Finance Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 22 — Offshore funds
Part 1 — Meaning of “offshore fund”
222

(a)
each part of the umbrella arrangements is to be treated as
separate arrangements (subject to section 40D), and
(b)
the umbrella arrangements are to be disregarded.
(2)
“Umbrella arrangements” means arrangements which provide for
separate pooling of the contributions of the participants and the
5
profits or income out of which payments are made to them.
(3)
References to a part of umbrella arrangements are to the
arrangements relating to a separate pool.
40D
Arrangements comprising more than one class of interest
(1)
Where there is more than one class of interest in arrangements (the
10
“main arrangements”)—
(a)
the arrangements relating to each class of interest are to be
treated as separate arrangements, and
(b)
the main arrangements are to be disregarded.
(2)
In relation to umbrella arrangements, “class of interest” does not
15
include a part of the umbrella arrangements (but there may be more
than one class of interest in a part of umbrella arrangements).
40E
Meaning of “mutual fund”: exceptions
(1)
Arrangements are not a mutual fund if—
(a)
under the terms of the arrangements, a reasonable investor
20
participating in the arrangements would expect to be able to
realise all or part of an investment in the arrangements on a
basis mentioned in condition C in section 40B only in the
event of the winding up, dissolution or termination of the
arrangements, and
25
(b)
condition X or Y is met.
(2)
Condition X is that the arrangements are not designed to wind up,
dissolve or terminate on a date stated in or determinable under the
arrangements.
(3)
Condition Y is that—
30
(a)
the arrangements are designed to wind up, dissolve or
terminate on a date stated in or determinable under the
arrangements, and
(b)
condition Y1, Y2 or Y3 is met.
(4)
Condition Y1 is that none of the assets that are the subject of the
35
arrangements are relevant income-producing assets.
(5)
Condition Y2 is that, under the terms of the arrangements, the
participants in the arrangements are not entitled to the income from
the assets that are the subject of the arrangements or any benefit
arising from such income.
40
(6)
Condition Y3 is that—
(a)
under the terms of the arrangements, after deductions for
reasonable expenses, any income produced by the assets that
are the subject of the arrangements is required to be paid or
credited to the participants, and
45

Finance Bill
Schedule 22 — Offshore funds
Part 1 — Meaning of “offshore fund”
223

(b)
a participant who is an individual resident in the United
Kingdom would be charged to income tax on the amounts
paid or credited.
(7)
Condition Y is not met if the arrangements are designed to produce
a return for participants that equates, in substance, to the return on
5
an investment of money at interest.
(8)
For the purposes of this section, the fact that arrangements provide
for a vote or other action that may lead to the winding up, dissolution
or termination of the arrangements does not, by itself, mean that the
arrangements are designed to wind up, dissolve or terminate on a
10
date stated in or determinable under the arrangements.
40F
Meaning of “relevant income-producing assets”
(1)
“Relevant income-producing assets” means assets that produce
income on which, if they were held directly by an individual resident
in the United Kingdom, the individual would be charged to income
15
tax (subject to the following provisions of this section).
(2)
An asset is not a relevant income-producing asset if the asset is
hedged, provided that no income is expected to arise from—
(a)
the asset (taking account of the hedging), or
(b)
any product of the hedging arrangements.
20
(3)
Cash awaiting investment is not a relevant income-producing asset,
provided that the cash, and any income that it produces while
awaiting investment, is invested as soon as reasonably practicable in
assets that are not relevant income-producing assets.
40G
Meaning of “mutual fund”: powers to vary exceptions
25
(1)
The Treasury may by regulations amend or repeal any provision of
section 40E or 40F.
(2)
The Treasury may by regulations provide that arrangements are not
a mutual fund—
(a)
in specified circumstances, or
30
(b)
if they are of a specified description.
(3)
Regulations under this section may include provision having effect
in relation to the tax year and accounting periods current on the day
on which the regulations are made.”
3     (1)
Section 41 (tax treatment of participants in offshore funds) is amended as
35
follows.
      (2)
In subsection (2), omit the definition of “offshore fund” (and the “and”
before it).
      (3)
Omit subsections (3) to (9).
4     (1)
Section 42 (regulations under section 41: supplementary) is amended as
40
follows.
      (2)
In subsection (2), for paragraphs (a) and (b) substitute—
“(a)
an offshore fund comprising a part of umbrella
arrangements, and

Finance Bill
Schedule 22 — Offshore funds
Part 1 — Meaning of “offshore fund”
224

(b)
an offshore fund comprising arrangements relating to a class
of interest in other arrangements (see section 40D).”
      (3)
In subsection (3), for the words from “may” to the end substitute “, in
particular—
(a)
repeal Chapter 5 of Part 17 of ICTA (offshore funds), and
5
(b)
make provision consequential on the repeal of provisions of
that Chapter.”
      (4)
In subsection (4)(e), insert at the end “and savings”.
      (5)
For subsection (5) substitute—
“(5)
Regulations under section 41 may, in particular, provide for
10
provisions to have effect in relation to the tax year, or accounting
periods, current on the day on which the regulations are made.”
      (6)
In subsection (6), for “and “offshore fund” have” substitute “has”.
5
After that section insert—
“42A
Regulations: procedure
15
(1)
Regulations under this group of sections are to be made by statutory
instrument.
(2)
The following regulations may not be made unless a draft of the
instrument containing them has been laid before, and approved by a
resolution of, the House of Commons—
20
(a)
regulations under section 40B(6),
(b)
regulations under section 40G(1), and
(c)
the first regulations under section 41(1).
(3)
A statutory instrument containing any other regulations under this
group of sections is subject to annulment in pursuance of a resolution
25
of the House of Commons, unless a draft of the instrument has been
laid before, and approved by a resolution of, the House of
Commons.”
Restriction on regulation-making power under section 41 of FA 2008
6     (1)
Regulations under section 41 of FA 2008 may not make provision about the
30
treatment of a person in respect of any rights in an affected offshore fund
that are acquired by the person—
(a)
before 1 December 2009, or
(b)
in accordance with sub-paragraph (2),

(but see sub-paragraph (4)).
35
      (2)
Rights are acquired in accordance with this sub-paragraph if—
(a)
the rights are acquired by the participant in accordance with a legally
enforceable agreement in writing that was entered into by the
participant before 30 April 2009,
(b)
if the agreement was conditional, the conditions are satisfied before
40
that date, and
(c)
the agreement is not varied on or after that date.
      (3)
Rights of a person in a fund are rights in an affected offshore fund if—

Finance Bill
Schedule 22 — Offshore funds
Part 2 — Application of TCGA 1992 to offshore funds
225

(a)
the fund is an offshore fund within the meaning of section 40A of FA
2008, but
(b)
on the date on which the person acquired them, the fund was not an
offshore fund within the meaning of Chapter 5 of Part 17 of ICTA.
      (4)
Sub-paragraph (1) does not prevent regulations under section 41 of FA 2008
5
making—
(a)
provision for a person to elect to be treated in accordance with the
regulations in respect of rights referred to in that subsection, or
(b)
provision that does not increase the person’s liability to tax in respect
of such rights.
10
Part 2
Application of TCGA 1992 to offshore funds
TCGA 1992
7
TCGA 1992 is amended as follows.
8
In Chapter 3 of Part 3 (collective investment schemes), insert at the end—
15
“103A
Application of Act to certain offshore funds
(1)
This Act applies in relation to a relevant offshore fund as if—
(a)
the fund were a company, and
(b)
the rights of the participants in the fund were shares in the
company.
20
(2)
An offshore fund is a relevant offshore fund if—
(a)
it is not constituted by a company, and
(b)
it is not a unit trust scheme (see section 99).
(3)
In this section “offshore fund” and “participant”, in relation to a
fund, have the meanings given in section 40A of the Finance Act
25
2008.”
9
Accordingly, in the title of Part 3 and in the title of Chapter 3 of that Part,
insert at the end “etc”.
10
In section 288(1) (interpretation), in the definition of “company”, for “section
99” substitute “sections 99 and 103A”.
30
Consequential provision
11    (1)
In TMA 1970, in—
(a)
section 25(9) (issuing houses, stockbrokers, auctioneers, etc), and
(b)
section 28(2) (non-resident companies and trusts),

after “sections 99” insert “, 103A”.
35
      (2)
In section 842(4) of ICTA (investment trusts), after “sections 99” insert
“, 103A”.
      (3)
In ITTOIA 2005—
(a)
in section 149(4) (taxation of amounts taken to reserves), at the end of

Finance Bill
Schedule 22 — Offshore funds
Part 2 — Application of TCGA 1992 to offshore funds
226

paragraph (b) (before the “and”) insert—
“(ba)
rights of participants in certain offshore funds to
which TCGA 1992 applies as a result of section 103A
of TCGA 1992,”, and
(b)
in section 150(8) (conversion etc of securities held as circulating
5
capital), after paragraph (c) insert—
“(ca)
rights of participants in certain offshore funds to
which TCGA 1992 applies as a result of section 103A
of TCGA 1992,”.
      (4)
In section 834(5) of the Companies Act 2006 (investment company: condition
10
as to holdings in other companies), in the definition of “company” and
“shares”, after “sections 99” insert “, 103A”.
      (5)
In section 332 of ITA 2007 (venture capital trusts: minor definitions), in the
definition of “company”—
(a)
for “section 99” substitute “sections 99 and 103A”, and
15
(b)
after “schemes” insert “and certain offshore funds”.
Commencement: general
12    (1)
The amendments made by this Part of this Schedule have effect in relation
to the acquisition, holding and disposal of rights in a relevant offshore fund
on or after the commencement day, subject to paragraphs 13 and 15.
20
      (2)
In this paragraph and paragraphs 15 to 18, “the commencement day”
means—
(a)
in relation to the acquisition, holding and disposal of rights by a
person subject to the charge to capital gains tax, 1 December 2009,
and
25
(b)
in relation to the acquisition, holding and disposal of rights by a
person subject to the charge to corporation tax, such day as the
Treasury may by order appoint.
Commencement: certain consequential amendments
13    (1)
The amendment made by sub-paragraph (1)(a) of paragraph 11 comes into
30
force on 1 December 2009 (and has effect as if section 103A of TCGA 1992
had effect from that date in relation to the issue, placing, acquisition, holding
and disposal of rights in relevant offshore funds by any person).
      (2)
The amendments made by sub-paragraphs (2), (4) and (5) of paragraph 11
come into force in accordance with an order made by the Treasury.
35
Commencement orders
14    (1)
An order under paragraph 12(2)(b) or 13(2)—
(a)
may make different provision for different cases or different
purposes, and
(b)
may include transitional provision and savings.
40
      (2)
Section 828(3) of ICTA, section 287(3) of TCGA 1992 and section 1014(4) of
ITA 2007 (orders etc subject to annulment) do not apply in relation to such
an order.

Finance Bill
Schedule 22 — Offshore funds
Part 2 — Application of TCGA 1992 to offshore funds
227

Election modifying commencement
15    (1)
This paragraph applies if a person makes an election—
(a)
for capital gains tax purposes, in respect of a relevant tax year, or
(b)
for corporation tax purposes, in respect of a relevant accounting
period.
5
      (2)
The amendments made by this Part of this Schedule (other than the
amendments made by paragraph 11(1)(a), (2), (4) and (5)) have effect, and
are to be treated as always having had effect, in relation to the acquisition,
holding and disposal by the person of rights in a relevant offshore fund on
or after the first day of that tax year or accounting period (“the election
10
day”).
      (3)
Sub-paragraph (4) applies if, in respect of any time on or after the election
day but before the commencement day, the relevant offshore fund was not
certified as a distributing fund under Part 3 of Schedule 27 to ICTA
(distributing funds: certification procedure).
15
      (4)
The acquisition, holding or disposal by the person of rights in the fund at
that time is to be treated as the acquisition, holding or disposal of rights in
an offshore fund that is so certified.
      (5)
In this paragraph and paragraph 16—
“relevant accounting period” means an accounting period beginning
20
on or after 1 April 2003 but before the day appointed under
paragraph 12(2)(b);
“relevant tax year” means the tax year 2003-04 and any subsequent tax
year up to and including the tax year 2009-2010.
Making an election
25
16    (1)
An election under paragraph 15 must be made—
(a)
for capital gains tax purposes, by being included in a relevant return
under TMA 1970, and
(b)
for corporation tax purposes, by being included in a relevant
company tax return.
30
      (2)
A return under TMA 1970 is relevant if it is for—
(a)
the tax year in respect of which the election is made, or
(b)
a subsequent relevant tax year.
      (3)
A company tax return is relevant if it is for—
(a)
the accounting period in respect of which the election is made, or
35
(b)
a subsequent relevant accounting period.
      (4)
The references in sub-paragraph (1) to an election being included in a return
include an election being included by virtue of an amendment of the return.
      (5)
An election under paragraph 15 is irrevocable.
Giving effect to elections
40
17
If, in order to give effect to an election under paragraph 15, any adjustments
are required, whether by the discharge or repayment of tax, the making of
assessments or otherwise—

Finance Bill
Schedule 23 — Insurance companies
228

(a)
the adjustments must be made, and
(b)
any time limit for making the adjustments is to be disregarded.
Modification of acquisition cost
18    (1)
This paragraph applies where a participant in a relevant offshore fund—
(a)
holds rights in a relevant offshore fund immediately before the
5
effective date, and
(b)
disposes of those rights on or after that date.
      (2)
For the purposes of TCGA 1992, the participant is to be treated as if the
acquisition cost for those rights were the pre-commencement acquisition
cost.
10
      (3)
“The effective date” means—
(a)
if the participant has made an election under paragraph 15, the
election day, or
(b)
otherwise, the commencement day.
      (4)
“Acquisition cost” means the total of the consideration, costs and
15
expenditure described in section 38(1)(a) and (b) of TCGA 1992 (acquisition
and disposal costs etc).
      (5)
“Pre-commencement acquisition cost” means the total of the consideration,
costs and expenditure that would have been allowable as a deduction under
section 38(1)(a) and (b) of TCGA 1992 if the participant had disposed of the
20
rights immediately before the effective date.
Schedule 23
Section 46

Insurance companies
Transfer from non technical account not to be receipt
1     (1)
In section 83 of FA 1989 (receipts to be taken into account), after subsection
25
(2) insert—
“(2AZA)
No amount shown as transfer from non technical account in line 32
of Form 58 in respect of the whole of the company’s long-term
business in the periodical return for a period of account is to be taken
into account as a receipt of the period of account.”
30
      (2)
The amendment made by sub-paragraph (1) has effect in relation to periods
of account ending on or after 22 April 2009.
      (3)
But, in relation to a period of account of a company beginning before that
date, that amendment has effect only insofar as the amount shown as
transfer from non technical account in line 32 of Form 58 covering the whole
35
of the company’s long-term business in the periodical return for the period
of account is attributable to transfers made on or after that date.