Finance (No. 3) Bill

Session 2010 - 11
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Finance (No. 3) Bill

Finance (No. 3) Bill
Schedule 2 — Employment income provided through third parties
74

lapses (in whole or in part) before the end of the final exercise
date, and
(b)
correspondingly, no further relevant step is or will be taken
by P or any other person in relation to the shares or to any
sum of money or asset which (directly or indirectly) may
5
arise or derive, or has arisen or derived, from the shares.
(15)
In subsections (10) to (14) “the final exercise date” means the date
which is five years after the grant date.
(16)
In subsections (6)(a)(ii), (8)(a)(ii) and (10)(a)(ii) “relevant income”, in
relation to any earmarked shares, means any income—
10
(a)
which, before the relevant step is treated as being taken by
subsection (6), (8) or (10) (as the case may be)—
(i)
arises (directly or indirectly) from the shares, and
(ii)
is the subject of a relevant step within section 554B
taken by P by reason of which Chapter 2 would apply
15
apart from section 554P, and
(b)
which, at the time the relevant step is treated as being taken,
continues to be held by or on behalf of P on the basis
mentioned in section 554B(1)(a) or (b).
554M
Exclusions: other cases involving employment-related securities etc
20
(1)
Chapter 2 does not apply by reason of a relevant step the subject of
which is employment-related securities if—
(a)
by virtue of the step, the securities are acquired by a person,
and
(b)
section 425(2) applies, or would apply apart from section
25
421E(1), to the acquisition.
(2)
Chapter 2 does not apply by reason of a relevant step the subject of
which is an employment-related securities option if—
(a)
by virtue of the step, the option is acquired by a person, and
(b)
section 475(1) applies, or would apply apart from section
30
474(1), to the acquisition.
(3)
Terms used in subsection (1) or (2) have the same meanings as they
have in Chapter 2 or 5 of Part 7 (as the case may be).
(4)
Chapter 2 does not apply by reason of an event within subsection (5)
if by virtue of the event an amount counts as employment income of
35
A in respect of A’s employment with B.
(5)
The events within this subsection are—
(a)
a chargeable event for the purposes of section 426, 438 or 476,
(b)
an event which gives rise to the discharge of a notional loan
for the purposes of section 446U, or
40
(c)
a disposal to which Chapter 3D of Part 7 applies.
(6)
Chapter 2 does not apply by reason of an event to which subsection
(4) would apply apart from section 421B(6), 421E(1), 474(1) or 477(2)
or apart from an election under section 430 or 431.
(7)
Chapter 2 does not apply by reason of a relevant step within
45
554C(1)(a) taken by a person (“P”) if—

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(a)
the payment of the sum of money is by way of a loan (“the
relevant loan”),
(b)
the relevant loan is made and used solely for the purpose of
enabling A to exercise a share option,
(c)
the exercise of the option by A gives rise to employment
5
income of A in respect of A’s employment with B—
(i)
which is chargeable to income tax, or
(ii)
which is exempt income, and
(d)
there is no connection (direct or indirect) between the
relevant step and a tax avoidance arrangement.
10
(8)
In subsection (7) “share option” means a right to acquire shares
(including stock) in a company.
(9)
Subsection (10) applies if—
(a)
apart from subsection (7), Chapter 2 would apply by reason
of the relevant step mentioned in that subsection, and
15
(b)
by the end of the relevant period, the relevant loan has not
been fully repaid.
(10)
This Part has effect as if a relevant step within section 554C(1)(a)
were taken at the end of the relevant period—
(a)
the subject of which is a sum of money of an amount equal to
20
the outstanding amount of the relevant loan as at the end of
the relevant period,
(b)
in relation to which the relevant person (within the meaning
of section 554C(1)) is the person to whom the relevant loan is
made, and
25
(c)
by reason of which Chapter 2 is to apply.
(11)
In subsections (9) and (10) “the relevant period” means the period
which runs from the time the relevant step mentioned in subsection
(7) is taken until the end of the 6th day of the month following the
month in which the step is taken.
30
554N
Exclusions: employee car ownership schemes
(1)
This section applies if—
(a)
there is an arrangement (“the car ownership arrangement”)
which—
(i)
provides for A to purchase a new car from another
35
person (“P”) using a loan (“the car loan”) to be made
to A by a licensed lender,
(ii)
specifies the date (“the repayment date”) by which the
car loan must be fully repaid which must be no later
than four years after the date on which the car loan is
40
made, and
(iii)
permits A, in order to obtain funds to repay the car
loan, to sell the car back to P on a specified date at a
specified price based on an estimate (made at the time
the car ownership arrangement is made) of the likely
45
outstanding amount of the car loan on the specified
date, and
(b)
as provided for by the car ownership arrangement, A
purchases the car using the car loan.

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Schedule 2 — Employment income provided through third parties
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(2)
Chapter 2 does not apply by reason of a relevant step taken for the
sole purpose of—
(a)
the purchase of the car or its sale-back as provided for by the
car ownership arrangement, or
(b)
the making of the car loan as so provided,
5

so long as the car ownership arrangement is not a tax avoidance
arrangement and there is no other connection (direct or indirect)
between the relevant step and a tax avoidance arrangement.
(3)
Subsection (4) applies if—
(a)
apart from subsection (2), Chapter 2 would apply by reason
10
of the making of the car loan, and
(b)
by the end of the repayment date, the car loan has not been
fully repaid.
(4)
This Part has effect as if a relevant step within section 554C(1)(a)
were taken at the end of the repayment date—
15
(a)
the subject of which is a sum of money of an amount equal to
the outstanding amount of the car loan as at the end of the
repayment date,
(b)
in relation to which the relevant person (within the meaning
of section 554C(1)) is A, and
20
(c)
by reason of which Chapter 2 is to apply.
(5)
In this section—
“car” has the meaning given by section 235(2), and
“licensed lender” means a person—
(c)
who is a licensee under the Consumer Credit Act 1974
25
acting within the terms of the person’s licence, and
(d)
who is not acting as a trustee.
554O
Exclusions: employment income exemptions under Part 4
(1)
Chapter 2 does not apply by reason of a relevant step if an
employment income exemption under Part 4 applies to the subject of
30
the relevant step.
(2)
If the employment income exemption applies to the subject of the
relevant step in part only, the relevant step is to be treated for the
purposes of this Part as being two separate relevant steps—
(a)
one in relation to the subject of the step so far as the
35
exemption applies to it, and
(b)
one in relation to the subject of the step so far as the
exemption does not apply to it,

with subsection (1) applying only in relation to the separate relevant
step mentioned in paragraph (a).
40
(3)
In order to give effect to subsection (2), the sum of money or asset
which is the subject of the relevant step is to be apportioned between
the two separate relevant steps on a just and reasonable basis.
(4)
In this section “employment income exemption” includes the
exemption under section 271.
45

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554P
Exclusions: income arising from earmarked sum or asset
(1)
This section applies if—
(a)
a sum of money or asset (“sum or asset R”) is held by or on
behalf of a person (“P”),
(b)
income arises from sum or asset R, and
5
(c)
when the income arises, it—
(i)
is received by or on behalf of P, and
(ii)
is the subject of a relevant step within section 554B
taken by P.
(2)
Chapter 2 does not apply by reason of the relevant step mentioned in
10
subsection (1)(c)(ii) if—
(a)
before the income arises, sum or asset R was the subject of a
relevant step within section 554B taken by P,
(b)
Chapter 2 applied by reason of the relevant step mentioned
in paragraph (a) in respect of A’s employment with B or
15
would have so applied apart from this section or section 554Q
or any of sections 554H to 554L or section 554S,
(c)
immediately before the income arises, sum or asset R is still
earmarked or otherwise held on the basis mentioned in
554B(1)(a) or (b), and
20
(d)
subsection (3) does not apply.
(3)
This subsection applies if it is reasonable to suppose that, taking into
account the type of investments from which the income derives
(directly or indirectly), in essence, the income represents a return
from sum or asset R which exceeds the return which might be
25
expected applying the assumption that all relevant connected
persons are acting at arm’s length of each other.
(4)
In subsection (3) “relevant connected person” means a person with a
connection (direct or indirect) to the arrangement under which the
income arises.
30
554Q
Exclusions: acquisitions out of earmarked sums or assets
(1)
This section applies if—
(a)
a sum of money or asset (“sum or asset S”) is held by or on
behalf of a person (“P”),
(b)
a sum of money or asset (“sum or asset T”) is acquired by or
35
on behalf of P wholly out of sum or asset S,
(c)
sum or asset T is not acquired (directly or indirectly) from A
or any person linked with A, and
(d)
on its acquisition, sum or asset T is the subject of a relevant
step within section 554B taken by P.
40
(2)
The cases covered by subsection (1)(b) include (in particular) cases in
which sum or asset T represents the proceeds of the disposal of sum
or asset S.
(3)
Chapter 2 does not apply by reason of the relevant step mentioned in
subsection (1)(d) if—
45
(a)
before the acquisition, sum or asset S was the subject of a
relevant step within section 554B taken by P,

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Schedule 2 — Employment income provided through third parties
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(b)
Chapter 2 applied by reason of the relevant step mentioned
in paragraph (a) in respect of A’s employment with B or
would have applied apart from this section or section 554P or
554S,
(c)
immediately before the acquisition, sum or asset S is still
5
earmarked or otherwise held on the basis mentioned in
554B(1)(a) or (b), and
(d)
subsection (4) does not apply.
(4)
This subsection applies if it is reasonable to suppose that, in
essence—
10
(a)
at the time of the acquisition, the value of sum or asset T is
greater or less than the value of sum or asset S, and
(b)
the difference in the values might not have been expected
applying the assumption that all relevant connected persons
are acting at arm’s length of each other.
15
(5)
In subsection (4)(b) “relevant connected person” means a person
with a connection (direct or indirect) to the arrangement under
which sum or asset T is acquired.
(6)
Subsection (7) applies if—
(a)
subsection (3) applies to the relevant step mentioned in
20
subsection (1)(d) or would have applied had the words “or
any of sections 554H to 554L” been inserted after “554S” in
subsection (3)(b), and
(b)
for the sole purpose of the acquisition, sum or asset S or sum
or asset T is the subject of a relevant step within section
25
554C(1)(a) to (c).
(7)
Chapter 2 does not apply by reason of the relevant step mentioned in
subsection (6)(b).
554R
Exclusions: pension income chargeable under Part 9 etc
(1)
Chapter 2 does not apply by reason of a relevant step within section
30
554C or 554D if the step is the provision of pension income which is
chargeable to income tax under Part 9 or is exempt income (within
the meaning of that Part).
(2)
Sections 554S, 554T, 554U, 554V and 554W contain further provision
relating to retirement benefits etc and are to be applied, so far as
35
applicable, in that order.
554S
Exclusions: employee pension contributions
(1)
Chapter 2 does not apply by reason of a relevant step within section
554B if the sum of money or asset which is the subject of the step
arises or derives (whether wholly or partly or directly or indirectly)
40
from an excluded pension contribution paid by A on or after 6 April
2011.
(2)
If the sum of money or asset arises or derives from the excluded
pension contribution only partly, the relevant step is to be treated for
the purposes of this Part as being two separate relevant steps—
45
(a)
one in relation to the sum of money or asset so far as it arises
or derives from the excluded pension contribution, and

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Schedule 2 — Employment income provided through third parties
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(b)
one in relation to the sum of money or asset so far as it does
not arise or derive from the excluded pension contribution,

with subsection (1) applying only in relation to the separate relevant
step mentioned in paragraph (a).
(3)
Chapter 2 does not apply by reason of a relevant step within section
5
554C or 554D if the sum of money or asset which is the subject of the
step—
(a)
represents relevant benefits, and
(b)
arises or derives (whether wholly or partly or directly or
indirectly) from an excluded pension contribution paid by A.
10
(4)
If the sum of money or asset arises or derives from the excluded
pension contribution only partly, the relevant step is to be treated for
the purposes of this Part as being two separate relevant steps—
(a)
one in relation to the sum of money or asset so far as it arises
or derives from the excluded pension contribution, and
15
(b)
one in relation to the sum of money or asset so far as it does
not arise or derive from the excluded pension contribution,

with subsection (3) applying only in relation to the separate relevant
step mentioned in paragraph (a).
(5)
In order to give effect to subsection (2) or (4), the sum of money or
20
asset which is the subject of the relevant step is to be apportioned
between the two separate relevant steps on a just and reasonable
basis.
(6)
For the purposes of this section an excluded pension contribution is
a contribution—
25
(a)
which is made to an arrangement by A by way of a payment
of a sum of money,
(b)
by virtue of which A acquires rights to receive relevant
benefits under the arrangement (and nothing else),
(c)
which is neither a relievable pension contribution nor a tax-
30
relieved contribution, and
(d)
which is not a repayment of any loan and otherwise has
nothing to do with any loan and has nothing to do with a sum
of money or asset which has been the subject of a relevant
step within section 554C(1)(d).
35
(7)
In this section—
“relevant benefits” has the same meaning as in Chapter 2 of Part
6, but ignoring section 393B(2)(a),
“relievable pension contribution” means a contribution in
respect of which an individual is entitled to relief under
40
section 188 of FA 2004, and
tax-relieved contribution” has the meaning given by paragraph
3(3) of Schedule 34 to FA 2004.
554T
Exclusions: pre-6 April 2006 contributions to employer-financed
retirement benefit schemes
45
(1)
This section applies if the subject of a relevant step is a sum of money
or asset which has (wholly or partly) arisen or derived (directly or
indirectly) from a sum of money (“the taxed sum”)—

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(a)
which was paid by B in accordance with an employer-
financed retirement benefits scheme (within the meaning of
Chapter 2 of Part 6) with a view to the provision of benefits
under the scheme, and
(b)
in respect of which A is taxed.
5
(2)
For the purpose of determining whether A is taxed in respect of a
sum of money, paragraph 53(3) of Schedule 36 to FA 2004 applies as
it applies for the purpose of determining whether an employee is
taxed for the purposes of paragraph 53(1)(b) of that Schedule.
(3)
Chapter 2 does not apply by reason of the relevant step.
10
(4)
Subsection (5) applies if the sum of money or asset which is the
subject of the relevant step only partly arises or derives from the
taxed sum.
(5)
The relevant step is to be treated for the purposes of this Part as being
two separate relevant steps—
15
(a)
one in relation to the sum of money or asset so far as it arises
or derives from the taxed sum, and
(b)
one in relation to the sum of money or asset so far as it does
not arise or derive from the taxed sum,

with subsection (3) applying only in relation to the separate relevant
20
step mentioned in paragraph (a).
(6)
In order to give effect to subsection (5), the sum of money or asset
which is the subject of the relevant step is to be apportioned between
the two separate relevant steps on a just and reasonable basis.
(7)
If B is a company and is a member of a group of companies at any
25
time (“the relevant time”), in subsection (1)(a), in relation to any sum
of money paid at the relevant time, the reference to B is to be read as
including a reference to any other company which is a member of
that group at the relevant time.
554U
Exclusions: purchases of annuities out of pension scheme rights
30
(1)
This section applies if—
(a)
an annuity contract is purchased from an insurance company
wholly out of rights which A has under a pension scheme,
and
(b)
A’s rights out of which the annuity contract is purchased are,
35
wholly or partly, pre-6 April 2011 annuity rights.
(2)
If the purchaser—
(a)
takes a relevant step for the sole purpose of purchasing the
annuity contract or transferring the beneficiary’s rights
under the annuity contract to A or a person linked with A, or
40
(b)
on the purchase of the annuity contract, otherwise takes a
relevant step within section 554B the subject of which is the
beneficiary’s rights under the annuity contract,

Chapter 2 does not apply by reason of the relevant step.
(3)
If the insurance company—
45
(a)
takes a relevant step for the sole purpose of selling the
annuity contract, or