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
417

(a)
an investment-regulated pension scheme holds an interest
in property which is not taxable property, and
(b)
that property becomes taxable property otherwise than by
reason of its conversion or adaptation as residential
property,
5

the pension scheme is treated for the purposes of the taxable
property provisions as acquiring an interest in the property.
28    (1)
Subject to paragraph 29, this paragraph applies where—
(a)
an investment-regulated pension scheme holds an interest
in taxable property indirectly, and
10
(b)
there is an increase in the extent of the interest held directly
in a vehicle by the pension scheme or another vehicle.
      (2)
The pension scheme is to be treated for the purposes of this
Schedule as—
(a)
having disposed of the interest in the property
15
immediately before the increase in the extent of the interest
in the vehicle, and
(b)
having re-acquired the interest immediately afterwards.
      (3)
The extent of the interest held directly in a vehicle by a person is
to be determined for the purposes of this paragraph and
20
paragraph 29 in accordance with paragraphs 42 and 43.
29    (1)
Where there is an increase in the extent of the interest held directly
in the vehicle otherwise than by reason of the acquisition of a
further interest in the vehicle, paragraph 28 does not apply unless
the condition in sub-paragraph (2) is met.
25
      (2)
The condition is that the event by which the extent of the interest
held directly in the vehicle increases forms part of a scheme or
arrangement the main purpose or one of the main purposes of
which is—
(a)
to enable the amount of the unauthorised payment treated
30
as arising on the original acquisition of the interest in the
property by the pension scheme to be lower than it
otherwise would have been, or
(b)
to prevent an unauthorised payment from being treated as
made on that original acquisition.
35
      (3)
Unless that condition is met, the increase in the extent of the
interest is also to be disregarded for the purposes of paragraphs 24
to 26.
Associated persons
30    (1)
For the purposes of this Part of this Schedule “associated person”,
40
in relation to a pension scheme, means—
(a)
any member of the pension scheme,
(b)
any person connected with such a member,
(c)
any arrangement (under that or another pension scheme)
relating to a member of the pension scheme,
45
(d)
any arrangement (under that or another pension scheme)
relating to a person connected with such a member, and

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
418

(e)
any associated pension scheme.
      (2)
For the purposes of sub-paragraph (1), a pension scheme is
associated with another pension scheme if members representing
at least 10% by value of one pension scheme are members of the
other pension scheme or connected with such members.
5
      (3)
The percentage by value represented by a member of a pension
scheme is—
where—
AM is an amount equal to the aggregate of the amount of the
sums and the market value of the assets held for the
10
purposes of an arrangement under the pension scheme
relating to the member, and
AA is an amount equal to the aggregate of the amount of the
sums and the market value of the assets held for the
purposes of the pension scheme.
15
      (4)
For the purposes of this Part of this Schedule “associated person”,
in relation to an arrangement under a pension scheme, means—
(a)
the member of the pension scheme to which that
arrangement relates,
(b)
any person connected with such a member,
20
(c)
any arrangement (under that or another pension scheme)
relating to a member of the pension scheme to which that
arrangement relates, and
(d)
any arrangement (under that or another pension scheme)
relating to a person connected with such a member.
25
Part 4
Amount and timing of unauthorised payment
Introduction
31    (1)
This Part of this Schedule has effect for determining—
(a)
the amount of an unauthorised payment treated as made
30
to a member of an investment-regulated pension scheme
by virtue of section 174A, and
(b)
the time when such a payment is treated as made.
      (2)
The amount is determined by—
(a)
finding the total taxable amount in relation to the
35
unauthorised payment (see paragraphs 32 to 40),
(b)
apportioning that amount to the pension scheme (see
paragraphs 41 to 43),
(c)
in a case to which paragraph 28 applies (acquisition etc of
further interest in vehicle), making an adjustment under
40
paragraph 44 to the amount mentioned in paragraph (b),
and

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
419

(d)
apportioning that amount to the member to whom the
payment is treated as made in accordance with paragraph
45.
Acquisition: basic rules
32    (1)
This paragraph applies to a case within subsection (1) of section
5
174A (acquisition of an interest in taxable property).
      (2)
The unauthorised payment is treated as made when the interest in
the property is acquired by the pension scheme.
      (3)
If the interest in the property is acquired because the pension
scheme or another person comes to hold the interest directly, the
10
total taxable amount in relation to the unauthorised payment is—
(a)
the amount of consideration, in money or money’s worth,
given directly or indirectly for the interest, plus
(b)
the amount of any fees and other costs incurred in
connection with the acquisition.
15
      (4)
Sub-paragraph (3) is subject to paragraphs 33 to 35.
      (5)
If the interest in the property is acquired because the pension
scheme or another person comes to hold an interest in a person
who already holds the interest in the property directly or
indirectly, the total taxable amount in relation to the unauthorised
20
payment is—
(a)
the market value, at the date the interest in the person is
acquired, of the interest in the property held by the person
who holds it directly, or
(b)
if the interest in the property is a lease at a rent, the amount
25
of consideration that would be treated as given by the
person for the lease by virtue of paragraph 34 if it were
assigned to the person at that time.
      (6)
If the interest in the property is treated as acquired by the pension
scheme by virtue of paragraph 27 or 28, the total taxable amount
30
in relation to the unauthorised payment is—
(a)
the market value, at the date the interest is treated as
acquired, of the interest in the property held by the person
who holds it directly, or
(b)
if the interest in the property is a lease at a rent, the amount
35
of consideration that would be treated as given by the
person for the lease by virtue of paragraph 34 if it were
assigned to the person at that time.
      (7)
This paragraph is subject to paragraph 36.
Acquisition: further provisions
40
33    (1)
This paragraph applies where—
(a)
an investment-regulated pension scheme acquires an
interest in taxable property because it acquires a
chargeable interest in the property within the meaning of
section 48(1) of the Finance Act 2003,
45

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
420

(b)
the interest is acquired because the pension scheme or
another person comes to hold the interest directly, and
(c)
the whole or part of the consideration for the interest is
consideration other than rent.
      (2)
The provisions of the Finance Act 2003 listed in sub-paragraph (3)
5
apply for determining the amount of the consideration (or the part
that is not rent) as they apply for determining the amount of
chargeable consideration for a land transaction for the purposes of
Part 4 of that Act.
      (3)
Those provisions are—
10
(a)
paragraphs 2 to 8 and 9 to 16 of Schedule 4 (chargeable
consideration);
(b)
section 51 (contingent, uncertain or unascertained
consideration);
(c)
section 52 (annuities etc: chargeable consideration limited
15
to twelve years’ payments).
      (4)
The Treasury may by regulations provide—
(a)
for those provisions to apply with modifications to cases to
which this paragraph applies, and
(b)
for any other provisions of Part 4 of the Finance Act 2003 to
20
apply (with or without modifications) to such cases.
34    (1)
This paragraph applies where—
(a)
an investment-regulated pension scheme acquires an
interest in taxable property because it acquires a
chargeable interest in the property within the meaning of
25
section 48(1) of the Finance Act 2003,
(b)
the interest is acquired because the pension scheme or
another person comes to hold the interest directly, and
(c)
the whole or part of the consideration for the acquisition is
rent.
30
      (2)
The amount of the consideration (or the part that is rent) is to be
taken to be the relevant rental value of the property; and
paragraphs 2(4)(a), 3 and 8 of Schedule 5 (rent) to the Finance Act
2003 apply for determining that value.
      (3)
The following provisions of the Finance Act 2003 apply for the
35
purposes of sub-paragraph (2) for determining the amount of rent
payable as they apply for determining the amount of rent payable
under a lease to which that Act applies—
(a)
paragraphs 2, 5 to 7A, 9 and 16 of Schedule 17A (further
provisions relating to leases);
40
(b)
(subject to the provisions mentioned in paragraph (a)) the
provisions mentioned in paragraph 33(3).
      (4)
The Treasury may by regulations provide—
(a)
for the provisions mentioned in sub-paragraph (2) or (3) to
apply with modifications to cases to which this paragraph
45
applies, and
(b)
for any other provisions of Part 4 of the Finance Act 2003 to
apply (with or without modifications) to such cases.

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
421

      (5)
For the purposes of this paragraph where on an assignment of a
lease the assignee assumes the obligation to pay rent, the
assumption counts as consideration for the assignment.
35    (1)
This paragraph applies where—
(a)
an investment-regulated pension scheme acquires an
5
interest in taxable property because the pension scheme or
another person comes to hold the interest directly,
(b)
the interest is acquired for less than its market value, and
(c)
immediately before the acquisition the interest was held by
a registered pension scheme which was not an investment-
10
regulated pension scheme.
      (2)
This paragraph also applies where—
(a)
an investment-regulated pension scheme acquires an
interest in taxable property because the pension scheme or
another person comes to hold the interest directly,
15
(b)
the interest is acquired for less than its market value, and
(c)
tax relief is available under section 188 or 196 in respect of
the transfer of the interest.
      (3)
The amount of the consideration for the interest is treated as—
(a)
the market value, at the date the interest is acquired, of the
20
interest in the property held by the person who holds it
directly, or
(b)
if the interest in the property is a lease at a rent, the amount
of consideration that would be treated as given by the
person for the lease by virtue of paragraph 34 if it were
25
assigned to the person at that time.
36    (1)
The Treasury may by regulations make provision with respect
to—
(a)
what is to count as consideration for the acquisition of an
interest in taxable property, and
30
(b)
the determination of the amount of such consideration.
      (2)
The Treasury may by regulations make provision with respect to
the determination of the market value of an interest held in taxable
property.
      (3)
Regulations under this paragraph may, in particular, make
35
provision for cases where an investment-regulated pension
scheme acquires—
(a)
an interest in taxable property outside the United
Kingdom,
(b)
a licence to use or occupy taxable property, or
40
(c)
an interest in taxable property which is tangible moveable
property.
      (4)
Regulations under this paragraph may—
(a)
amend this Part of this Schedule, and
(b)
include provision having effect in relation to times before
45
they are made.

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
422

Post-acquisition unauthorised payments
37    (1)
The Treasury may by regulations make provision for an
investment-regulated pension scheme which has acquired an
interest in taxable property to be treated as making one or more
further unauthorised payments where—
5
(a)
the amount of consideration for the acquisition was
determined on the basis of a reasonable estimate, and the
actual amount of the consideration turns out to be higher
than the estimated amount,
(b)
in the case of an interest which is a lease, there is a variation
10
in the rent payable under the lease, or
(c)
in such a case, the amount of consideration for the
acquisition was determined on an assumption about the
length of the term of the lease, and the lease continues after
the end of the term.
15
      (2)
Regulations under this paragraph may—
(a)
amend section 174A or this Schedule (apart from this
paragraph), and
(b)
include provision having effect in relation to times before
they are made.
20
      (3)
References in the taxable property provisions to unauthorised
payments treated as made under section 174A include references
to payments treated as made under regulations under this
paragraph.
Improvement of taxable property
25
38    (1)
This paragraph applies to a case within subsection (2) of section
174A (improvement of taxable property).
      (2)
An unauthorised payment is treated as made when a payment is
made in connection with the improvement works.
      (3)
The total taxable amount in relation to the unauthorised payment
30
is the amount of the payment mentioned in sub-paragraph (2).
Conversion or adaptation as residential property
39    (1)
This paragraph applies to a case within subsection (3) of section
174A (conversion or adaptation as residential property).
      (2)
The unauthorised payment is treated as made on the occurrence of
35
whichever of the following first occurs after the property has
become residential property—
(a)
the substantial completion of the works to convert or adapt
the property;
(b)
the interest in the property ceasing to be held by the
40
pension scheme.
      (3)
But if the property becomes residential property after the end of
the period of three years beginning with the date on which the first
payment was made in connection with the works to convert or

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
423

adapt the property, the unauthorised payment is treated as made
when the property becomes residential property.
      (4)
If the works began before the end of the period of twelve months
beginning with the acquisition of the interest in the property by
the pension scheme, the total taxable amount in relation to the
5
unauthorised payment is—
(a)
the amount of consideration for the interest, determined in
accordance with paragraphs 32 to 36, plus
(b)
the development costs (see sub-paragraph (7)).
      (5)
If the works began after the end of that period, the total taxable
10
amount in relation to the unauthorised payment is—
(a)
the relevant market value (see sub-paragraph (6)), plus
(b)
the development costs (see sub-paragraph (7)).
      (6)
In this paragraph “the relevant market value” means—
(a)
the market value, at the date the works began, of the
15
interest in the property held by the person who holds it
directly, or
(b)
if the interest in the property is a lease at a rent, the amount
of consideration that would be treated as given by the
person for the lease by virtue of paragraph 34 if it were
20
assigned to the person at that time.
      (7)
In this paragraph “the development costs” means the total cost of
the works to convert or adapt the property at the time when the
unauthorised payment is treated as made.
      (8)
Where, at the time the unauthorised payment is treated as made—
25
(a)
an amount will be payable for the works only if some
uncertain future event occurs, or
(b)
an amount will cease to be payable for the works if some
uncertain future event occurs,

the development costs are to be determined on the assumption
30
that the amount will be payable or, as the case may be, will not
cease to be payable.
      (9)
Where, at that time, an amount payable for the works—
(a)
depends on uncertain future events, or
(b)
cannot otherwise be ascertained,
35

that amount is to be determined for the purposes of sub-
paragraph (7) on the basis of a reasonable estimate.
40    (1)
This paragraph applies to a case within subsection (3) of section
174A (conversion or adaptation as residential property).
      (2)
This paragraph applies if —
40
(a)
sub-paragraph (8) of paragraph 39 has effect when an
unauthorised payment is treated as made under that
paragraph,
(b)
an amount estimated under that sub-paragraph later
becomes ascertained, and
45
(c)
the ascertained amount is more than the estimated
amount.