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Finance (No.2) Bill


Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 5 — Property subject to a reservation

405

 

(a)   

an individual is beneficially entitled to an interest in

possession in settled property,

(b)   

either—

(i)   

the individual became beneficially entitled to the

interest in possession before 22nd March 2006, or

5

(ii)   

the individual became beneficially entitled to the

interest in possession on or after 22nd March 2006 and

the interest is an immediate post-death interest, a

disabled person’s interest or a transitional serial

interest, and

10

(c)   

the interest in possession comes to an end during the

individual’s life.

(2)   

For the purposes of—

(a)   

section 102 above, and

(b)   

Schedule 20 to this Act,

15

   

the individual shall be taken (if, or so far as, he would not otherwise

be) to dispose, on the coming to an end of the interest in possession,

of the no-longer-possessed property by way of gift.

(3)   

In subsection (2) above “the no-longer-possessed property” means

the property in which the interest in possession subsisted

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immediately before it came to an end, other than any of it to which

the individual becomes absolutely and beneficially entitled in

possession on the coming to an end of the interest in possession.”

      (3)  

In Schedule 20 (supplementary rules about gifts with reservation), after

paragraph 4 insert—

25

“Termination of interests in possession

4A    (1)  

This paragraph applies where—

(a)   

under section 102ZA of this Act, an individual (“D”) is

taken to dispose of property by way of gift, and

(b)   

the property continues to be settled property immediately

30

after the disposal.

      (2)  

Paragraphs 2 to 4 above shall not apply but, subject to the

following provisions of this paragraph, the principal section and

the following provisions of this Schedule shall apply as if the

property comprised in the gift consisted of the property

35

comprised in the settlement on the material date, except in so far

as that property neither is, nor represents, nor is derived from,

property originally comprised in the gift.

      (3)  

Any property which—

(a)   

on the material date is comprised in the settlement, and

40

(b)   

is derived, directly or indirectly, from a loan made by D to

the trustees of the settlement,

           

shall be treated for the purposes of sub-paragraph (2) above as

derived from property originally comprised in the gift.

      (4)  

If the settlement comes to an end at some time before the material

45

date as respects all or any of the property which, if D had died

 

 

Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 6 — Conditional exemption: relief from charges

406

 

immediately before that time, would be treated as comprised in

the gift,—

(a)   

the property in question, other than property to which D

then becomes absolutely and beneficially entitled in

possession, and

5

(b)   

any consideration (not consisting of rights under the

settlement) given by D for any of the property to which D

so becomes entitled,

           

shall be treated as comprised in the gift (in addition to any other

property so comprised).

10

      (5)  

Where, under any trust or power relating to settled property,

income arising from that property after the material date is

accumulated, the accumulations shall not be treated for the

purposes of sub-paragraph (2) above as derived from that

property.”

15

      (4)  

Sub-paragraphs (1) to (3) shall be deemed to have come into force on 22nd

March 2006, but only as respects cases where an interest in possession comes

to an end on or after that day.

Part 6

Conditional exemption: relief from charges

20

34    (1)  

Section 79 of IHTA 1984 (subsection (3) of which provides for charges to tax

where, in the case of settled property designated under section 31 on a claim

under section 79, an event occurs that would be chargeable under section 32

or 32A if the claim had been under section 30) is amended as follows.

      (2)  

After subsection (5) (amount on which tax charged under subsection (3))

25

insert—

“(5A)   

Where the event giving rise to a charge to tax under subsection (3)

above is a disposal on sale, and the sale—

(a)   

was not intended to confer any gratuitous benefit on any

person, and

30

(b)   

was either a transaction at arm’s length between persons not

connected with each other or a transaction such as might be

expected to be made at arm’s length between persons not

connected with each other,

   

the value of the property at the time of that event shall be taken for

35

the purposes of subsection (5) above to be equal to the proceeds of

the sale.”

      (3)  

For subsection (7) (which provides that the “relevant period” mentioned in

subsection (6) begins with the latest of certain listed days and ends with the

day before the event giving rise to the charge under subsection (3))

40

substitute—

“(7)   

In subsection (6) above “the relevant period” means the period given

by subsection (7A) below or, if shorter, the period given by

subsection (7B) below.

(7A)   

The period given by this subsection is the period beginning with the

45

latest of—

 

 

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

407

 

(a)   

the day on which the settlement commenced,

(b)   

the date of the last ten-year anniversary of the settlement to

fall before the day on which the property became comprised

in the settlement,

(c)   

the date of the last ten-year anniversary of the settlement to

5

fall before the day on which the property was designated

under section 31 above on a claim under this section, and

(d)   

13th March 1975,

   

and ending with the day before the event giving rise to the charge.

(7B)   

The period given by this subsection is the period equal in length to

10

the number of relevant-property days in the period—

(a)   

beginning with the day that is the latest of those referred to in

paragraphs (a) to (d) of subsection (7A) above, and

(b)   

ending with the day before the event giving rise to the charge.

(7C)   

For the purposes of subsection (7B) above, a day is a “relevant-

15

property day” if at any time on that day the property was relevant

property.”

      (4)  

After subsection (9) insert—

“(9A)   

Subsection (9B) below applies where the same event gives rise—

(a)   

to a charge under subsection (3) above in relation to any

20

property, and

(b)   

to a charge under section 32 or 32A above in relation to that

property.

(9B)   

If the amount of each of the charges is the same, each charge shall

have effect as a charge for one half of the amount that would be

25

charged apart from this subsection; otherwise, whichever of the

charges is lower in amount shall have effect as if it were a charge the

amount of which is nil.”

Schedule 21

Section 158

 

Taxable property held by investment-regulated pension schemes

30

1          

In section 271 of TCGA 1992 (exemptions), after subsection (1A) insert—

“(1B)   

But subsection (1A) does not prevent such a gain from being treated

as a chargeable gain for the purposes of sections 185F to 185I of the

Finance Act 2004 (scheme chargeable payments: gains from taxable

property).”

35

2          

Part 4 of FA 2004 (pension schemes) is amended as follows.

3     (1)  

Section 160 (payments by registered pension schemes) is amended as

follows.

      (2)  

After subsection (7) insert—

“(7A)   

Sections 185A to 185I contain provision about the receipt of income

40

and gains from taxable property.”

 

 

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

408

 

      (3)  

In subsection (8), after “borrowing” insert “and the receipt of income and

gains from taxable property.”

4          

In section 173 (benefits), after subsection (7) insert—

“(7A)   

This section does not apply if—

(a)   

the pension scheme is an investment-regulated pension

5

scheme, and

(b)   

the asset consists of taxable property.”

5          

After section 174 insert—

“174A   

Taxable property held by investment-regulated pension schemes

(1)   

An investment-regulated pension scheme is to be treated as making

10

an unauthorised payment to a member of the pension scheme if—

(a)   

the pension scheme acquires an interest in taxable property,

and

(b)   

the interest is held by the pension scheme for the purposes of

an arrangement under the pension scheme relating to the

15

member.

(2)   

An investment-regulated pension scheme is to be treated as making

an unauthorised payment to a member of the pension scheme if—

(a)   

an interest in taxable property is held by the pension scheme

for the purposes of an arrangement under the pension

20

scheme relating to the member, and

(b)   

the property is improved.

(3)   

An investment-regulated pension scheme is to be treated as making

an unauthorised payment to a member of the pension scheme if—

(a)   

an interest in property which is not residential property is

25

held by the pension scheme for the purposes of an

arrangement under the pension scheme relating to the

member, and

(b)   

the property is converted or adapted to become residential

property.

30

(4)   

Schedule 29A makes provision supplementing this section; and in

that Schedule—

(a)   

Part 1 defines “investment-regulated pension scheme”,

(b)   

Part 2 defines “taxable property” (and “residential

property”),

35

(c)   

Part 3 explains what it means to acquire, and to hold, an

interest in taxable property, and

(d)   

Part 4 contains provision for calculating the amounts of

unauthorised payments treated as made by this section and

explains when the unauthorised payments are treated as

40

made.”

 

 

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

409

 

6          

After section 185 insert—

“Income and gains from taxable property

185A    

Income from taxable property

(1)   

An investment-regulated pension scheme is to be treated as having

made a scheme chargeable payment if the pension scheme holds an

5

interest in taxable property in a tax year.

(2)   

The amount of the scheme chargeable payment depends on whether

a person who holds the interest in the property directly receives

profits arising from the interest in the tax year.

(3)   

If a person who holds the interest in the property directly receives

10

such profits in the tax year, the amount of the scheme chargeable

payment is the greater of—

(a)   

an amount equal to the amount of the annual profits from the

interest in the property (see section 185B(1)), and

(b)   

the amount of the deemed profits from the interest in the

15

property for the year (see sections 185B(2) and 185C).

(4)   

If no person who holds the interest in the property directly receives

such profits in the tax year, the amount of the scheme chargeable

payment is the amount of the deemed profits from the interest in the

property for the year (see sections 185B(2) and 185C).

20

(5)   

But where section 185D applies, the amount of the scheme

chargeable payment is the amount found under subsection (3) or (4)

as apportioned to the pension scheme in accordance with that

section.

(6)   

Section 185E makes provision for credits against income tax charged

25

under section 239 (scheme sanction charge) in respect of a scheme

chargeable payment treated as made by virtue of this section.

185B    

Annual profits and deemed profits

(1)   

For the purposes of section 185A(3) the amount of the annual profits

from the interest in the property is the total amount of profits

30

received from the interest in the tax year—

(a)   

by each person who holds the interest directly, and

(b)   

at a time when the property is scheme-held taxable property.

(2)   

For the purposes of section 185A(3) and (4) the amount of the

deemed profits from the interest in the property for the tax year is—equation: cross[over[(*n*)times[char[D],char[M],char[V]],num[10.0000000000000000,"10"]],over[

times[char[D],char[T],char[P]],times[char[D],char[Y]]]]

35

   

where—

DMV is the deemed market value of the interest in the property

for the year (see section 185C),

DTP is the number of days in the year for which the property is

scheme-held taxable property, and

40

DY is the number of days in the year.

(3)   

In this Part “scheme-held taxable property” means property—

 

 

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

410

 

(a)   

which is taxable property, and

(b)   

an interest in which is held by the pension scheme.

185C    

Deemed market value

(1)   

For the purposes of section 185B(2), where no person who holds the

interest in the property directly during the tax year does so by virtue

5

of a lease of residential property, the deemed market value of the

interest for the year is—equation: cross[id[plus[times[char[M],char[V]],times[char[U],char[P]]]],id[plus[num[1.0000000000000000,

"1"],times[char[R],char[P],char[I]]]]]

   

where—

MV is the opening market value (see subsection (2)),

UP is the total of any unauthorised payments treated as made

10

by the pension scheme under section 174A in relation to the

property in the tax year, other than any such payment treated

as made by virtue of the property becoming scheme-held

taxable property in the year, and

RPI is the figure expressed as a decimal which represents the

15

percentage increase in the retail prices index between the first

day in the tax year on which the property is scheme-held

taxable property and the last such day (or, if there is no such

increase, is nil).

(2)   

In subsection (1) “the opening market value” means—

20

(a)   

if the property is not scheme-held taxable property

immediately before the beginning of the tax year, the market

value of the interest in the property immediately after the

time during the year when the property first becomes

scheme-held taxable property, and

25

(b)   

otherwise, the deemed market value of the interest for the

previous tax year.

(3)   

For the purposes of section 185B(2), where a person who holds the

interest in the property directly during the tax year does so by virtue

of a lease of residential property, the deemed market value of the

30

interest for the year is the relevant rental value of the property

calculated in accordance with paragraph 34 of Schedule 29A on the

following assumptions—

(a)   

that the lease was granted when the property first became

scheme-held taxable property;

35

(b)   

that the term of the lease is 50 years;

(c)   

that a fully commercial rent is payable for the first five years

of that term;

(d)   

that afterwards the rent is reviewed on an upwards-only

basis.

40

185D    

Apportionment to pension scheme

(1)   

This section applies where the pension scheme holds the interest in

the property indirectly for the whole of the period in the tax year for

which the property is scheme-held taxable property.

(2)   

The amount that would otherwise be the amount of the scheme

45

chargeable payment is to be apportioned to the pension scheme by

applying paragraphs 41 to 43 of Schedule 29A to it as if it were the

 

 

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

411

 

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 interest in the

property, and

5

(c)   

at the end of the last day in the tax year on which the property

is scheme-held taxable property.

(3)   

But where—

(a)   

the amount found in relation to the pension scheme on the

day mentioned in paragraph (c) of subsection (2), differs from

10

(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

15

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

20

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

25

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

30

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

35

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

40

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

45

(1)   

An investment-regulated pension scheme is to be treated as having

made a scheme chargeable payment where—

 

 

 
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