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
81

(b)
on the sale of the annuity contract, otherwise takes a relevant
step within section 554B the subject of which is a sum of
money or asset representing the purchase price received for
the annuity contract,

Chapter 2 does not apply by reason of the relevant step.
5
(4)
If A’s rights out of which the annuity contract is purchased are only
partly pre-6 April 2011 annuity rights, any relevant step mentioned
in subsection (2)(a) or (b) or (3)(a) or (b) is to be treated for the
purposes of this Part as being two separate relevant steps—
(a)
one in relation to the annuity contract so far as it is purchased
10
out of rights which are pre-6 April 2011 annuity rights, and
(b)
one in relation to the annuity contract so far as it is purchased
out of rights which are not pre-6 April 2011 annuity rights,

with subsection (2) or (3) (as the case may be) applying only in
relation to the separate relevant step mentioned in paragraph (a) of
15
this subsection.
(5)
In order to give effect to subsection (4), the sum of money or asset
which is the subject of the relevant step mentioned in subsection
(2)(a) or (b) or (3)(a) or (b) is to be apportioned between the two
separate relevant steps on a just and reasonable basis.
20
(6)
In this section—
“annuity contract” means a contract for the provision of an
annuity—
(e)
granted for consideration in money or money’s worth
in the ordinary course of a business of granting
25
annuities on human life, and
(f)
payable for a term ending at a time ascertainable only
by reference to the end of a human life,
although for this purpose it does not matter that the annuity
may in some circumstances end before or after the life,
30
“insurance company” means—
(g)
a person or EEA firm within section 275(1)(a) or (b) of
FA 2004, or
(h)
a person resident in a territory outside the European
Economic Area—
35
(i)
whose normal business includes the provision
of annuities, and
(ii)
who is regulated in the conduct of that
business by the government of that territory
or by a body established under the law of that
40
territory for the purpose of regulating such
business, and
“pre-6 April 2011 annuity rights” means rights, which accrued
before 6 April 2011, specifically to receive an annuity.
554V
Exclusions: certain retirement benefits etc
45
(1)
This section applies if—
(a)
a relevant benefit is provided under a relevant scheme by
way of a payment of a lump sum wholly out of rights which
A has under the scheme,

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Schedule 2 — Employment income provided through third parties
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(b)
A’s rights out of which the lump sum is paid are, wholly or
partly, pre-6 April 2011 lump sum rights, and
(c)
the payment of the lump sum is a relevant step within section
554C.
(2)
Chapter 2 does not apply by reason of the relevant step.
5
(3)
If A’s rights out of which the lump sum is paid are only partly pre-6
April 2011 lump sum rights, 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 lump sum so far as it is paid out of rights
which are pre-6 April 2011 lump sum rights, and
10
(b)
one in relation to the lump sum so far as it is paid out of rights
which are not pre-6 April 2011 lump sum rights,

with subsection (2) applying only in relation to the separate relevant
step mentioned in paragraph (a).
(4)
In order to give effect to subsection (3), the lump sum is to be
15
apportioned between the two separate relevant steps on a just and
reasonable basis.
(5)
In this section—
“pre-6 April 2011 lump sum rights” means rights, which
accrued before 6 April 2011, specifically to receive relevant
20
benefits by way of lump sum payments,
“relevant benefit” has the same meaning as in Chapter 2 of Part
6, and
“relevant scheme” means an employer-financed retirement
benefits scheme (within the meaning of that Chapter) or a
25
superannuation fund to which section 615(3) of ICTA applies.
554W
Exclusions: transfers between certain foreign pension schemes
(1)
This section applies if rights which A has under a section 390 scheme
are transferred to another section 390 scheme or to an overseas
pension scheme.
30
(2)
This section also applies if—
(a)
rights which A has under an overseas pension scheme are
transferred to another overseas pension scheme, and
(b)
some or all of the rights transferred are section 390 scheme
rights.
35
(3)
Chapter 2 does not apply by reason of—
(a)
a relevant step within section 554C taken for the sole purpose
of transferring the rights, or
(b)
a relevant step within section 554B taken by the transferee in
relation to the transferred rights on their transfer.
40
(4)
Subsection (5) applies in relation to a transfer within subsection (2) if
not all the transferred rights are section 390 scheme rights.
(5)
Any relevant step mentioned in subsection (3) is to be treated for the
purposes of this Part as being two separate relevant steps—
(a)
one in relation to the section 390 scheme rights, and
45
(b)
one in relation to the rest of the transferred rights,

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with subsection (3) applying only in relation to the separate relevant
step mentioned in paragraph (a) of this subsection.
(6)
In order to give effect to subsection (5), the sum of money or asset
which is the subject of the relevant step mentioned in subsection (3)
is to be apportioned between the two separate relevant steps on a just
5
and reasonable basis.
(7)
Subsection (8) applies if any of the transferred rights arise or derive
(directly or indirectly) from contributions to any scheme which—
(a)
are paid by B on or after 6 April 2006, and
(b)
are neither tax-relieved contributions nor tax-exempt
10
provision.
(8)
Any relevant step mentioned in subsection (3) is to be treated for the
purposes of this Part as being two separate relevant steps—
(a)
one in relation to the rights mentioned in subsection (7), and
(b)
one in relation to the rest of the transferred rights,
15

with subsection (3) applying only in relation to the separate relevant
step mentioned in paragraph (b) of this subsection.
(9)
In order to give effect to subsection (8), the sum of money or asset
which is the subject of the relevant step mentioned in subsection (3)
is to be apportioned between the two separate relevant steps on a just
20
and reasonable basis.
(10)
If subsection (5) applies in relation to a transfer—
(a)
in subsection (7) the reference to the transferred rights is to be
read as a reference to the transferred section 390 scheme
rights only, and
25
(b)
in subsections (8) and (9) references to any relevant step
mentioned in subsection (3) are to be read as references to the
separate relevant step mentioned in subsection (5)(a).
(11)
If B is a company and is a member of a group of companies at any
time (“the relevant time”), in subsection (7)(a), in relation to any
30
contribution 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.
(12)
In this section—
“overseas pension scheme” has the same meaning as in Part 4 of
35
FA 2004 (see section 150(7) of that Act),
“section 390 scheme” means a scheme in relation to which a
claim was accepted under section 390,
“section 390 scheme rights” means rights which A has under an
overseas pension scheme and which—
40
(i)
have been transferred to the scheme (directly or
indirectly) from a section 390 scheme, or
(j)
have arisen or derived (directly or indirectly) from
rights that have been so transferred, and
“tax-exempt provision” and “tax-relieved contribution” have
45
the meanings given by paragraph 3(3) and (4) of Schedule 34
to FA 2004.

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554X
Power to exclude other relevant steps
(1)
The Commissioners for Her Majesty’s Revenue and Customs may by
regulations provide for Chapter 2 not to apply—
(a)
by reason of a relevant step falling within a specified
description, or
5
(b)
in the cases otherwise specified in the regulations.
(2)
Regulations under this section may, in consequence of provision
within subsection (1)—
(a)
provide—
(i)
for a relevant step to be treated for the purposes of
10
this Part as if it were two or more separate relevant
steps,
(ii)
for the provision within subsection (1) to apply only
to one or some of the separate relevant steps, and
(iii)
for the sum of money or asset which is the subject of
15
the relevant step to be apportioned between the
separate relevant steps on a just and reasonable basis,
(b)
make provision, in relation to cases in which Chapter 2 does
not apply by reason of a relevant step by virtue of the
provision within subsection (1)—
20
(i)
for a relevant step to be treated as taking place if,
subsequently, specified conditions are met or not met,
and
(ii)
for Chapter 2 to apply by reason of the relevant step
treated as taking place, and
25
(c)
make other provision modifying the application of any
provision of this Part.
(3)
Regulations under this section may contain incidental,
supplemental, consequential and transitional provision and savings.
(4)
Regulations under this section may have retrospective effect.
30
Interpretation
554Y
Interpretation: general
(1)
This section applies for the purposes of this Part.
(2)
“A” and “B” are defined in section 554A(1)(a).
(3)
“Arrangement” includes any agreement, scheme, settlement,
35
transaction, trust or understanding (whether or not it is legally
enforceable).
(4)
“Market value” has the same meaning as it has for the purposes of
TCGA 1992 by virtue of Part 8 of that Act.
(5)
Section 170(2) to (11) of TCGA 1992 applies for the purpose of
40
determining whether a company is a member of a group of
companies.
(6)
References to the payment of a sum of money include (in particular)
references to the payment of a sum of money by way of a loan.

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(7)
“Pension scheme” has the same meaning as in Part 4 of FA 2004 (see
section 150(1) of that Act).
(8)
“Relevant step” is defined in section 554A(2).
(9)
References to a relevant step which involves a sum of money are
references to—
5
(a)
a step within section 554B where the subject of the relevant
step is a sum of money,
(b)
a step within section 554C(1)(a), or
(c)
a step within section 554C(1)(d) where the subject of the
relevant step is a sum of money.
10
(10)
References to the asset which is the subject of a relevant step are, in
the case of a step within section 554C(1)(e), references to the lease
granted.
(11)
For this purpose, the lease granted is to be treated as including any
extensions of the lease, or any later lease, which by virtue of section
15
554C(7) or (8) is taken into account in determining the likely effective
duration of the lease for the purposes of section 554C(1)(e).
(12)
“Tax avoidance arrangement” means an arrangement which has a
tax avoidance purpose.
(13)
For the purposes of subsection (12) an arrangement has a tax
20
avoidance purpose if subsection (14) applies to a person who is a
party to the arrangement.
(14)
This subsection applies to a person if the main purpose, or one of the
main purposes, of the person in entering into the arrangement is the
avoidance of tax or national insurance contributions.
25
(15)
The following paragraphs apply for the purpose of determining
whether any relevant step or any other step is connected with a tax
avoidance arrangement—
(a)
the step is connected with a tax avoidance arrangement if (for
example) the step is taken (wholly or partly) in pursuance
30
of—
(i)
the tax avoidance arrangement, or
(ii)
an arrangement at one end of a series of arrangements
with the tax avoidance arrangement being at the other
end, and
35
(b)
it does not matter if the person taking the step is unaware of
the tax avoidance arrangement.
554Z
Interpretation: persons linked with A
(1)
In this Part references to any person linked with A are references to—
(a)
any person who is or has been connected with A,
40
(b)
a close company in which A or a person within any other
paragraph of this subsection is or has been a participator,
(c)
a company in which A or a person within any other
paragraph of this subsection is or has been a participator and
which would be a close company if it were a UK resident
45
company, or

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(d)
a company which is a 51% subsidiary of a company within
paragraph (b) or (c).
(2)
In applying section 993 of ITA 2007 for the purposes of subsection
(1)—
(a)
a man and woman living together as if they were spouses of
5
each other are treated as if they were spouses of each other,
and
(b)
two people of the same sex living together as if they were civil
partners of each other are treated as if they were civil partners
of each other.
10
(3)
In subsection (1) “participator”—
(a)
in relation to a close company, means a person who is a
participator in relation to the company for the purposes of
section 455 of CTA 2010 (see sections 454 and 455(5) of that
Act), and
15
(b)
in relation to a company which would be a close company if
it were a UK resident company, means a person who would
be such a participator if the company were a close company.
Chapter 2
Treatment of relevant step for income tax purposes
20
Employment income
554Z1
Value of relevant step to count as employment income
(1)
If this Chapter applies by reason of a relevant step, the value of the
relevant step (see section 554Z2) counts as employment income of A
in respect of A’s employment with B—
25
(a)
if the relevant step is taken before A’s employment with B
starts, for the tax year in which the employment starts, or
(b)
otherwise, for the tax year in which the relevant step is taken.
(2)
If the relevant step gives rise to—
(a)
an amount which (apart from this subsection) would be
30
treated as earnings of A under a provision of the benefits
code, or
(b)
any income of A which (apart from this subsection) would be
dealt with under Chapter 3 of Part 4 of ITTOIA 2005,

subsection (1) applies instead of that provision of the benefits code or
35
Chapter 3 of Part 4 of ITTOIA 2005 (as the case may be).
(3)
In particular, in a case in which the relevant step is the making of an
employment-related loan (within the meaning of Chapter 7 of Part
3), the effect of subsection (2)(a) is that the loan is not to be treated for
any tax year as a taxable cheap loan for the purposes of that Chapter.
40
554Z2
Value of relevant step
(1)
If the relevant step involves a sum of money, its value is the amount
of the sum.
(2)
In any other case, the value of the relevant step is—

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(a)
the market value when the relevant step is taken of the asset
which is the subject of the step, or
(b)
if higher, the cost of the relevant step.
(3)
Subsection (2)(a) is subject to sections 437 and 452.
(4)
Subsection (2)(b) is to be ignored if—
5
(a)
the relevant step is within section 554C(1)(c), and
(b)
any of Chapters 2 to 4A of Part 7 apply by virtue of the
acquisition.
(5)
Subsection (2)(b) is also to be ignored if section 554Z6 applies.
(6)
In subsection (2)(b) the reference to the cost of the relevant step is to
10
the expense incurred in connection with the relevant step (including
a proper proportion of any expense relating partly to the relevant
step and partly to other matters) by the person or persons at whose
cost the relevant step is taken.
(7)
Subsections (1) and (2) are subject to sections 554Z3, 554Z4, 554Z5,
15
554Z6 and 554Z7, which, so far as applicable, are to be applied in that
order.
554Z3
Residence issues
(1)
After the value of the relevant step is determined under section
554Z2, the particular tax year or years which the value of the relevant
20
step is “for” are to be determined.
(2)
For this purpose, apply sections 16(1) to (4) and 17(1) to (3) as if the
value of the relevant step were general earnings.
(3)
Subsection (4) applies if the value of the relevant step, or a part of it,
is “for” a tax year in which A is non-UK resident.
25
(4)
The value, or the part of it, is to be reduced so far as it is not in respect
of duties performed in the United Kingdom.
(5)
The question of the extent to which the value, or the part of it, is not
in respect of duties performed in the United Kingdom is to be
determined on a just and reasonable basis.
30
(6)
This section does not change the tax year for which the value of the
relevant step counts as employment income under section 554Z1(1).
554Z4
Overlap with earlier relevant step
(1)
This section applies if there is overlap between—
(a)
the sum of money or asset (“sum or asset P”) which is the
35
subject of the relevant step, and
(b)
the sum of money or asset (“sum or asset Q”) which was the
subject of an earlier relevant step (“the earlier relevant step”)
by reason of which this Chapter applied in respect of A’s
employment with B.
40
(2)
The value of the relevant step (after any reductions under section
554Z3) is reduced (but not below nil)—
(a)
if the overlap covers the whole of sum or asset Q, by the value
of the earlier relevant step, or