Finance (No.2) Bill

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Session 2005 - 06
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Finance (No.2) Bill

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
410

Indirect holding
16    (1)
For the purposes of the taxable property provisions a person holds
an interest in property indirectly if the person does not hold the
interest directly but (whether jointly, in common or alone)—
(a)
holds an interest in a person who holds the interest in the
5
property directly, or
(b)
holds an interest in a person who holds the interest in the
property indirectly by virtue of paragraph (a) or this
paragraph.
      (2)
For the purposes of the taxable property provisions a person holds
10
an interest in another person if—
(a)
the person holds an interest, right or power in or over that
other person, or
(b)
the person lends money to that other person to fund the
acquisition by that other person of an interest in taxable
15
property.
      (3)
But sub-paragraph (2)(b) does not apply where—
(a)
the loan is an authorised employer loan made by a pension
scheme to or in respect of a sponsoring employer (see
section 179),
20
(b)
the interest in the property is acquired so that the property
may be used for the purposes of a trade, profession or
vocation carried on by the sponsoring employer or for the
purposes of the sponsoring employer’s administration or
management, and
25
(c)
after the acquisition, the property is not occupied or used
by a member of the pension scheme or a person connected
with such a member.
      (4)
In the taxable property provisions references to a person holding
an interest in another person include, in the case of an investment-
30
regulated pension scheme, an arrangement under a pension
scheme or a trust which is not a pension scheme a reference to the
interest in the other person being held for the purposes of the
pension scheme, the arrangement or the trust.
      (5)
Paragraphs 17 to 19 explain what it means for a person to hold an
35
interest in another person by virtue of sub-paragraph (2)(a) in a
case where that other person is a company, collective investment
scheme or trust.
      (6)
The Treasury may by regulations—
(a)
amend paragraphs 17 to 19, or
40
(b)
amend this Part of this Schedule for the purposes of
explaining what it means for a person to hold an interest,
right or power in or over another person in other cases.
      (7)
This paragraph is subject to paragraphs 20 to 26.
17    (1)
For the purposes of paragraph 16 a person holds an interest in a
45
company if—
(a)
the person has, or is entitled to acquire, share capital or
voting rights in the company,

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411

(b)
the person has, or is entitled to acquire, a right to receive or
participate in distributions of the company,
(c)
the person is entitled to secure that income or assets
(whether present or future) of the company will be applied
directly or indirectly for the person’s benefit, or
5
(d)
the person, either alone or together with other persons, has
control of the company.
      (2)
In sub-paragraph (1) references to a person being entitled to do
anything apply where a person—
(a)
is currently entitled to do it at a future date, or
10
(b)
will at a future date be entitled to do it.
      (3)
In sub-paragraph (1) “control” has the meaning given by section
416 of ICTA.
18    (1)
For the purposes of paragraph 16 a person holds an interest in a
collective investment scheme if the person is a participant in the
15
scheme.
      (2)
In this Schedule—
(a)
“collective investment scheme” has the meaning given by
section 235 of FISMA 2000, and
(b)
“participant”, in relation to such a scheme, has the
20
meaning given by subsection (2) of that section.
19    (1)
For the purposes of paragraph 16 a pension scheme holds an
interest in a trust if Condition A or B is met.
      (2)
Condition A is that—
(a)
the pension scheme has a relevant interest in the trust,
25
(b)
the pension scheme, a member of the pension scheme or a
person connected with such a member has made a
payment to the trust on or after the acquisition of the
interest, and
(c)
the payment is not one to which sub-paragraph (7) applies.
30
      (3)
Condition B is that—
(a)
a member of the pension scheme or a person connected
with such a member has a relevant interest in the trust,
(b)
the pension scheme has made a payment to the trust on or
after the acquisition of the interest, and
35
(c)
the payment is not one to which sub-paragraph (7) applies.
      (4)
For the purposes of applying paragraph 16 for determining
whether a pension scheme holds an interest in property indirectly,
a person other than the pension scheme holds an interest in a trust
if —
40
(a)
the person has a relevant interest in the trust,
(b)
the person has made a payment to the trust on or after the
acquisition of the interest, and
(c)
the payment is not one to which sub-paragraph (7) applies.
      (5)
For the purposes of this paragraph a person has a relevant interest
45
in a trust if—

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(a)
any property which may at any time be comprised in the
trust or any derived property is, or will or may become,
payable to or applicable for the benefit of the person in any
circumstances, or
(b)
the person enjoys a benefit deriving directly or indirectly
5
from any property which is comprised in the trust or any
derived property.
      (6)
In sub-paragraph (5) “derived property”, in relation to any
property, means income from that property or any other property
directly or indirectly representing proceeds of, or income from,
10
that property.
      (7)
This sub-paragraph applies to a payment if—
(a)
it is made as part of an arm’s length transaction by which
property or a benefit is to be provided in return for the
payment, and
15
(b)
it is made otherwise than for the purposes of enabling a
member of the pension scheme or a person connected with
such a member to occupy or use any property.
      (8)
Section 839 of ICTA (connected persons) applies for the purposes
of this paragraph.
20
      (9)
This paragraph does not apply in relation to a unit trust scheme
within the meaning of section 237(1) of FISMA 2000 (but see
paragraph 18).
Exceptions to indirect holding
20    (1)
A pension scheme does not hold an interest in property indirectly
25
through a vehicle through which the pension scheme would
otherwise hold the interest in the property indirectly where one of
the following paragraphs applies in relation to the vehicle, and, in
particular—
(a)
paragraph 21 makes provision in relation to holding
30
through vehicles which carry on trading activities,
(b)
paragraph 22 makes provision in relation to holding
through Real Estate Investment Trusts,
(c)
paragraphs 23 to 25 make provision in relation to holding
through other kinds of vehicles, and
35
(d)
paragraph 26 makes provision in relation to holding
through a vehicle which holds the interest in the property
directly by virtue of paragraph 14(3) (receipt of payments
determined by reference to value of or income from
property).
40
      (2)
In the taxable property provisions “vehicle”, in relation to a
pension scheme which holds an interest in taxable property
indirectly, means a person through whom the pension scheme
holds the interest in the property.
      (3)
For the purposes of the taxable property provisions a person holds
45
an interest in a vehicle directly if the person holds an interest of the
kind mentioned in paragraph 16(2) in the vehicle.

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      (4)
For the purposes of the taxable property provisions a person holds
an interest in a vehicle indirectly if the person does not hold the
interest directly but—
(a)
holds an interest in a person who holds an interest in the
vehicle directly, or
5
(b)
holds an interest in a person who holds the interest in the
vehicle indirectly by virtue of paragraph (a) or this
paragraph.
21    (1)
This paragraph applies to a vehicle in which a pension scheme
directly or indirectly holds an interest where—
10
(a)
the vehicle’s main activity is the carrying on of a trade,
profession or vocation,
(b)
the pension scheme does not, whether alone or together
with one or more associated persons, have control of the
vehicle, and
15
(c)
neither a member of the pension scheme nor a person
connected with such a member is a controlling director of
the vehicle or any other vehicle which holds an interest in
the vehicle directly or indirectly.
      (2)
But this paragraph does not apply if the purpose or one of the
20
purposes for which the pension scheme holds the interest in the
vehicle is to enable a member of the pension scheme or a person
connected with such a member to occupy or use the property.
      (3)
In sub-paragraph (1)—
(a)
“control” has the same meaning as in section 416 of ICTA
25
(reading references in that section to a company as
references to the vehicle and references to associates as
including associated persons), and
(b)
“controlling director”, in relation to a vehicle, means a
director to whom paragraph (b) of section 417(5) of that
30
Act applies (reading the reference to associates in that
paragraph as including associated persons).
      (4)
For the purposes of this paragraph a pension scheme or an
arrangement under a pension scheme has control of a vehicle if the
pension scheme or the arrangement holds such interest as would,
35
if the pension scheme or the arrangement were a person, mean
that the person had control of the vehicle.
      (5)
Section 839 of ICTA (connected persons) applies for the purposes
of this paragraph.
      (6)
For the definition of “associated person” see paragraph 30.
40
22    (1)
This paragraph applies to a vehicle in which a pension scheme
directly or indirectly holds an interest where the vehicle is—
(a)
a company to which Part 4 of the Finance Act 2006 (Real
Estate Investment Trusts) applies, or
(b)
a member of a group to which that Part applies.
45
      (2)
But this paragraph does not apply if the purpose or one of the
purposes for which the pension scheme holds the interest in the

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Schedule 21 — Taxable property held by investment-regulated pension schemes
414

vehicle is to enable a member of the pension scheme or a person
connected with such a member to occupy or use the property.
      (3)
Section 839 of ICTA (connected persons) applies for the purposes
of sub-paragraph (2).
23    (1)
This paragraph applies to a vehicle in which a pension scheme
5
directly or indirectly holds an interest where—
(a)
Conditions A to C are met in relation to the vehicle, and
(b)
paragraph 24 applies to the pension scheme’s interest in
the vehicle.
      (2)
Condition A is that—
10
(a)
the total value of the assets held directly by the vehicle is at
least £1 million, or
(b)
the vehicle holds directly at least three assets which consist
of an interest in residential property,

and no asset held directly by the vehicle which consists of an
15
interest in taxable property has a value which exceeds 40% of the
total value of the assets held directly by the vehicle.
      (3)
Condition B is that, if the vehicle is a company—
(a)
it is resident in the United Kingdom and is not a close
company, or
20
(b)
it is not resident in the United Kingdom and would not be
a close company if it were resident in the United Kingdom.
      (4)
Condition C is that the vehicle does not have as its main purpose,
or one of its main purposes, the direct or indirect holding of an
animal or animals used for sporting purposes.
25
      (5)
For the purposes of sub-paragraph (2)—
(a)
assets must be valued in accordance with generally
accepted accounting practice,
(b)
no account is to be taken of liabilities secured against or
otherwise relating to assets (whether generally or
30
specifically), and
(c)
where generally accepted accounting practice offers a
choice of valuation between cost basis and fair value, fair
value must be used.
      (6)
The Treasury may by order—
35
(a)
increase the amount for the time being specified in
paragraph (a) of sub-paragraph (2), or
(b)
increase the percentage for the time being specified in that
sub-paragraph.
24    (1)
This paragraph applies to the interest held directly or indirectly by
40
a pension scheme in a vehicle where—
(a)
Condition A is met, and
(b)
Condition B or C is met.
      (2)
Condition A is that the pension scheme does not hold the interest
in the vehicle for the purpose of enabling a member of the pension
45
scheme or a person connected with such a member to occupy or
use the property.

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      (3)
Condition B is that—
(a)
the pension scheme is an occupational pension scheme,
and
(b)
the pension scheme does not, either alone or together with
one or more associated persons, directly or indirectly hold
5
an interest in the vehicle to which sub-paragraph (5)
applies.
      (4)
Condition C is that—
(a)
the pension scheme is not an occupational pension scheme,
and
10
(b)
no arrangement under the pension scheme, either alone or
together with one or more associated persons, directly or
indirectly holds an interest in the vehicle to which sub-
paragraph (5) applies.
      (5)
This sub-paragraph applies to the following interests—
15
(a)
10% or more of the share capital or issued share capital of
the vehicle;
(b)
10% or more of the voting rights in the vehicle;
(c)
a right to receive 10% or more of the income of the vehicle;
(d)
such interest in the vehicle as gives an entitlement to 10%
20
or more of the amounts distributed on a distribution in
relation to the vehicle;
(e)
such interest in the vehicle as gives an entitlement to 10%
or more of the assets of the vehicle on a winding-up or in
any other circumstances;
25
(f)
such interest in the vehicle as gives rise to income or gains
from a specific property.
      (6)
Section 839 of ICTA (connected persons) applies for the purposes
of this paragraph.
      (7)
For the definition of “associated person” see paragraph 30.
30
25    (1)
This paragraph contains provisions supplementary to paragraph
24.
      (2)
Where—
(a)
paragraph 23(1) does not apply in relation to a vehicle in
which the pension scheme directly or indirectly holds an
35
interest merely because Condition C in paragraph 24(4) is
not met in relation to an arrangement under the pension
scheme, and
(b)
accordingly, the pension scheme holds an interest in
property indirectly through the vehicle,
40

the interest in the property is to be treated as held through the
vehicle for the purposes of another arrangement under the
pension scheme only if that arrangement, either alone or together
with one or more associated persons, directly or indirectly holds
an interest in the vehicle to which paragraph 24(5) applies.
45
      (3)
Sub-paragraph (4) applies for determining the percentage of an
interest held by a person in a vehicle at a time when the person
holds that interest indirectly.

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      (4)
That percentage is equal to the percentage of the total taxable
amount that would be apportioned to the person under
paragraphs 41 to 43—
(a)
where the person is not the pension scheme, if the person
were the pension scheme, and
5
(b)
in any case, if the person were treated as making an
unauthorised payment by virtue of the vehicle coming to
hold the interest in the property directly at that time.
      (5)
For the definition of “associated person” see paragraph 30.
26    (1)
This paragraph applies to a vehicle in which a pension scheme
10
directly or indirectly holds an interest where—
(a)
the vehicle holds the interest in the property directly by
virtue of paragraph 14(3) merely because it does not meet
Condition C in paragraph 15(4), and
(b)
sub-paragraph (2) applies in relation to the pension
15
scheme.
      (2)
This sub-paragraph applies in relation to the pension scheme if—
(a)
where the pension scheme is an occupational pension
scheme, the pension scheme is not, either alone or together
with one or more associated persons, deemed to be entitled
20
to 10% or more of the market value of or the income from
the property, or
(b)
where the pension scheme is not an occupational pension
scheme, no arrangement under the pension scheme, either
alone or together with one or more associated persons, is
25
deemed to be so entitled.
      (3)
For the purposes of this paragraph the percentage of the market
value of or the income from the property to which a person is
deemed to be entitled at any time is—
where—
30
IG is the percentage of the market value of or the income from
the property to which the vehicle that holds the interest in
the property directly is entitled at that time, and
TTA is the percentage of the total taxable amount that would
be apportioned to the person at that time on the
35
assumptions mentioned in sub-paragraph (4).
      (4)
Those assumptions are—
(a)
if the person is not the pension scheme, that the person is
the pension scheme, and
(b)
in any case, that the person is treated as making an
40
unauthorised payment by virtue of the vehicle coming to
hold the interest in the property directly at that time.
      (5)
For the definition of “associated person” see paragraph 30.
Deemed acquisition
27
Where—
45