Finance (No.2) Bill

House of Commons

Session 2005 - 06
Internet Publications
Other Bills before Parliament

Finance (No.2) Bill

Finance (No.2) Bill
Schedule 12 — Settlements: amendment of TCGA 1992 etc
Part 1 — Settlors, trustees and settlements
308

(a)
in subsection (2)(a) after “any property which” insert “is or”,
(b)
after subsection (2) insert—
“(2A)
A settlor shall also be regarded as having an interest in a
settlement (subject to the following provisions of this section)
if—
5
(a)
any property which is or may at any time be
comprised in the settlement, or any derived property,
is, or will or may become, payable to or applicable for
the benefit of a child of the settlor, at a time when that
child is a dependent child of his, in any circumstances
10
whatsoever, or
(b)
a dependent child of the settlor enjoys a benefit
deriving directly or indirectly from any property
which is comprised in the settlement or any derived
property.”,
15
(c)
after subsection (3) insert—
“(3A)
In this section—
(a)
“dependent child” means a child who—
(i)
is under the age of 18 years,
(ii)
is unmarried, and
20
(iii)
does not have a civil partner, and
(b)
“child” includes a stepchild.
(3B)
For the purposes of subsection (2A) above no account shall be
taken of a term of a settlement relating to dependent children
of a settlor in respect of any time at which he has no
25
dependent child.”,
(d)
in subsection (6)—
(i)
omit “or” at the end of paragraph (a), and
(ii)
after paragraph (b) insert— “; or
(c)
in a case where the settlor is regarded as having an
30
interest in a settlement by reason only of—
(i)
the fact that property is, or will or may
become, payable to or applicable for the
benefit of a dependent child of his, or
(ii)
the fact that a benefit is enjoyed by such a
35
child,

where the settlor ceases during the year to have (and
does not in that year subsequently come to have) any
dependent child in relation to whom subsection
(2A)(a) or (b) above applies.”, and
40
(e)
after subsection (8) insert—
“(9)
This section shall have effect subject to the provisions of
section 30 of the Finance Act 2005.”
      (2)
Sub-paragraph (1) shall have effect for the purpose of determining whether
for the purposes of section 77 a settlor is regarded as having an interest in a
45
settlement (whenever created) on or after 6th April 2006.
4     (1)
In section 169F of TCGA 1992 (meaning of “interest in a settlement” for
purposes of sections 169B to 169D)—

Finance (No.2) Bill
Schedule 12 — Settlements: amendment of TCGA 1992 etc
Part 1 — Settlors, trustees and settlements
309

(a)
in subsection (1) for “or (3)” substitute “, (3) or (3A)”,
(b)
in subsection (2)(a) after “any property which” insert “is or”,
(c)
after subsection (3) insert—
“(3A)
This subsection applies if—
(a)
any property which is or may at any time be
5
comprised in the settlement, or any derived property,
is, or will or may become, payable to or applicable for
the benefit of a child of the individual, at a time when
that child is a dependent child of his, in any
circumstances whatsoever, or
10
(b)
a dependent child of the individual enjoys a benefit
deriving directly or indirectly from any property
which is comprised in the settlement or any derived
property.”, and
(d)
after subsection (4) insert—
15
“(4A)
In this section—
(a)
“dependent child” means a child who—
(i)
is under the age of 18 years,
(ii)
is unmarried, and
(iii)
does not have a civil partner, and
20
(b)
“child” includes a stepchild.
(4B)
For the purposes of subsection (3A) above no account shall be
taken of a term of a settlement relating to dependent children
of an individual in respect of any time at which he has no
dependent child.”
25
      (2)
Sub-paragraph (1) shall have effect for the purpose of determining whether
for the purposes of sections 169B to 169D and 169F an individual is to be
regarded as having an interest in a settlement (whenever created) on or after
6th April 2006.
      (3)
But sub-paragraph (1) shall not have effect in relation to section 169C if the
30
relevant disposal (within the meaning of section 169C(1)) is made on or
before 5th April 2006.
5     (1)
In paragraph 7(5) of Schedule 4A to TCGA 1992 (disposal of interest in
settled property)—
(a)
leave out “or” at the end of paragraph (a), and
35
(b)
after paragraph (b) insert— “, or
(c)
in a case where the settlor is regarded as having an interest
in a settlement by reason only of—
(i)
the fact that property is, or will or may become,
payable to or applicable for the benefit of a
40
dependent child of his, or
(ii)
the fact that a benefit is enjoyed by such a child,

where the settlor ceases during the year to have (and does
not in that year subsequently come to have) any dependent
child in relation to whom section 77(2A)(a) or (b) applies.”
45
      (2)
Sub-paragraph (1) shall have effect for the purpose of determining whether
a settlor is regarded as having an interest in a settlement (whenever created)
for the purposes of Schedule 4A to TCGA 1992 on or after 6th April 2006.

Finance (No.2) Bill
Schedule 12 — Settlements: amendment of TCGA 1992 etc
Part 2 — Sub-fund settlements
310

Part 2
Sub-fund settlements
6     (1)
After section 69 of TCGA 1992 insert—
“69A
Sub-fund settlements

Schedule 4ZA (which makes provision about sub-fund settlements)
5
shall have effect.”
      (2)
After Schedule 4 to TCGA 1992 insert—
“Schedule 4ZA
Sub-fund settlements
Making a sub-fund election
10
1
The trustees of a settlement (the “principal settlement”) may elect
that a fund or other specified portion of the settled property (the
“sub-fund”) be treated, unless the context otherwise requires, as a
separate settlement (the “sub-fund settlement”) for the purposes
of this Act, and the election shall have effect.
15
2     (1)
An election under paragraph 1 (a “sub-fund election”) must
specify the date on which it is to be treated as having taken effect,
which must not be later than the date on which it is made.
      (2)
The election shall be treated as having taken effect—
(a)
at the beginning of the specified date, or
20
(b)
if there is a deemed disposal of an asset by the trustees of
the principal settlement under section 71(1) (by virtue of
paragraph 19) or section 80(2) (by virtue of paragraph
18(2)), on the specified date immediately after the deemed
disposal.
25
3
Trustees may make a sub-fund election only if—
(a)
Conditions 1 to 4 are satisfied when the election is made,
and
(b)
Conditions 2 to 4 were satisfied throughout the period
beginning with the time when the election is to be treated
30
as having taken effect and ending immediately before the
election is made.
4
Condition 1 is that the principal settlement is not itself a sub-fund
settlement.
5
Condition 2 is that the sub-fund is not the whole of the property
35
comprised in the principal settlement.
6
Condition 3 is that, if the sub-fund election had taken effect, the
sub-fund settlement would not consist of or include an interest in
an asset any other interest in which would be comprised in the
principal settlement.
40
7
For the purpose of Condition 3—
(a)
sections 104(1) and 109(2)(a) shall not have effect, and

Finance (No.2) Bill
Schedule 12 — Settlements: amendment of TCGA 1992 etc
Part 2 — Sub-fund settlements
311

(b)
“interest”, in relation to any asset, means an interest as a
co-owner of the asset (whether the asset is owned jointly or
in common and whether or not the interests of the co-
owners are equal).
8
Condition 4 is that, if the sub-fund election had taken effect, no
5
person would be a beneficiary under both the sub-fund settlement
and the principal settlement.
9     (1)
For the purpose of Condition 4 a person is a beneficiary under a
settlement—
(a)
if—
10
(i)
any property which is or may at any time be
comprised in the settlement, or
(ii)
any derived property,

is, or will or may become, payable to him or applicable for
his benefit in any circumstances whatsoever, or
15
(b)
if he enjoys a benefit deriving directly or indirectly from—
(i)
any property which is comprised in the settlement,
or
(ii)
any derived property.
      (2)
But for the purpose of Condition 4 a person is not to be regarded
20
as a beneficiary under a settlement if property comprised in the
settlement, or any derived property, will or may become payable
to him or applicable for his benefit by reason only of—
(a)
his marrying, or entering into a civil partnership with, a
beneficiary under the settlement,
25
(b)
the death of a beneficiary under the settlement,
(c)
the exercise by the trustees of the settlement of—
(i)
a power conferred by section 32 of the Trustee Act
1925 (c. 19) or section 33 of the Trustee Act
(Northern Ireland) 1958 (c. 23 (N.I.)) (powers of
30
advancement),
(ii)
a power conferred by the law of a jurisdiction other
than England and Wales or Northern Ireland
which makes provision similar to the provisions
specified in sub-paragraph (i), or
35
(iii)
a power of advancement which is conferred by the
instrument creating the principal settlement, or by
another instrument made in accordance with the
terms of the principal settlement, and which is
subject to the same restrictions as those specified in
40
section 32(1)(a) and (c) of the Trustee Act 1925, or
(d)
the failure or determination of trusts of the kind described
in section 33 of the Trustee Act 1925 (protective trusts).
      (3)
In this paragraph “derived property”, in relation to any property,
means—
45
(a)
income from that property,
(b)
property directly or indirectly representing—
(i)
proceeds of that property, or
(ii)
proceeds of income from that property, or

Finance (No.2) Bill
Schedule 12 — Settlements: amendment of TCGA 1992 etc
Part 2 — Sub-fund settlements
312

(c)
income from property which is derived property by virtue
of paragraph (b).
Sub-fund elections: procedure
10
A sub-fund election must be made—
(a)
by notice to an officer of Revenue and Customs, and
5
(b)
in such form as the Commissioners for Her Majesty’s
Revenue and Customs may require.
11
A sub-fund election may not be made after the second 31st January
after the year of assessment in which the date on which the
election is to be treated as having taken effect falls.
10
12
A sub-fund election must contain—
(a)
a declaration by each trustee of the principal settlement
that he consents to the election,
(b)
a statement by the trustees of the principal settlement that
the requirement in paragraph 3 is satisfied,
15
(c)
such information as the Commissioners for Her Majesty’s
Revenue and Customs may require in relation to the
principal settlement (which may, in particular, include
information relating to the trustees, the trusts, property
which is or has been comprised in the settlement, the
20
settlors or the beneficiaries),
(d)
a declaration by the trustees of the principal settlement
that the information given in the election is correct, to the
best of their knowledge and belief, and
(e)
such other declarations as the Commissioners for Her
25
Majesty’s Revenue and Customs may require.
13
A sub-fund election may not be revoked.
Power to make enquiries
14
Where a sub-fund election has been made, an officer of Revenue
and Customs may by notice require a person specified in
30
paragraph 16 to supply information for the purposes of
determining whether paragraph 3 was satisfied.
15
The notice shall specify a period of not less than 60 days within
which the information must be supplied.
16    (1)
The persons mentioned in paragraph 14 are—
35
(a)
a person who is or has been a trustee of a relevant
settlement;
(b)
a person who is or has been a beneficiary under a relevant
settlement;
(c)
a person who is or has been a settlor in relation to a
40
relevant settlement.
      (2)
For the purposes of sub-paragraph (1) a settlement is a relevant
settlement if it is—
(a)
the sub-fund settlement, or
(b)
the principal settlement.
45

Finance (No.2) Bill
Schedule 12 — Settlements: amendment of TCGA 1992 etc
Part 2 — Sub-fund settlements
313

Consequences of a sub-fund election
17
The sub-fund settlement shall be treated, for the purposes of this
Act, as having been created at the time when the sub-fund election
is treated as having taken effect.
18    (1)
Each trustee of the trusts on which the property comprised in the
5
sub-fund settlement is held shall be treated as a trustee of the sub-
fund settlement for the purposes of this Act.
      (2)
A person who is a trustee of the sub-fund settlement shall be
treated for the purposes of this Act, from the time when the
election is treated as having taken effect, as having ceased to be a
10
trustee of the principal settlement unless he is also a trustee of
trusts on which property comprised in the principal settlement is
held.
      (3)
A person who is a trustee of the principal settlement shall not be
treated for the purposes of this Act as a trustee of the sub-fund
15
settlement unless he is also a trustee of trusts on which property
comprised in the sub-fund settlement is held.
19
The trustees of the sub-fund settlement shall be treated for the
purposes of this Act as having become absolutely entitled, at the
time when the sub-fund election is treated as having taken effect,
20
to the property comprised in that settlement as against the trustees
of the principal settlement.
20    (1)
A deemed disposal by the trustees of the principal settlement of an
asset under section 71(1) (by virtue of paragraph 19) or section
80(2) (by virtue of paragraph 18(2)) shall be treated as having been
25
made at the beginning of the date on which the sub-fund election
is treated as having taken effect.
      (2)
If the trustees of the sub-fund settlement have acquired an asset of
which the trustees of the principal settlement are deemed to have
disposed under section 71(1) (by virtue of paragraph 19), they
30
shall be deemed to have acquired it at the time when the election
is treated as having taken effect.
      (3)
The trustees of the principal settlement shall not be treated as
having disposed of an asset under section 80(2) by virtue of
paragraph 18(2) if they are treated as having disposed of the same
35
asset under section 71(1) by virtue of paragraph 19.
21
If the trustees of the sub-fund settlement are treated by virtue of
paragraph 19 as having become absolutely entitled to money
expressed in sterling, for the purposes of this Act—
(a)
the trustees of the principal settlement shall be treated as
40
having disposed of the money at the beginning of the day
on which the sub-fund election is treated as having taken
effect, and
(b)
the trustees of the sub-fund settlement shall be treated as
having acquired the money at the time when the election is
45
treated as having taken effect.
22    (1)
If the trustees of the principal settlement are deemed to have
disposed of an asset under section 71(1) (by virtue of paragraph

Finance (No.2) Bill
Schedule 12 — Settlements: amendment of TCGA 1992 etc
Part 3 — Consequential and minor amendments
314

19), the trustees of the principal settlement shall be treated for the
purposes of sections 90 and 94 as having transferred the asset to
the trustees of the sub-fund settlement.
      (2)
Sub-paragraph (1) also applies where the trustees of the principal
settlement would be deemed to have disposed of money
5
expressed in sterling under subsection (1) of section 71 if in that
subsection—
(a)
the reference to “assets” were a reference to “property”,
and
(b)
for “their” there were substituted “its”.”
10
      (3)
This paragraph shall have effect in relation to years of assessment beginning
on or after 6th April 2006 (but a sub-fund election may not be treated as
having taken effect before 6th April 2006).
Part 3
Consequential and minor amendments
15
Introduction
7
Paragraphs 8 to 45 amend TCGA 1992.
General
8     (1)
In section 13(10) (participators in non-resident companies) for “trustees who
are participators” substitute “the trustees of a settlement who are
20
participators”.
      (2)
This paragraph shall have effect in relation to gains accruing on or after 6th
April 2006.
9
For section 21(1)(b) (definition of “asset”) substitute—
“(b)
currency, with the exception (subject to express provision to
25
the contrary) of sterling,”.
10    (1)
In section 60(1) (nominees and bare trustees) in each place for “assets”
substitute “property”.
      (2)
In section 60(2) (interpretation: property held for person absolutely entitled)
in each place for “asset” substitute “property”.
30
      (3)
This paragraph shall have effect from 6th April 2006.
11    (1)
In section 63 (death: application of law in Scotland)—
(a)
in subsection (1) omit the words “an heir of entail in possession of
any property in Scotland subject to an entail, whether sui juris or not,
or of”, and
35
(b)
in subsection (2)—
(i)
omit the words “For the purposes of this Act,”,
(ii)
omit the words “heir or” before “liferenter”, and
(iii)
omit the words “the heir of entail next entitled to the entailed
property under the entail or, as the case may be,”.
40