Finance (No.2) Bill

House of Commons

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
424

      (3)
An unauthorised payment is treated as made when the amount
becomes ascertained.
      (4)
The total taxable amount in relation to the unauthorised payment
is the difference between the ascertained amount and the
estimated amount.
5
      (5)
References in the taxable property provisions to unauthorised
payments treated as made under section 174A include references
to payments treated as made under this paragraph.
Apportionment to pension scheme
41    (1)
This paragraph applies for determining—
10
(a)
whether the amount of an unauthorised payment treated
as made by an investment-regulated pension scheme
under section 174A consists of the whole of the total
taxable amount in relation to the payment, and
(b)
if not, how much of the total taxable amount comprises the
15
amount of the unauthorised payment.
      (2)
The pension scheme is treated as making an unauthorised
payment equal to the whole of the total taxable amount where
Condition A, B or C is met.
      (3)
Condition A is that the pension scheme directly holds the interest
20
in the taxable property which gives rise to the unauthorised
payment.
      (4)
Condition B is that—
(a)
the pension scheme holds the interest in the property
indirectly through one vehicle, and
25
(b)
that vehicle is wholly owned by the pension scheme.
      (5)
Condition C is that—
(a)
the pension scheme holds the interest in the property
indirectly through more than one vehicle (a “chain” of
vehicles), and
30
(b)
each vehicle in the chain is wholly owned by another
vehicle in the chain or by the pension scheme.
      (6)
Where—
(a)
the pension scheme holds the interest in the property
indirectly through one vehicle, and
35
(b)
the vehicle is not wholly owned by the pension scheme,

the amount of the unauthorised payment is a proportion of the
total taxable amount determined by reference to the extent of the
pension scheme’s interest in the vehicle.
      (7)
Where—
40
(a)
the pension scheme holds the interest in the property
indirectly through one or more chains of vehicles, and
(b)
one or more vehicles in such a chain is not wholly owned
by another vehicle in the chain or by the pension scheme,

the amount of the unauthorised payment is the amount or the total
45
of all the amounts found under sub-paragraph (8) for each chain

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
425

through which the pension scheme owns the interest in the
property.
      (8)
The amount is a proportion of the total taxable amount
determined by reference to the extent of the interest held directly
by the pension scheme or another vehicle in the chain in each
5
vehicle in the chain—
(a)
starting with the vehicle which holds the interest in the
property directly, and
(b)
ending with the vehicle in which the pension scheme
directly holds an interest.
10
      (9)
For the purposes of this paragraph a vehicle is wholly owned by a
person if no other person directly holds an interest in the vehicle.
     (10)
This paragraph is subject to paragraph 44.
42    (1)
References in this Schedule to the extent of an interest held directly
by a person in a vehicle are references to the proportion of the
15
interests of everyone who directly holds an interest in the vehicle
which on a just and reasonable apportionment is represented by
that interest.
      (2)
Sub-paragraph (1) is subject to paragraph 43, which explains how
to determine the extent of a person’s interest in a vehicle for the
20
purposes of the taxable property provisions where the vehicle is a
company.
      (3)
The Treasury may by regulations—
(a)
amend paragraph 43, or
(b)
amend this Part of this Schedule for the purposes of
25
explaining how to determine the extent of a person’s
interest in a vehicle in other cases.
      (4)
Regulations under sub-paragraph (3) may include provision
having effect in relation to times before they are made.
43    (1)
For the purposes of this Schedule, and except in a case to which
30
sub-paragraph (3) applies, the extent of a person’s interest in a
company is determined by reference to whichever of the following
gives the person the greatest interest in the company—
(a)
the percentage of the share capital or issued share capital
of the company owned by the person;
35
(b)
the percentage of the voting rights in the company owned
by the person;
(c)
the percentage of all the income of the company to which
the person has a right;
(d)
the percentage of the amounts distributed on a distribution
40
in relation to the company to which the person has a right;
(e)
the percentage of the assets of the company to which the
person has a right on a winding-up or in any other
circumstances;
(f)
where the person has a right to a percentage of a particular
45
asset or description of assets of the company, or of the
income or gains from such an asset or description (either
generally or in particular circumstances), that percentage

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
426

or the highest of all the percentages found under this
paragraph.
      (2)
For the purposes of sub-paragraph (1) a person is treated as
owning or having a right to anything which the person will only
acquire—
5
(a)
at some future date,
(b)
if the person exercises a right to acquire it, or
(c)
if some other uncertain future event occurs or does not
occur.
      (3)
Where—
10
(a)
a person has an interest in a company as a result of lending
the company money to fund the acquisition of an interest
in taxable property, and
(b)
this sub-paragraph gives the person a greater interest in
the company than any interest given by sub-paragraph (1),
15

for the purposes of this Schedule the extent of the person’s interest
in the company is determined by the proportion that the value of
the loan bears to the total value of the assets held directly by the
company.
      (4)
For the purposes of sub-paragraph (3)—
20
(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
specifically), and
25
(c)
where generally accepted accounting practice offers a
choice of valuation between cost basis and fair value, fair
value must be used.
Deemed acquisition: adjustment
44    (1)
This paragraph applies where an investment-regulated pension
30
scheme is treated as acquiring an interest in taxable property by
virtue of paragraph 28 (increase in extent of interest in vehicle).
      (2)
The amount of the unauthorised payment treated as made by the
pension scheme is—
where—
35
UP is the amount that would have been the amount of the
unauthorised payment apart from this paragraph; and
UPB is the amount that would have been the amount of any
unauthorised payment treated as made by the pension
scheme if it had acquired the interest in the property
40
immediately before the increase in the extent of the interest
in the vehicle (assuming the total taxable amount in
relation to the unauthorised payment to be that given
under paragraph 32(5)).

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
427

Apportionment to member
45    (1)
This paragraph has effect for determining—
(a)
whether the whole of an unauthorised payment treated as
made by a pension scheme is to be treated as made to a
member of the scheme, and
5
(b)
if not, how much of the unauthorised payment is to be
treated as made to the member.
      (2)
If the interest in the taxable property which gives rise to the
unauthorised payment is held by the pension scheme for the
purposes of—
10
(a)
the arrangement under the pension scheme relating to the
member, and
(b)
at least one other arrangement under the pension scheme,

the unauthorised payment is to be apportioned on a just and
reasonable basis between all of the arrangements for the purposes
15
of which the interest in the property is held.
      (3)
Otherwise, the whole of the unauthorised payment is to be treated
as made to the member.”
14    (1)
Schedule 34 (non-UK schemes: application of certain charges) is amended as
follows.
20
      (2)
In paragraph 1 (member payment charges)—
(a)
in sub-paragraph (3)(a), after “charge” insert “(except as imposed by
virtue of section 174A (taxable property held by investment-
regulated pension schemes))”, and
(b)
in sub-paragraph (4), after “Part” insert “(apart from the taxable
25
property provisions)”.
      (3)
After paragraph 7 insert—
“Unauthorised payment charge: taxable property
7A    (1)
The Commissioners for Her Majesty’s Revenue and Customs may
by regulations make provision for a transfer member of a relevant
30
non-UK scheme to be liable to the unauthorised payment charge
in the same or similar circumstances to those in which—
(a)
a member of a registered pension scheme is liable to that
charge by virtue of section 174A and Schedule 29A (taxable
property held by investment-regulated pension scheme),
35
(b)
the scheme administrator of such a scheme is liable to the
scheme sanction charge by virtue of section 185A (income
from taxable property) or 185F (gains from taxable
property), or
(c)
a member of such a scheme is liable to the scheme sanction
40
charge by virtue of those provisions in consequence of
provision made by regulations under section 273ZA.
      (2)
The regulations may—
(a)
make provision for the application of any or all of the
taxable property provisions in relation to a transfer
45
member of a relevant non-UK scheme subject to any

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
428

omissions, additions and other modifications contained in
the regulations,
(b)
include provision having effect in relation to times before
they are made,
(c)
contain transitional provisions and savings, and
5
(d)
make different provision for different cases.”
15
In Schedule 36 (transitional provisions and savings) after paragraph 37
insert—
“Pre-commencement holdings of taxable property
37A   (1)
This paragraph applies in relation to an investment-regulated
10
pension scheme if—
(a)
on 6th April 2006 the pension scheme holds an interest in
taxable property which it acquired before that date, and
(b)
immediately before that date the pension scheme was not
prohibited from holding the interest in the property,
15

and, in a case where immediately before that date the interest in
the property was held directly by a person other than the pension
scheme, if the pension scheme was not prohibited from holding
the interest it held in that person at that time.
      (2)
This paragraph also applies in relation to an investment-regulated
20
pension scheme if—
(a)
before 6th April 2006 a contract to acquire an interest in
property was entered into by the pension scheme or a
person in whom the pension scheme directly or indirectly
held an interest when the contract was entered into,
25
(b)
the pension scheme does not acquire the interest in the
property before that date,
(c)
the property is taxable property on that date, and
(d)
immediately before that date the pension scheme would
not have been prohibited from holding the interest in the
30
property,

and, in a case where the contract to acquire the interest in the
property was entered into by a person in whom the pension
scheme directly or indirectly held an interest, if the pension
scheme was not prohibited from holding the interest it held in that
35
person immediately before that date.
      (3)
The taxable property provisions (apart from this paragraph and
paragraphs 37B to 37E) do not apply in relation to the pension
scheme and the interest in the property.
      (4)
For the purposes of this Schedule, a pension scheme is to be
40
treated as having been prohibited from holding an interest in
property or in a person immediately before 6th April 2006 if
approval could have been withdrawn under section 591B, 620(7)
or 650 of ICTA on the basis of the holding of the interest at that
time.
45
      (5)
This paragraph is subject to paragraphs 37B to 37E.

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
429

37B   (1)
Paragraph 37A ceases to apply to an investment-regulated
pension scheme and an interest in taxable property on the relevant
date if Condition A, B or C is met.
      (2)
Condition A is that there is a change in the occupation or use of the
property such that, if the change had occurred immediately before
5
6th April 2006, the pension scheme would have been prohibited
from holding the interest in the property at that time.
      (3)
Condition B is that—
(a)
the taxable property is residential property on 6th April
2006, and
10
(b)
improvement works on the property are begun on or after
that date.
      (4)
Condition C is that there is a change in the pension scheme’s
interest in—
(a)
any person who holds the interest in the property directly,
15
or
(b)
any person who has entered into a contract to acquire the
interest in the property,

such that, if the change had occurred immediately before 6th April
2006, the pension scheme would have been prohibited from
20
holding the interest in the person at that time.
      (5)
For the purposes of this paragraph the relevant date is—
(a)
where Condition A is met, the date on which the change in
the occupation or use of the taxable property takes place,
(b)
where Condition B is met, the date on which the
25
improvement works are substantially completed, or
(c)
where Condition C is met, the date on which the change in
the pension scheme’s interest in the person takes place,

but where the pension scheme has not acquired the interest in the
property by what would otherwise be the relevant date, the
30
relevant date is the date on which it acquires the interest.
      (6)
Where Condition A, B or C is met the pension scheme is to be
treated for the purposes of the taxable property provisions as
acquiring the interest in the property on the relevant date.
      (7)
For the purposes of Schedule 29A the total taxable amount in
35
relation to any unauthorised payment which the pension scheme
is treated as having made by reason of the acquisition is—
(a)
the market value on the relevant date 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
40
of consideration that would be treated as given by the
person for the lease by virtue of paragraph 34 of Schedule
29A if it were assigned to the person on that date.
      (8)
Where—
(a)
the pension scheme holds the interest in the property
45
directly, and
(b)
the interest is not a lease at a rent,

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
430


for the purposes of section 185G (gains from taxable property:
disposal by person holding directly) the pension scheme is to be
treated as having acquired the interest for a consideration equal to
its market value on 6th April 2006.
      (9)
For the purposes of sub-paragraph (3)(b) improvement works are
5
to be taken to have been begun before 6th April 2006 only if—
(a)
a binding contract for the works was entered into before
that date, or
(b)
a substantial amount of the works has been carried out
before that date.
10
     (10)
For the purposes of this Schedule “improvement works” means, in
relation to a property, works which—
(a)
materially improve the property, and
(b)
are not carried out wholly for the purposes of complying
with a statutory requirement or a requirement imposed by
15
a government department, a statutory body or a person
holding a statutory office.
     (11)
For the purposes of sub-paragraph (10)(a) a property is materially
improved by works only if—
(a)
its market value on the date the works are substantially
20
completed (“MVW”) exceeds what would have been its
market value on that date if the works had not been carried
out (“MV”), and
(b)
the amount by which MVW exceeds MV is greater than
20% of MV.
25
     (12)
For the purposes of sub-paragraph (10)(b)—
“statutory body” means a body set up by or under an
enactment (including an enactment comprised in, or an
instrument made under, an Act of the Scottish Parliament);
“statutory office” means a body set up by or under such an
30
enactment; and
“statutory requirement” means a requirement imposed by
provision made by or under such an enactment.
     (13)
This paragraph is subject to paragraph 37D.
37C   (1)
This paragraph applies where—
35
(a)
on 6th April 2006 an investment-regulated pension scheme
holds an interest in taxable property which it acquired
before that date, and
(b)
immediately before that date the pension scheme was
prohibited from holding the interest.
40
      (2)
This paragraph also applies where—
(a)
on 6th April 2006 an investment-regulated pension scheme
holds an interest in taxable property indirectly which it
acquired before that date, and
(b)
immediately before that date the pension scheme was
45
prohibited from holding the interest it held in the person
that held the interest in the property directly at that time.