Finance (No.2) Bill

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Finance (No.2) Bill

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
433

(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
paragraph 29 in accordance with paragraphs 42 and 43.
29    (1)
Where there is an increase in the extent of the interest held directly
5
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.
      (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
10
arrangement the main purpose or one of the main purposes of
which is—
(a)
to enable the amount of the unauthorised payment treated
as arising on the original acquisition of the interest in the
property by the pension scheme to be lower than it
15
otherwise would have been, or
(b)
to prevent an unauthorised payment from being treated as
made on that original acquisition.
      (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
20
to 26.
Associated persons
30    (1)
For the purposes of this Part of this Schedule “associated person”,
in relation to a pension scheme, means—
(a)
any member of the pension scheme,
25
(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,
(d)
any arrangement (under that or another pension scheme)
relating to a person connected with such a member, and
30
(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.
35
      (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
40
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.
45

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
434

      (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,
5
(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.
10
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
15
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
20
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
25
paragraph 44 to the amount mentioned in paragraph (b),
and
(d)
apportioning that amount to the member to whom the
payment is treated as made in accordance with paragraph
45.
30
Acquisition: basic rules
32    (1)
This paragraph applies to a case within subsection (1) of section
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.
35
      (3)
If the interest in the property is acquired because the pension
scheme or another person comes to hold the interest directly, the
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
40
(b)
the amount of any fees and other costs incurred in
connection with the acquisition.
      (4)
Sub-paragraph (3) is subject to paragraphs 33 to 35.

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
435

      (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
payment is—
5
(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
of consideration that would be treated as given by the
10
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
in relation to the unauthorised payment is—
15
(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
of consideration that would be treated as given by the
20
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
33    (1)
This paragraph applies where—
25
(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,
(b)
the interest is acquired because the pension scheme or
30
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)
apply for determining the amount of the consideration (or the part
35
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—
(a)
paragraphs 2 to 8 and 9 to 16 of Schedule 4 (chargeable
40
consideration);
(b)
section 51 (contingent, uncertain or unascertained
consideration);
(c)
section 52 (annuities etc: chargeable consideration limited
to twelve years’ payments).
45
      (4)
The Treasury may by regulations provide—
(a)
for those provisions to apply with modifications to cases to
which this paragraph applies, and

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
436

(b)
for any other provisions of Part 4 of the Finance Act 2003 to
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
5
chargeable interest in the property within the meaning of
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
10
rent.
      (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.
15
      (3)
The following provisions of the Finance Act 2003 apply for the
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
20
provisions relating to leases);
(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
25
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
apply (with or without modifications) to such cases.
      (5)
For the purposes of this paragraph where on an assignment of a
30
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
interest in taxable property because the pension scheme or
35
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-
regulated pension scheme.
40
      (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,
(b)
the interest is acquired for less than its market value, and
45
(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—

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
437

(a)
the market value, at the date the interest 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
of consideration that would be treated as given by the
5
person for the lease by virtue of paragraph 34 if it were
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
10
interest in taxable property, and
(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.
15
      (3)
Regulations under this paragraph may, in particular, make
provision for cases where an investment-regulated pension
scheme acquires—
(a)
an interest in taxable property outside the United
Kingdom,
20
(b)
a licence to use or occupy taxable property, or
(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
25
(b)
include provision having effect in relation to times before
they are made.
Post-acquisition unauthorised payments
37    (1)
The Treasury may by regulations make provision for an
investment-regulated pension scheme which has acquired an
30
interest in taxable property to be treated as making one or more
further unauthorised payments where—
(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
35
than the estimated amount,
(b)
in the case of an interest which is a lease, there is a variation
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
40
length of the term of the lease, and the lease continues after
the end of the term.
      (2)
Regulations under this paragraph may—
(a)
amend section 174A or this Schedule (apart from this
paragraph), and
45
(b)
include provision having effect in relation to times before
they are made.

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
438

      (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
5
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
10
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
15
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
20
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
adapt the property, the unauthorised payment is treated as made
25
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
unauthorised payment is—
30
(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
amount in relation to the unauthorised payment is—
35
(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
interest in the property held by the person who holds it
40
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
assigned to the person at that time.
45

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
439

      (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—
(a)
an amount will be payable for the works only if some
5
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
that the amount will be payable or, as the case may be, will not
10
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,

that amount is to be determined for the purposes of sub-
15
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 —
(a)
sub-paragraph (8) of paragraph 39 has effect when an
20
unauthorised payment is treated as made under that
paragraph,
(b)
an amount estimated under that sub-paragraph later
becomes ascertained, and
(c)
the ascertained amount is more than the estimated
25
amount.
      (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
30
estimated amount.
      (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
35
41    (1)
This paragraph applies for determining—
(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
40
(b)
if not, how much of the total taxable amount comprises the
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.
45