Finance Bill

House of Commons

Session 2007 - 08
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Finance Bill

Finance Bill
Schedule 7 — Remittance basis
Part 2 — Non-resident companies and trusts etc
200

tax year (“the year of the transfer”) after the tax year mentioned in
paragraph 1(3).
      (2)
If the settlement has a Schedule 4C pool at the beginning of the
year of the transfer—
(a)
the section 2(2) amounts in the Schedule 4C pool are
5
increased by the section 2(2) amounts for the settlement
that are outstanding at the end of the year of the transfer,
and
(b)
the section 2(2) amount in the pool for the year of transfer
is increased (or further increased) by the amount of
10
Schedule 4B trust gains accruing by virtue of the further
transfer.
      (3)
If the settlement does not have a Schedule 4C pool at the beginning
of the year of the transfer, this Schedule applies in relation to the
further transfer as it applied in relation to the original transfer.
15
      (4)
For the purposes of this paragraph a settlement has a Schedule 4C
pool until the end of the tax year in which all section 2(2) amounts
in the pool have been reduced to nil.”
122
For paragraph 8 substitute—
“8    (1)
Chargeable gains are treated as accruing in a tax year (“the
20
relevant tax year”) to a beneficiary who has received a capital
payment from the trustees of a relevant settlement in the relevant
tax year or any earlier tax year if all or part of the capital payment
is matched (under section 87A as it applies for the relevant tax
year) with the section 2(2) amount in the Schedule 4C pool for the
25
relevant tax year or any earlier tax year.
      (2)
The amount of chargeable gains treated as accruing is equal to—
(a)
the amount of the capital payment, or
(b)
if only part of the capital payment is matched, the amount
of that part.
30
      (3)
Section 87A applies for a tax year for the purposes of matching
capital payments received from the trustees of a relevant
settlement with section 2(2) amounts in the Schedule 4C pool as
if—
(a)
references to section 2(2) amounts were to section 2(2)
35
amounts in the Schedule 4C pool,
(b)
references to a capital payment received from the trustees
by a beneficiary were to a capital payment received from
the trustees of a relevant settlement by a beneficiary who is
chargeable to tax for that year,
40
(c)
in Step 5 of section 87A(2), in the third sentence paragraph
(b) were omitted,
(d)
for section 87A(3)(b) there were substituted—
“(b)
all section 2(2) amounts in the Schedule 4C pool have
been reduced to nil.”, and
45
(e)
references in section 87A(4) to section 87 included
references to this paragraph.

Finance Bill
Schedule 7 — Remittance basis
Part 2 — Non-resident companies and trusts etc
201

      (4)
Section 87A applies for a tax year by virtue of this paragraph
before it applies for that year otherwise than by virtue of this
paragraph.”
123
Omit paragraphs 8B and 8C (including the heading before paragraph 8B).
124
In paragraph 9 (available capital payments), omit sub-paragraphs (1) and
5
(2).
125   (1)
Paragraph 12 (attribution of gains to settlor in section 10A cases) is amended
as follows.
      (2)
For sub-paragraphs (1) to (3) substitute—
    “(1)
This paragraph applies if—
10
(a)
by virtue of section 10A, an amount of chargeable gains
within section 86(1)(e) that accrued in an intervening year
to the trustees of a settlement would be treated as accruing
to a person (“the settlor”) in the year of return, and
(b)
after paragraph 8 has applied for the year of return, the
15
section 2(2) amount for the intervening year that is in the
Schedule 4C pool for the settlement is less than the amount
mentioned in paragraph (a).
      (2)
The amount of chargeable gains treated as mentioned in sub-
paragraph (1)(a) as accruing to the settlor in the year of return is
20
limited to the section 2(2) amount referred to in sub-paragraph
(1)(b).”
126
In paragraph 12A(3), for “87(4)” substitute “87(2)”.
127   (1)
Paragraph 13 (increase in tax payable under this Schedule) is amended as
follows.
25
      (2)
For sub-paragraph (1) substitute—
    “(1)
This paragraph applies if—
(a)
chargeable gains are treated under paragraph 8 as accruing
to a beneficiary by virtue of the matching (under section
87A) of all or part of a capital payment with the section 2(2)
30
amount for a tax year (“the relevant tax year”), and
(b)
the beneficiary is charged to tax by virtue of the matching.
     (1A)
Where part of a capital payment is matched, references in sub-
paragraphs (2) and (3) to the capital payment are to the part
matched.”
35
      (3)
In sub-paragraph (5)(a), for the words from “year of assessment” to the end
(excluding the “and”) substitute “tax year immediately after the relevant tax
year,”.
128
Omit paragraph 3 and 6(2) and (3) of Schedule 29 to FA 2003.
Attribution of gains to beneficiaries in cases involving transfers of value: commencement etc
40
129
The amendments made by paragraphs 114 to 128 have effect in relation to
transfers of value to which Schedule 4B to TCGA 1992 applies that are made
on or after 6 April 2008.

Finance Bill
Schedule 7 — Remittance basis
Part 2 — Non-resident companies and trusts etc
202

130
Schedule 4C to that Act (as it has effect without those amendments) applies
for the tax year 2008-09 and subsequent tax years in relation to Schedule 4C
pools created before 6 April 2008 as if paragraph 7B were omitted.
Transfers of securities: accrued income profits
131
In section 830(4) of ITTOIA 2005 (meaning of “relevant foreign income”)—
5
(a)
omit the “and” at the end of paragraph (f), and
(b)
at the end of paragraph (g) insert “, and
(h)
section 670A of ITA 2007 (accrued income profits).”
132
In section 617 of ITA 2007 (accrued income profits: income charged), after
subsection (6) insert—
10
“(7)
Subsection (1) is subject to section 832 of ITTOIA 2005 (relevant
foreign income charged on remittance basis).”
133
Omit section 644 of that Act (accrued income profits: individuals to whom
remittance basis applies).
134
After section 670 of that Act insert—
15
“Individuals to whom remittance basis applies
670A
Individuals to whom remittance basis applies
(1)
This section applies if—
(a)
accrued income profits are made by an individual as a result
of a transfer of foreign securities, and
20
(b)
section 809B, 809C or 809D (remittance basis) applies to the
individual for the tax year in which the profits are made.
(2)
For the purposes of the provisions mentioned in subsection (3), treat
the accrued income profits as relevant foreign income of the
individual.
25
(3)
The provisions are—
(a)
Chapter A1 of Part 14 (remittance basis), and
(b)
Chapter 2 of Part 8 of ITTOIA 2005 (relevant foreign income
charged on remittance basis).
(4)
For the purposes of sections 809K to 809Q (meaning of “remitted to
30
the United Kingdom” etc)—
(a)
if the individual is the transferor—
(i)
treat any consideration for the transfer as deriving
from the accrued income profits, and
(ii)
if on the transfer the individual does not receive
35
consideration of an amount equal to the market value
of the securities, treat the securities as deriving from
the accrued income profits, and
(b)
if the individual is the transferee, treat the securities as
deriving from the accrued income profits.
40
(5)
For the purposes of this section securities are “foreign” if any income
from them would be relevant foreign income.”

Finance Bill
Schedule 7 — Remittance basis
Part 2 — Non-resident companies and trusts etc
203

135
The amendments made by paragraphs 131 to 134 have effect in relation to
transfers of securities where the settlement day is on or after 6 April 2008.
Transfers of assets abroad
136
ITA 2007 is amended as follows.
137
In section 720(4) (transfer of assets abroad: charge where power to enjoy
5
income), after “abroad)” insert “and section 726 (non-UK domiciled
individuals to whom remittance basis applies)”.
138
For section 726 substitute—
“726
Non-UK domiciled individuals to whom remittance basis applies
(1)
This section applies in relation to income treated under section 721 as
10
arising to an individual in a tax year (“the deemed income”) if—
(a)
section 809B, 809C or 809D (remittance basis) applies to the
individual for the year, and
(b)
the individual is not domiciled in the United Kingdom in the
year.
15
(2)
For the purposes of this section the deemed income is “foreign” if
(and to the extent that) the income mentioned in section 721(2) would
be relevant foreign income if it were the individual’s.
(3)
The individual is charged to tax on the foreign deemed income in
accordance with the following provisions.
20
(4)
If in any tax year any of the foreign deemed income is remitted to the
United Kingdom, tax is charged on the full amount of the foreign
deemed income so remitted in that year.
(5)
Sections 809K to 809Q (meaning of “remitted to the United
Kingdom” etc) apply in relation to the foreign deemed income as if it
25
were the individual’s relevant foreign income.
(6)
For the purposes of those sections, treat so much of the income
within section 721(2) as would be relevant foreign income if it were
the individual’s as deriving from the foreign deemed income.”
139
In section 727 (transfer of assets abroad: charge where capital sums
30
received), after subsection (3) insert—
“(3A)
But see section 730 (non-UK domiciled individuals to whom
remittance basis applies).”
140
For section 730 substitute—
“730
Non-UK domiciled individuals to whom remittance basis applies
35
(1)
This section applies in relation to income treated under section 728 as
arising to an individual in a tax year (“the deemed income”) if—
(a)
section 809B, 809C or 809D (remittance basis) applies to the
individual for the year, and
(b)
the individual is not domiciled in the United Kingdom in the
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year.

Finance Bill
Schedule 7 — Remittance basis
Part 2 — Non-resident companies and trusts etc
204

(2)
For the purposes of this section the deemed income is “foreign” if
(and to the extent that) the income mentioned in section 728(1)(a)
would be relevant foreign income if it were the individual’s.
(3)
The individual is charged to tax on the foreign deemed income in
accordance with the following provisions.
5
(4)
If in any tax year any of the foreign deemed income is remitted to the
United Kingdom, tax is charged on the full amount of the foreign
deemed income so remitted in that year.
(5)
Sections 809K to 809Q (meaning of “remitted to the United
Kingdom” etc) apply in relation to the foreign deemed income as if it
10
were the individual’s relevant foreign income.
(6)
For the purposes of those sections, treat so much of the income
within section 728(1)(a) as would be relevant foreign income if it
were the individual’s as deriving from the foreign deemed income.”
141
In section 731 (transfer of assets abroad: charge where benefit received), after
15
subsection (2) insert—
“(2A)
But see section 735 (non-UK domiciled individuals to whom
remittance basis applies).”
142
For section 735 substitute—
“735
Non-UK domiciled individuals to whom remittance basis applies
20
(1)
This section applies if—
(a)
income is treated under section 732 as arising to an individual
in a tax year (“the deemed income”),
(b)
section 809B, 809C or 809D (remittance basis) applies to the
individual for the year, and
25
(c)
the individual is not domiciled in the United Kingdom in the
year.
(2)
For the purposes of this section the deemed income is “foreign” if
(and to the extent that) the relevant income to which it relates would
be relevant foreign income if it were the individual’s.
30
(3)
The individual is charged to tax on the foreign deemed income in
accordance with the following provisions.
(4)
If in any tax year any of the foreign deemed income is remitted to the
United Kingdom, tax is charged on the full amount of the foreign
deemed income so remitted in that year.
35
(5)
Sections 809K to 809Q (meaning of “remitted to the United
Kingdom” etc) apply in relation to the foreign deemed income as if it
were the individual’s relevant foreign income.
(6)
For the purposes of those sections treat relevant income, or a benefit,
that relates to any part of the foreign deemed income as deriving
40
from that part of the foreign deemed income.
735A
Section 735: relevant income and benefits relating to foreign deemed
income
(1)
For the purposes of section 735—

Finance Bill
Schedule 8 — Rates of research and development relief and vaccine research relief
205

(a)
place the benefits mentioned in Step 1 in the order in which
they were received by the individual (starting with the
earliest benefit received),
(b)
deduct from those benefits so much of any benefit within
section 734(1)(b) as gives rise as mentioned in section
5
734(1)(d) to chargeable gains,
(c)
place the income mentioned in Step 3 for the tax years
mentioned in Step 4 (“the relevant income”) in the order in
which it arose (starting with the earliest income to arise),
(d)
deduct from that income any income that may not be taken
10
into account because of section 743(1) or (2) (no duplication
of charges),
(e)
place the income treated under section 732(2) as arising to the
individual in respect of the benefits in the order in which it is
treated as arising (starting with the earliest income treated as
15
having arisen), and
(f)
treat the income mentioned in paragraph (e) as related to—
(i)
the benefits, and
(ii)
the relevant income,

by matching that income with the benefits and the relevant
20
income (in the orders mentioned in paragraphs (a), (c) and
(e)).
(2)
In subsection (1) references to a step are to a step in section 733(1).”
143
The amendments made by paragraphs 137 to 142 have effect for the tax year
2008-09 and subsequent tax years.
25
Schedule 8
Section 24

Rates of research and development relief and vaccine research relief
Rates of research and development relief: SMEs
1     (1)
Part 2 of Schedule 20 to FA 2000 (giving effect to R&D tax relief) is amended
30
as follows.
      (2)
In each of the following provisions, for “150%” substitute “175%”—
(a)
paragraph 13 (deduction in computing profits of trade),
(b)
paragraph 14(2) (alternative treatment of pre-trading expenditure),
and
35
(c)
paragraph 15(3)(b) (entitlement to R&D tax credit).
      (3)
In paragraph 16(1)(a) (amount of R&D tax credit), for “16%” substitute
“14%”.
      (4)
The amendments made by this paragraph have effect in relation to
expenditure incurred on or after such day as the Treasury may by order
40
appoint.
      (5)
The Treasury may appoint a day before the day on which this Act is passed,
but not one before 1 April 2008.

Finance Bill
Schedule 9 — Companies in difficulty: SME R&D relief and vaccine research relief
206

Rates of research and development tax relief: large companies
2     (1)
In Schedule 12 to FA 2002, in both of the following provisions, for “25%”
substitute “30%”—
(a)
paragraph 11(2) (deduction in computing profits of trade), and
(b)
paragraph 15(4) (refunds of contributions to independent research
5
and development etc).
      (2)
The amendments made by sub-paragraph (1) have effect in relation to
expenditure incurred on or after 1 April 2008.
Rates of vaccine research relief
3     (1)
Schedule 13 to FA 2002 (vaccine research relief) is amended as follows.
10
      (2)
In each of the following provisions, for “50%” substitute “40%”—
(a)
paragraph 14(2) (deduction in computing profits of trade: small and
medium-sized companies),
(b)
paragraph 15(2)(a) (alternative treatment of pre-trading expenditure:
deemed trading loss),
15
(c)
paragraph 15A(2) (modifications for larger SMEs claiming R&D tax
credits),
(d)
paragraph 21(2) (deduction in computing profits of trade: large
companies), and
(e)
paragraph 25(4)(a)(i) and (b)(i) (refunds of contributions to
20
independent research and development).
      (3)
In each of the following provisions, for “150%” substitute “140%”—
(a)
paragraph 15(2)(b) (alternative treatment of pre-trading
expenditure: deemed trading loss),
(b)
paragraph 16A(1) (entitlement to tax credit: modifications for larger
25
SMEs),
(c)
paragraph 21(3) (deduction in computing profits of trade: large
companies), and
(d)
paragraph 25(4)(a)(ii) and (b)(ii) (refunds of contributions to
independent research and development).
30
      (4)
The amendments made by this paragraph have effect in relation to
expenditure incurred on or after such day as the Treasury may by order
appoint.
      (5)
The Treasury may appoint a day before the day on which this Act is passed,
but not one before 1 April 2008.
35
Schedule 9
Section 25

Companies in difficulty: SME R&D relief and vaccine research relief
Research and development relief
1     (1)
Schedule 20 to FA 2000 (relief for expenditure on research and development)
is amended as follows.
40