragraph 20(3) of Schedule 29A”;

a vehicle (for the purposes of

35

the taxable property

provisions)

“holding directly an interest in
paragraphs 14 and 15 of Schedule

property (for the purposes of
29A”;

the taxable property

40

provisions)