Finance Bill

House of Commons

Session 2008 - 09
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Finance Bill

Finance Bill
Schedule 22 — Offshore funds
Part 1 — Meaning of “offshore fund”
236

3     (1)
Section 41 (tax treatment of participants in offshore funds) is amended as
follows.
      (2)
In subsection (2), omit the definition of “offshore fund” (and the “and”
before it).
      (3)
Omit subsections (3) to (9).
5
4     (1)
Section 42 (regulations under section 41: supplementary) is amended as
follows.
      (2)
In subsection (2), for paragraphs (a) and (b) substitute—
“(a)
an offshore fund comprising a part of umbrella
arrangements, and
10
(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
15
(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
20
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
25
(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—
30
(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
35
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
40
treatment of a person in respect of any rights in an affected offshore fund
that are acquired by the person—

Finance Bill
Schedule 22 — Offshore funds
Part 2 — Application of TCGA 1992 to offshore funds
237

(a)
before 1 December 2009, or
(b)
in accordance with sub-paragraph (2),

(but see sub-paragraph (4)).
      (2)
Rights are acquired in accordance with this sub-paragraph if—
(a)
the rights are acquired by the participant in accordance with a legally
5
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
that date, and
(c)
the agreement is not varied on or after that date.
10
      (3)
Rights of a person in a fund are rights in an affected offshore fund if—
(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.
15
      (4)
Sub-paragraph (1) does not prevent regulations under section 41 of FA 2008
making—
(a)
provision for a person to elect to be treated in accordance with the
regulations in respect of rights referred to in that sub-paragraph, or
(b)
provision that does not increase the person’s liability to tax in respect
20
of such rights.
Part 2
Application of TCGA 1992 to offshore funds
TCGA 1992
7
TCGA 1992 is amended as follows.
25
8
In Chapter 3 of Part 3 (collective investment schemes), insert at the end—
“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
30
company.
(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
35
fund, have the meanings given in section 40A of the Finance Act
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
40
99” substitute “sections 99 and 103A”.

Finance Bill
Schedule 22 — Offshore funds
Part 2 — Application of TCGA 1992 to offshore funds
238

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”.
5
      (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
paragraph (b) (before the “and”) insert—
10
“(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
capital), after paragraph (c) insert—
15
“(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
as to holdings in other companies), in the definition of “company” and
20
“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
(b)
after “schemes” insert “and certain offshore funds”.
25
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.
      (2)
In this paragraph and paragraphs 15 to 18, “the commencement day”
30
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
(b)
in relation to the acquisition, holding and disposal of rights by a
35
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
force on 1 December 2009 (and has effect as if section 103A of TCGA 1992
40
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.

Finance Bill
Schedule 22 — Offshore funds
Part 2 — Application of TCGA 1992 to offshore funds
239

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.
5
      (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.
Election modifying commencement
15    (1)
This paragraph applies if a person makes an election—
10
(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.
      (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
15
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
day”).
      (3)
Sub-paragraph (4) applies if, in respect of any time on or after the election
20
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).
      (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
25
an offshore fund that is so certified.
      (5)
In this paragraph and paragraph 16—
“relevant accounting period” means an accounting period beginning
on or after 1 April 2003 but before the day appointed under
paragraph 12(2)(b);
30
“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
16    (1)
An election under paragraph 15 must be made—
(a)
for capital gains tax purposes, by being included in a relevant return
35
under TMA 1970, and
(b)
for corporation tax purposes, by being included in a relevant
company tax return.
      (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
40
(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

Finance Bill
Schedule 23 — Insurance companies
240

(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
5
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—
(a)
the adjustments must be made, and
(b)
any time limit for making the adjustments is to be disregarded.
10
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
effective date, and
(b)
disposes of those rights on or after that date.
15
      (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.
      (3)
“The effective date” means—
(a)
if the participant has made an election under paragraph 15, the
20
election day, or
(b)
otherwise, the commencement day.
      (4)
“Acquisition cost” means the total of the consideration, costs and
expenditure described in section 38(1)(a) and (b) of TCGA 1992 (acquisition
and disposal costs etc).
25
      (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
rights immediately before the effective date.
Schedule 23
30
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
(2) insert—
“(2AZA)
No amount shown as transfer from non technical account in line 32
35
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.”

Finance Bill
Schedule 23 — Insurance companies
241

      (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
5
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.
No deduction for capital allocations to with-profits policy holders
2     (1)
In section 82 of FA 1989 (calculation of profits), after subsection (2) insert—
“(2A)
But amounts are not allowed as such a deduction if they—
10
(a)
are allocated to holders of policies under which they are
eligible to participate in surplus,
(b)
are of a capital nature, and
(c)
are not funded from amounts brought into account as part of
total income in line 19 of the revenue account prepared for
15
the purposes of Chapter 9 of the Prudential Sourcebook
(Insurers) in respect of the whole of the company’s long-term
business.
(2B)
For the purposes of subsection (2A) above payments made in
connection with the reattribution of inherited estate are to be
20
regarded as being of a capital nature.”
      (2)
The amendment made by sub-paragraph (1) has effect in relation to amounts
allocated on or after 22 April 2009 to holders of policies under which they are
eligible to participate in surplus.
Limits on loss relief for addition to non-profit funds
25
3     (1)
In ICTA, after section 434A insert—
“434AZA
Reduced loss relief for additions to non-profit funds
(1)
Where this section applies in the case of a company carrying on life
assurance business, relief allowable under section 393A or Chapter 4
of Part 10 in respect of losses incurred by the company in the life
30
assurance business in an accounting period is reduced in accordance
with section 434AZB.
(2)
This section applies in the case of a company where—
(a)
there has been a relevant addition to one or more non-profit
funds in a period of account ending no later than the
35
accounting period (“the relevant period of account”) (see
subsection (3)),
(b)
the company is not a non-profit company in relation to the
relevant period of account and has not elected under
subsection (9) of section 83YA of the Finance Act 1989 to be
40
treated for the purposes of that section as if it were, and
(c)
condition A or B is met,

and, if the relevant period of account is not the period of account
ending with the accounting period (“the current period of account”),
condition C is also met.
45

Finance Bill
Schedule 23 — Insurance companies
242

(3)
For the purposes of subsection (2), there is a relevant addition to a
non-profit fund in the relevant period of account if an amount is
shown as a transfer from non-technical account in line 32 of the Form
58 of the non-profit fund in the periodical return for that period of
account.
5
(4)
Condition A is that there is a relevant book value election in relation
to assets of a non-profit fund of the company.
(5)
For the purposes of subsection (4), there is a relevant book value
election in relation to assets of a non-profit fund if an amount is
shown in relation to the non-profit fund as the excess of the value of
10
net admissible assets in line 51 of the Form 14 of the non-profit fund
in the periodical return for the current period of account.
(6)
Condition B is that the company is party to arrangements the main
purpose, or one of the main purposes, of which is to reduce the
relevant admissible value of assets of a non-profit fund of the
15
company, other than any structural assets.
(7)
For the purposes of subsection (6) (and section 434AZB), the
“relevant admissible value” means the value reflected in line 89 of
Form 13 of the periodical return for the current period of account.
(8)
Condition C is that the surplus arising since the last valuation shown
20
in line 34 of the Form 58 of the non-profit fund, or any of the non-
profit funds, in relation to which condition A or B is met in the
periodical return for the current period of account is a negative
amount.
434AZB
Additions to non-profit funds: amount of loss reduction
25
(1)
The amount of the relief allowable as mentioned in section
434AZA(1) is reduced by whichever of the following is the least—
(a)
the amount of the loss,
(b)
the amount specified in subsection (2), and
(c)
the amount specified in subsection (4).
30
(2)
The amount mentioned in subsection (1)(b) is—
(a)
where only condition A in section 434AZA is met, the
relevant amount relating to the non-profit fund in relation to
which it is met or (where it is met in relation to more than one
non-profit fund) the sum of the relevant amounts relating to
35
them,
(b)
where only condition B is met, the amount of the relevant
reduction relating to the non-profit fund in relation to which
it is met or (where it is met in relation to more than one non-
profit fund) the sum of the relevant reductions relating to
40
them, and
(c)
where both condition A and condition B are met, the
aggregate of the amounts in paragraphs (a) and (b).
(3)
In subsection (2)—
(a)
“relevant amount”, in relation to a non-profit fund, means the
45
amount shown in relation to the non-profit fund as the excess
of the value of net admissible assets in line 51 of the Form 14
of the non-profit fund in the periodical return for the current