Legalize / United Kingdom / Public General Act

Finance Act 2006

Type Public General Act

Publication 2006-07-19

Last updated 2020-12-31

State In force

Department Statute Law Database

Source legislation.gov.uk

articles Not indexed

Reform history JSON API

(a) “the old expenditure” means so much of the expenditure as is expenditure incurred before the day on which this Act is passed, and

(b) “the new expenditure” means so much of the expenditure as is expenditure incurred on or after that day.

(3) Treat the old expenditure—

(a) as if it had been incurred on the provision of a separate asset for leasing under a separate long funding lease, and

(b) as if that separate long funding lease were an excepted lease.

(4) Treat the new expenditure as if it had been incurred on the provision of a separate asset for leasing under a separate long funding lease in relation to which the amendments made by this Schedule have effect.

That is without prejudice to the application of any provisions of this Part which treat that deemed separate long funding lease as if it were two or more leases.

(5) The rentals under the actual long funding lease are to be apportioned between the two deemed leases in such manner as is just and reasonable.

(6) This paragraph has effect for the purpose of determining liability to income tax or corporation tax in the case of any person who is or has been the lessor or the lessee under the actual long funding lease.

(7) Paragraph 22 has effect for determining when an amount of expenditure is to be treated for the purposes of this paragraph as incurred by the person mentioned in sub-paragraph (1).

When expenditure is incurred for the purposes of paragraph 21

22

(1) This paragraph has effect for determining, for the purposes of paragraph 21, when an amount of expenditure is to be treated as incurred by the person mentioned in sub-paragraph (1) of that paragraph.

(2) The general rule is that an amount of expenditure is to be treated as incurred as soon as there is an unconditional obligation to pay it.

(3) The general rule applies even if the whole or a part of the expenditure is not required to be paid until a later date.

(4) There are the following exceptions to the general rule.

(5) If, under an agreement,—

(a) an unconditional obligation to pay an amount of expenditure comes into being as a result of the giving of a certificate or any other event, and

(b) the giving of the certificate, or other event, occurs before the day that falls one month after the passing of this Act,

the expenditure is to be treated as incurred on the day before the passing of this Act.

(6) If, under an agreement,—

(a) there is an unconditional obligation to pay an amount of expenditure on a date earlier than accords with normal commercial usage, and

(b) the sole or main benefit which might have been expected to be obtained thereby is that the amount would be treated, under the general rule, as incurred at an earlier time,

the amount is to be treated as incurred on the date on or before which it is required to be paid.

(7) If the terms of an agreement are varied on or after 22nd March 2006 with respect to the times for payment and—

(a) apart from the variation, an unconditional obligation to pay an amount of expenditure would have come into being on or after the day on which this Act is passed, but

(b) as a result of the variation, the unconditional obligation to pay the amount comes into being before that day,

the amount is to be treated as incurred on the date on which it would have been treated as incurred apart from the variation.

(8) Sub-paragraph (7) does not apply if the long funding lease mentioned in paragraph 21 was finalised before 22nd March 2006.

When a lease is “finalised”

23

(1) For the purposes of this Part, a lease is “finalised” on the earliest day on which the following conditions are met.

(2) Condition 1 is that there is a contract in writing for the lease between the lessor and the lessee.

(3) Condition 2 is that either—

(a) the contract is unconditional, or

(b) if it is conditional, the conditions have been met.

(4) Condition 3 is that no terms remain to be agreed.

When an asset is “under construction”

24

(1) An asset is “under construction” at any time in the period which—

(a) begins when construction of the asset begins, and

(b) ends when construction of the asset is completed.

(2) An asset consisting of two or more component parts is to be taken to be under construction at any time after the start of construction of any of those component parts which meets the condition in subsection (3).

(3) The condition is that the component part has been identified as a component part of the particular asset before construction of the component part begins.

(4) Sub-paragraphs (1) and (2) are subject to sub-paragraph (5).

(5) The leased asset is not to be regarded as under construction at any time after the commencement of the term of the lease.

(6) This paragraph has effect for the purposes of this Part.

Combined assets and constituent assets

25

(1) A “combined asset” is an asset which meets the conditions in sub-paragraph (2).

(2) The conditions are that—

(a) the asset is for use individually,

(b) it consists of two or more items of plant or machinery (“constituent assets”),

(c) each of the constituent assets is constructed with a view to its use in conjunction with the others as a single asset (namely, the combined asset).

(3) Plant or machinery that can be used individually is not a constituent asset just because—

(a) it is one of a number of assets of the same or a similar description,

(b) each of those assets is intended for use individually, and

(4) This paragraph has effect for the purposes of this Part.

Mixed leases

26

(1) This paragraph applies in any case where there is a mixed lease (see section 70L of CAA 2001).

(2) In any such case, determine whether the mixed lease is an excepted lease.

(3) If the mixed lease is an excepted lease, section 70L of CAA 2001 and the amendments made by this Schedule accordingly do not have effect in relation to it.

(4) If the mixed lease is not an excepted lease, then apply sections 70L and 70M of CAA 2001 and determine separately in the case of each derived lease whether that derived lease is an excepted lease.

Interpretation of this Part

27

(1) In this Part—

“combined asset” is to be construed in accordance with paragraph 25;

“constituent asset” is to be construed in accordance with paragraph 25;

“finalise”, in relation to a lease, is to be construed in accordance with paragraph 23;

“lease” includes—a plant or machinery lease, anda mixed lease,and “lessor”, “lessee” and other related expressions are to be construed accordingly;

“the lessee's side” means any of the following—the lessee,a person who controls (or is to control) the lessee,any two or more persons who together control (or are to control) the lessee,and for this purpose “control” has the meaning given by section 574 of CAA 2001 ;

“the lessor's side” means any of the following—the lessor,a person who controls (or is to control) the lessor,any two or more persons who together control (or are to control) the lessor,and for this purpose “control” has the meaning given by section 574 of CAA 2001 ;

“the main constructor” means the contractor under the main contract for the construction of the plant or machinery;

“pre-existing heads of agreement” is to be construed in accordance with paragraph 17(2);

“the principal terms”, in relation to a lease, are the following—the identity of the lessee;the identity or description of the asset to be leased;particulars, or a description, of the rentals payable under the lease;particulars, or a description, of the term of the lease;

“qualifying activity” has the same meaning as in Part 2 of CAA 2001;

“under construction”, in the case of an asset, is to be construed in accordance with paragraph 24.

(2) Chapter 6A of Part 2 of CAA 2001 (interpretation of that Part so far as relating to long funding leases) also applies for the purposes of this Part.

SCHEDULE 9

Income and Corporation Taxes Act 1988

Petroleum extraction activities: sale and leaseback

1

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Supplementary charge in respect of ring fence trades

2

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Leased assets: special cases

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Taxation of Chargeable Gains Act 1992

Long funding leases: deemed disposals and re-acquisitions

4

(1) After section 25 of TCGA 1992 (non-residents: deemed disposals) insert—

(25A) (1) This section applies where plant or machinery is used for the purpose of leasing under a long funding lease. (2) The lessor shall be deemed for all purposes of this Act— (a) to have disposed of the plant or machinery at the commencement of the term of the lease at the value described in subsection (4)(a) or (b), and (b) to have immediately reacquired it at the same value. (3) The lessor shall also be deemed for all purposes of this Act— (a) to have disposed of the plant or machinery on the termination of the lease for a consideration equal to the termination amount, and (b) to have immediately reacquired it for the same consideration. (4) The value mentioned in subsection (2)(a) is— (a) where the lease is a long funding finance lease, an amount equal to that which would fall to be recognised as the lessor's net investment in the lease if accounts were prepared in accordance with generally accepted accounting practice on the date on which the lessor's net investment in the lease is first recognised in the books or other financial records of the lessor, or (b) where the lease is a long funding operating lease, an amount equal to the market value of the plant or machinery at the commencement of the term of the lease. (5) For the purposes of this section, the following expressions have the meaning given in Chapter 6A of Part 2 of the Capital Allowances Act (interpretation of provisions about long funding leases)— - “commencement”, in relation to the term of a lease, - “lessor”, - “long funding lease”, - “long funding finance lease”, - “long funding operating lease”, - “market value”, - “the term”, in relation to a lease, - “termination”, - “termination amount”.

(2) The amendment made by this paragraph has effect where the commencement of the term of the lease is on or after 1st April 2006.

Restriction of losses: long funding leases of plant or machinery

5

(1) After section 41 of TCGA 1992 (restriction of losses by reference to capital allowances and renewals allowances) insert—

(41A) (1) This section applies where a person disposes of an asset— (a) which includes plant or machinery which is a fixture for the purposes of Chapter 6A of Part 2 of the Capital Allowances Act, and (b) which he has used for the purpose of leasing under one or more long funding leases. (2) In the computation of the amount of a loss accruing to the person on the disposal there shall be excluded from the sums allowable as a deduction by virtue of section 38(1)(a) and (b) (acquisition and enhancement costs) an amount determined in accordance with subsection (3) or (4). (3) Where the person has used the plant or machinery for the purpose of leasing under one long funding lease, the amount is equal to the fall in value of the plant or machinery during the period of the lease. (4) Where the person has used the plant or machinery for the purpose of leasing under more than one long funding lease, the amount is equal to the sum of the fall in value of the plant or machinery during the period of each lease. (5) In this section, references to the fall in value of plant or machinery during the period of a lease are references to the amount (if any) by which— (a) the market value of the plant or machinery at the commencement of the term of the lease, exceeds (b) its market value at the termination of the lease. (6) For the purposes of this section, the following expressions have the meaning given in Chapter 6A of Part 2 of the Capital Allowances Act (interpretation of provisions about long funding leases)— - “commencement”, in relation to the term of a lease, - “long funding lease”, - “market value”, - “the term”, in relation to a lease, - “termination”.

(2) The amendment made by this paragraph has effect in relation to disposals on or after 1st April 2006.

Definition of market value

6

(1) Section 272 of TCGA 1992 (valuation: general) is amended as follows.

(2) In subsection (6) (subjection to other provisions) after “subject to” insert “ sections 25A and 41A and ”.

Finance Act 1997

Leasing arrangements

7

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Finance Act 2000

Tonnage tax: introductory

8

Schedule 22 to FA 2000 (tonnage tax) is amended as follows.

Meaning of “finance costs”

9

(1) In Part 7 (the ring fence: general provisions) paragraph 63 (meaning of finance costs) is amended as follows.

(2) In sub-paragraph (2), for the word “and” at the end of paragraph (d) substitute the following paragraph—

(dd) where the tonnage tax company is the lessee under a long funding operating lease, the amount deductible (or the total amount that could, if there were no tonnage tax election, be deductible) in respect of payments under the lease in computing the profits of the lessee for the purposes of corporation tax (after first making against any such amount any reductions falling to be made by virtue of section 502K of the Taxes Act 1988); and

(3) At the end of the paragraph insert—

(4) In this paragraph “long funding operating lease” means a long funding operating lease for the purposes of Part 2 of the Capital Allowances Act (see section 70YI(1) of that Act).

(4) The amendments made by this paragraph have effect in relation to payments due on or after 1st April 2006.

Capital allowances: ship leasing

10

(1) Part 10 (the ring fence: capital allowances: ship leasing) is amended as follows.

(2) In paragraph 89 (introduction), in sub-paragraph (1), after the paragraph relating to paragraphs 90 and 91 (defeased leasing) insert— “ paragraphs 91A to 91F (long funding leases), ”.

(3) After paragraph 91 (defeased leasing: excepted forms of security) insert—

(91A) (1) This paragraph applies if the lease would fall to be regarded as a long funding lease for the purposes of Part 2 of the Capital Allowances Act 2001, apart from this paragraph. (2) The lease is to be treated for tax purposes as not being a long funding lease at any time when the lease— (a) meets the conditions in sub-paragraph (3), or (b) is expected to meet those conditions when the ship is first brought into use under the lease, but this is subject to the qualification in sub-paragraph (4) and the exception in sub-paragraph (5). (3) The conditions are— (a) that the lease falls within paragraph 91B (lease to tonnage tax company or group), (b) that the lease falls within paragraph 91C (tonnage tax company to operate and manage qualifying ship), (c) that the lease falls within paragraph 91D (period and rate of sublease of qualifying ship). (4) The condition in paragraph (c) of sub-paragraph (3) has to be met, or be expected to be met, only at times when the company within tonnage tax is leasing the ship to a company not within tonnage tax. (5) The conditions in paragraphs (b) and (c) of sub-paragraph (3) do not have to be met, or be expected to be met, if the lease was finalised (within the meaning of Part 4 of Schedule 8 to the Finance Act 2006) before 1st April 2006. (6) Sub-paragraph (2) is subject to paragraph 91E (anti-avoidance). (91B) (1) A lease falls within this paragraph if— (a) it is a lease of a qualifying ship provided directly to a company within tonnage tax, or (b) it is a lease of a qualifying ship provided indirectly to a company within tonnage tax (“T”) and sub-paragraph (2) applies. (2) This sub-paragraph applies where— (a) the owner of the qualifying ship provides it directly to a company (“C”) under a lease, (b) C provides the qualifying ship directly to T under a lease, and (c) C and T are in the same group. (91C) (1) A lease of a qualifying ship provided, directly or indirectly, to a company within tonnage tax (“T”) falls within this paragraph if T is responsible— (a) for the operation of the ship, including the appointment of the master and those members of the crew engaged in navigation, and (b) for defraying all expenses in connection with the ship, or substantially all such expenses other than those directly incidental to a particular voyage or to the employment of the ship during any period for which the ship is leased by T to another person. (2) For the purposes of this paragraph, T is “responsible” if— (a) he is responsible as principal, or (b) he appoints another person (“P”) to be responsible in his place and the condition in sub-paragraph (3) is met. (3) The condition is that— (a) P is not a person to whom the ship is leased by T and is not connected with such a person, or (b) P is a company within tonnage tax. (4) Any reference in this paragraph to a lease by T includes a reference to a contract of affreightment entered into by T that provides for the carriage of goods by the qualifying ship. (5) Section 839 of the Taxes Act 1988 (connected persons) applies for the purposes of this paragraph. (91D) (1) A lease of a qualifying ship provided, directly or indirectly, to a company within tonnage tax (“T”) falls within this paragraph if each lease of the ship by T (a “sublease”) to a company not within tonnage tax meets the conditions in sub-paragraph (2). (2) The conditions are— (a) that the amount payable under the sublease is the market rate, and (b) that the period of the sublease does not exceed 7 years. (3) For the purposes of this paragraph the market rate is the rate at which the qualifying ship could reasonably be expected to be leased, taking into account all the circumstances of the lease including the period of the lease, the date at which the lease commences and the size and description of the qualifying ship. (4) For the purposes of this paragraph the period of a sublease is the period comprising— (a) the term specified in the sublease, and (b) any subsequent periods which meet the conditions in sub-paragraph (5). (5) The conditions are that— (a) there is an option to continue the sublease for that period, and (b) the amount payable under the sublease for that period is not the market rate applicable at the start of that period. (6) Where— (a) an option to continue a sublease for a period is exercised, and (b) the amount payable under the sublease for that period is the market rate applicable at the start of that period, the parties to the sublease are to be treated for the purposes of this paragraph as if the sublease had terminated immediately before the commencement of the period and a new sublease had immediately been entered into. (7) Where a sublease is for an indefinite period, the period of the sublease is to be taken for the purposes of this paragraph to be a period of more than 7 years, unless the condition in sub-paragraph (8) is met. (8) The condition is that— (a) the amount payable under the sublease must be reviewed at least once every 7 years, and (b) if the amount payable under the sublease is found on such a review not to be the market rate applicable at the time of the review, it must be changed to the market rate applicable at that time. (9) Where there is an option to continue a sublease for an indefinite period, the period of the sublease is to be taken for the purposes of this paragraph to be a period of more than 7 years, unless the condition in sub-paragraph (10) is met. (10) The condition is that the amount payable under the sublease for any period for which the option may be exercised is the market rate applicable at the start of that period, except that— (a) the amount for the time being payable under the sublease may subsequently be changed at any time to the market rate applicable at that time, (b) the amount payable under the sublease must be reviewed at least once every 7 years, and (c) if the amount payable under the sublease is found on such a review not to be the market rate applicable at the time of the review, it must be changed to the market rate applicable at that time. (11) Any reference in this paragraph to a lease by T includes a reference to a contract of affreightment entered into by T that provides for the carriage of goods by the qualifying ship. (91E) Paragraph 91A(2) does not have effect in the case of the lease if the main purpose, or one of the main purposes— (a) of the leasing of the ship, (b) of a series of transactions of which the leasing of the ship is one, or (c) of any of the transactions in such a series, was to obtain a writing down allowance determined without regard to any of paragraphs 90, 92 and 94 to 102 in respect of expenditure incurred by any person on the provision of the ship. (91F) (1) This paragraph applies if sub-paragraph (2) of paragraph 91A ceases to have effect in relation to a lease (the “existing lease”) because one or more of the conditions in sub-paragraph (3) of that paragraph cease to be met. (2) In any such case it is to be assumed for tax purposes that— (a) the existing lease terminates at the time of the cessation; (b) another lease (the “new lease”) is entered into immediately after the cessation; (c) the term of the new lease is the portion of the term of the existing lease that remains unexpired at the time of the cessation; (d) the date on which the cessation occurs is the date of both— (i) the inception of the new lease, and (ii) the commencement of the term of the new lease. (3) Where this paragraph applies, subsection (4) of section 70X of the Capital Allowances Act 2001 (transfers, assignments etc by lessee) does not. (4) For the purposes of this paragraph, the following expressions have the meaning given in Chapter 6A of Part 2 of the Capital Allowances Act 2001 (interpretation of provisions about long funding leases)— - “commencement”, in relation to the term of a lease; - “inception”, in relation to a lease; - “term”, in relation to a lease; - “terminate”.

(4) In paragraph 93 (certificates required to support claim by lessor), in sub-paragraph (1)(b) after “in relation to the lease” insert “ and, if the lease is one that would (apart from paragraph 91A) fall to be regarded as a long funding lease for the purposes of Part 2 of the Capital Allowances Act 2001, that paragraph 91A(2) has effect in relation to the lease. ”

(5) Paragraph 15 of Schedule 8 (commencement) also has effect in relation to the amendments made by this paragraph.

Capital Allowances Act 2001

Withdrawal of first year allowances for lessors of certain plant or machinery

11

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Plant or machinery treated as owned by person entitled to benefit of contract etc

12

(1) Section 67 of CAA 2001 is amended as follows.

(2) After “qualifying activity”, in each place where those words occur in the section, insert “ or corresponding overseas activity ”.

(3) In subsection (2), insert at the end— “ This subsection has effect subject to, and in accordance with, subsections (2A) to (2C). ”.

(4) After subsection (2) insert—

(2A) If the contract is one which, in accordance with generally accepted accounting practice, falls (or would fall) to be treated as a lease, subsection (2B) applies. (2B) Where that is the case, the plant or machinery is to be treated under subsection (2) as owned by the person at any time only if the contract falls (or would fall) to be treated by that person in accordance with generally accepted accounting practice as a finance lease. (2C) Where at any time the plant or machinery— (a) is not treated under subsection (2) as owned by the person, but (b) would be treated under that subsection as owned by the person, but for subsection (2B), the plant or machinery is nevertheless to be treated under subsection (2) as not owned by any other person at that time.

(5) Renumber subsection (5) as subsection (7).

(6) Before that subsection, as so renumbered, insert—

(6) If— (a) a person enters into two or more agreements, and (b) those agreements are such that, if they together constituted a single contract, the condition in subsection (1)(b) would be met in relation to that person and that contract, the agreements are to be treated for the purposes of this section as parts of a single contract. In this subsection, any reference to an agreement includes a reference to an undertaking, whether or not legally enforceable.

(7) At the end of the section insert—

(8) In this section “corresponding overseas activity” means an activity that would be a qualifying activity if the person carrying it on were resident in the United Kingdom.

(8) The amendments made by this paragraph have effect in relation to contracts that are finalised (within the meaning of Part 4 of Schedule 8) on or after 1st April 2006.

Phasing out of overseas leasing rules

13

(1) Section 105 of CAA 2001 (basic terms: “leasing”, “overseas leasing” etc) is amended as follows.

(2) After subsection (2) (“overseas leasing”) insert—

(2A) In determining whether plant or machinery is used for overseas leasing, no account shall be taken of any lease finalised, within the meaning of Part 4 of Schedule 8 to the Finance Act 2006, on or after 1st April 2006.

Anti-avoidance: meaning of “finance lease”

14

(1) Section 219 of CAA 2001 (meaning of “finance lease” in Chapter 17 of Part 2) is amended as follows.

(2) In subsection (1)(b), after sub-paragraph (ii) insert— “ and which are not a long funding lease in the case of the lessor. ”.

(3) Paragraph 15 of Schedule 8 (commencement) also has effect in relation to the amendment made by this paragraph.

Capital allowances: allocation of expenditure to a chargeable period

15

(1) Section 220 of CAA 2001 is amended as follows.

(2) Before subsection (1) insert—

(A1) Subsection (1) applies to a company for a chargeable period if— (a) at the end of the ICTA period of account which is the basis period for the chargeable period, the company is a member of a group, and (b) the last day of that ICTA period of account is not also the last day of an ICTA period of account of the principal company of the group.

(3) In subsection (1)—

(a) for “a person” substitute “ the company ”,

(b) for “a chargeable period” substitute “ the chargeable period ”,

(d) for “person's”, in both places, substitute “ company's ”.

(4) After subsection (2) insert—

(3) The following provisions have effect for the interpretation of this section. (4) A “qualifying operating lease” is a plant or machinery lease that meets the following conditions— (a) it is not a finance lease, (b) it is a funding lease, (c) its term is longer than 4 years but not longer than 5 years. (5) An ICTA period of account is the basis period for a chargeable period if the chargeable period coincides with, or falls within, the ICTA period of account. (6) An “ICTA period of account” is a period of account as defined in section 832(1) of ICTA. (7) The provisions of section 170(3) to (6) of TCGA 1992 apply to determine for the purposes of this section— (a) whether a company is member of a group, and (b) which company is the principal company of the group. (8) But, in applying those provisions for the purposes of this section, a company (“the subsidiary company”) that does not have ordinary share capital is to be treated as being a qualifying 75% subsidiary of another company (“the parent company”) if the parent company— (a) has control of the subsidiary company, within the meaning of section 840 of ICTA, and (b) is beneficially entitled to the appropriate proportion of profits and assets. (9) The parent company is beneficially entitled to the appropriate proportion of profits and assets if (and only if) it— (a) is beneficially entitled to at least 75% of any profits available for distribution to equity holders of the subsidiary company, and (b) would be beneficially entitled to at least 75% of any assets of the subsidiary company available for distribution to its equity holders on a winding-up. (10) The provisions of Schedule 18 to ICTA (equity holders and profits or assets etc) also apply for the purposes of this section. (11) In this section, the following expressions have the same meaning as in Chapter 6A of Part 2 (interpretation of provisions about long funding leases)— - “funding lease”, - “plant or machinery lease”, - “term”, in relation to a lease.

(5) In consequence of the amendments made by this paragraph, the italic cross-heading preceding section 219 becomes “ Finance leases and certain operating leases ”.

(6) The amendments made by this paragraph have effect in relation to expenditure incurred on or after 1st April 2006.

SCHEDULE 10

Part 1 — Introduction

Contents of Schedule

1

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Commencement

2

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Part 2 — Leasing business carried on by a company alone

Income and matching expense in different accounting periods

3

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Amount of income and expense

4

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No carry back of the expense

5

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Meaning of “business of leasing plant or machinery”

6

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Provision for the purposes of condition A in paragraph 6

7

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Provision for the purposes of condition B in paragraph 6

8

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Meaning of “associated company”

9

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Meaning of “a qualifying change of ownership” in relation to a company

10

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Qualifying 75% subsidiaries

11

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Consortium relationships

12

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No qualifying change of ownership in the case of certain intra-group reorganisations

13

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Meaning of “company owned by a consortium” etc

14

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Meaning of qualifying 75% or 90% subsidiary etc

15

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The amount of the income: the basic amount

16

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Meaning of “PM” in paragraph 16

17

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Meaning of “TWDV” in paragraph 16

18

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Amount to be nil if basic amount negative

19

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Adjustment to basic amount: qualifying 75% subsidiaries

20

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Adjustment to the basic amount: consortium relationships

21

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Migration

22

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part 3 — Leasing business carried on by a company in partnership

Change in company’s interest in business: income treated as received etc

23

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount of income and expense

24

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “business of leasing plant or machinery”

25

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “associated company”

26

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “qualifying change” in company’s interest in a business

27

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The amount of the income: the basic amount

29

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount to be nil if basic amount negative

30

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Adjustment of basic amount

31

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount of expense

32

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income and matching expense in different accounting periods

33

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount of income and expense

34

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

No carry back of the expense

35

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount of the income

36

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “profits” etc

37

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part 4 — Miscellaneous

Anti-avoidance

38

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Relief for expense under paragraph 3 or 33 otherwise giving rise to carried forward loss

39

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Relationship of Schedule with section 228K of CAA 2001

40

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Definitions for purposes of Schedule

41

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Index of definitions

42

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consequential amendments

43

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 11

Continuing the effect of orders under section 431A(3) of ICTA

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Section 432B apportionment: participating funds

2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Transfers of business: excess of assets or liabilities

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Transfers of business: modification of s. 83(2B) of FA 1989

4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Surpluses of mutual and former mutual businesses

5

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Receipts to be taken into account

6

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in value of assets brought into account: non-profit companies

7

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Contingent loans

8

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 12

Part 1 — Settlors, trustees and settlements

Basic trust concepts

1

(1) In section 68 of TCGA 1992 for the definition of “settled property” substitute “ “settled property” means any property held in trust other than property to which section 60 applies (and references, however expressed, to property comprised in a settlement are references to settled property). ”

(2) After section 68 of TCGA 1992 insert—

(68A) (1) In this Act, unless the context otherwise requires— (a) “settlor” in relation to a settlement means the person, or any of the persons, who has made, or is treated for the purposes of this Act as having made, the settlement, and (b) a person is a settlor of property which— (i) is settled property by reason of his having made the settlement (or by reason of an event which causes him to be treated under this Act as having made the settlement), or (ii) derives from property to which sub-paragraph (i) applies. (2) A person is treated for the purposes of this Act as having made a settlement if— (a) he has made or entered into the settlement, directly or indirectly, or (b) the settled property, or property from which the settled property is derived, is or includes property of which he was competent to dispose immediately before his death, and the settlement arose on his death, whether by will, on his intestacy, or otherwise. (3) A person is, in particular, treated for the purposes of this Act as having made a settlement if— (a) he has provided property directly or indirectly for the purposes of the settlement, or (b) he has undertaken to provide property directly or indirectly for the purposes of the settlement. (4) Where one person (A) makes or enters into a settlement in accordance with reciprocal arrangements with another person (B), for the purposes of this Act— (a) B shall be treated as having made the settlement, and (b) A shall not be treated as having made the settlement by reason only of the reciprocal arrangements. (5) In subsection (2)(b) “property of which he was competent to dispose immediately before his death” shall be construed in accordance with section 62(10) (reading each reference to “assets” as a reference to “property”). (6) A person who has been a settlor in relation to a settlement shall be treated for the purposes of this Act as having ceased to be a settlor in relation to the settlement if— (a) no property of which he is a settlor is comprised in the settlement, (b) he has not undertaken to provide property directly or indirectly for the purposes of the settlement in the future, and (c) he has not made reciprocal arrangements with another person for that other person to enter into the settlement in the future. (7) For the purpose of this section and sections 68B and 68C property is derived from other property— (a) if it derives (directly or indirectly and wholly or partly) from that property or any part of it, and (b) in particular, if it derives (directly or indirectly and wholly or partly) from income from that property or any part of it. (8) In this section “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable. (68B) (1) This section applies in relation to a transfer of property from the trustees of one settlement (“Settlement 1”) to the trustees of another (“Settlement 2”) otherwise than— (a) for full consideration, or (b) by way of a bargain made at arm's length. (2) In this section “transfer of property” means— (a) a disposal of property by the trustees of Settlement 1, and (b) the acquisition by the trustees of Settlement 2 of— (i) property disposed of by the trustees of Settlement 1, or (ii) property created by the disposal; and a reference to transferred property is a reference to property acquired by the trustees of Settlement 2 on the disposal. (3) For the purposes of this Act, except where the context otherwise requires— (a) the settlor (or each settlor) of the property disposed of by the trustees of Settlement 1 shall be treated from the time of the disposal as having made Settlement 2, and (b) if there is more than one settlor of the property disposed of by the trustees of Settlement 1, each settlor shall be treated in relation to Settlement 2 as the settlor of a proportionate part of the transferred property. (4) For the purposes of this Act, except where the context otherwise requires, if and to the extent that the property disposed of by the trustees of Settlement 1 was provided for the purposes of Settlement 1, or is derived from property provided for the purposes of Settlement 1, the transferred property shall be treated from the time of the disposal as having been provided for the purposes of Settlement 2. (5) If transferred property is treated by virtue of subsection (4) as having been provided for the purposes of Settlement 2 — (a) the person who provided the property disposed of by the trustees of Settlement 1, or property from which it was derived, for the purposes of Settlement 1 shall be treated as having provided the transferred property, and (b) if more than one person provided the property disposed of by the trustees of Settlement 1, or property from which it was derived, for the purposes of Settlement 1, each of them shall be treated as having provided a proportionate part of the transferred property. (6) But subsections (3) and (4) do not apply in relation to a transfer of property— (a) which occurs by reason only of the assignment or assignation by a beneficiary under Settlement 1 of an interest in that settlement to the trustees of Settlement 2, (b) which occurs by reason only of the exercise of a general power of appointment, or (c) to which section 68C(6) applies. (7) In determining whether this section applies in relation to a transfer of property between settlements, section 18(2) shall be disregarded. (68C) (1) This section applies where— (a) a disposition of property following a person's death is varied, and (b) section 62(6) applies in respect of the variation. (2) Where property becomes settled property in consequence of the variation (and would not, but for the variation, have become settled property), a person mentioned in subsection (3) shall be treated for the purposes of this Act, except where the context otherwise requires— (a) as having made the settlement, and (b) as having provided the property for the purposes of the settlement. (3) Those persons are— (a) a person who immediately before the variation was entitled to the property, or to property from which it derives, absolutely as legatee, (b) a person who would have become entitled to the property, or to property from which it derives, absolutely as legatee but for the variation, (c) a person who immediately before the variation would have been entitled to the property, or to property from which it derives, absolutely as legatee but for being an infant or other person under a disability, and (d) a person who would, but for the variation, have become entitled to the property, or to property from which it derives, absolutely as legatee if he had not been an infant or other person under a disability. (4) In subsection (3) references to a person being entitled to property absolutely as legatee shall be construed in accordance with section 64(3) (reading the references to “an asset” and “any asset” as references to “property”). (5) Where— (a) property would have become comprised in a settlement— (i) which arose on the deceased person's death (whether in accordance with his will, on his intestacy or otherwise), or (ii) which was already in existence on the deceased person's death (whether or not the deceased person was a settlor in relation to that settlement), but (b) in consequence of the variation the property, or property derived from it, becomes comprised in another settlement, the deceased person shall be treated for the purposes of this Act, except where the context otherwise requires, as having made the other settlement. (6) Where— (a) immediately before the variation property is comprised in a settlement and is property of which the deceased person is a settlor, and (b) immediately after the variation the property, or property derived from it, becomes comprised in another settlement, the deceased person shall be treated for the purposes of this Act, except where the context otherwise requires, as having made the other settlement. (7) If a person is treated as having made a settlement under subsection (5) or (6), for the purposes of this Act he shall be treated as having made the settlement immediately before his death. (8) But subsection (7) does not apply in relation to a settlement which arose on the person's death.

(3) The amendment of section 68 made by sub-paragraph (1) shall come into force on 6th April 2006 (in relation to settlements whenever created).

(4) Sections 68A and 68B (as inserted by sub-paragraph (2)) shall come into force on 6th April 2006 (in relation to settlements whenever created).

(5) Section 68C (as inserted by sub-paragraph (2)) shall have effect in respect of variations occurring on or after 6th April 2006 (irrespective of the date on which the deceased person died).

2

(1) For section 69(1) and (2) of TCGA 1992 (residence of trustees, etc) substitute—

(1) For the purposes of this Act the trustees of a settlement shall, unless the context otherwise requires, together be treated as if they were a single person (distinct from the persons who are trustees of the settlement from time to time). (2) The deemed person referred to in subsection (1) shall be treated for the purposes of this Act as resident and ordinarily resident in the United Kingdom at any time when a condition in subsection (2A) or (2B) is satisfied. (2A) Condition 1 is that all the trustees are resident in the United Kingdom. (2B) Condition 2 is that— (a) at least one trustee is resident in the United Kingdom, (b) at least one is not resident in the United Kingdom, and (c) a settlor in relation to the settlement was resident, ordinarily resident or domiciled in the United Kingdom at a time which is a relevant time in relation to him. (2C) In subsection (2B)(c) “relevant time” in relation to a settlor— (a) means, where the settlement arose on the settlor's death (whether by will, intestacy or otherwise), the time immediately before his death, and (b) in any other case, means a time when the settlor made the settlement (or was treated for the purposes of this Act as making the settlement); and, in the case of a transfer of property from Settlement 1 to Settlement 2 in relation to which section 68B applies, “relevant time” in relation to a settlor of the transferred property in respect of Settlement 2 includes any time which, immediately before the time of the disposal by the trustees of Settlement 1, was a relevant time in relation to that settlor in respect of Settlement 1. (2D) A trustee who is not resident in the United Kingdom shall be treated for the purposes of subsections (2A) and (2B) as if he were resident in the United Kingdom at any time when he acts as trustee in the course of a business which he carries on in the United Kingdom through a branch, agency or permanent establishment there. (2E) If the deemed person referred to in subsection (1) is not treated for the purposes of this Act as resident and ordinarily resident in the United Kingdom, then for the purposes of this Act it shall be treated as neither resident nor ordinarily resident in the United Kingdom.

(2) This paragraph shall have effect—

(a) for the purposes of determining the residence status of the trustees of a settlement (whenever created), from 6th April 2007, and

(b) for any other purpose (in relation to settlements whenever created), from 6th April 2006.

Interests in settlements

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4

(1) In section 169F of TCGA 1992 (meaning of “interest in a settlement” for purposes of sections 169B to 169D)—

(a) in subsection (1) for “or (3)” substitute “ , (3) or (3A) ”,

(b) in subsection (2)(a) after “any property which” insert “ is or ”,

(3A) This subsection applies if— (a) any property which is or may at any time be comprised in the settlement, or any derived property, is, or will or may become, payable to or applicable for the benefit of a child of the individual, at a time when that child is a dependent child of his, in any circumstances whatsoever, or (b) a dependent child of the individual enjoys a benefit deriving directly or indirectly from any property which is comprised in the settlement or any derived property.

, and

(d) after subsection (4) insert—

(4A) In this section— (a) “dependent child” means a child who— (i) is under the age of 18 years, (ii) is unmarried, and (iii) does not have a civil partner, and (b) “child” includes a stepchild. (4B) For the purposes of subsection (3A) above no account shall be taken of a term of a settlement relating to dependent children of an individual in respect of any time at which he has no dependent child.

(2) Sub-paragraph (1) shall have effect for the purpose of determining whether for the purposes of sections 169B to 169D and 169F an individual is to be regarded as having an interest in a settlement (whenever created) on or after 6th April 2006.

(3) But sub-paragraph (1) shall not have effect in relation to section 169C if the relevant disposal (within the meaning of section 169C(1)) is made on or before 5th April 2006.

5

(1) In paragraph 7(5) of Schedule 4A to TCGA 1992 (disposal of interest in settled property)—

(a) leave out “or” at the end of paragraph (a), and

(b) after paragraph (b) insert—

, or (c) in a case where the settlor is regarded as having an interest in a settlement by reason only of— (i) the fact that property is, or will or may become, payable to or applicable for the benefit of a dependent child of his, or (ii) the fact that a benefit is enjoyed by such a child, where the settlor ceases during the year to have (and does not in that year subsequently come to have) any dependent child in relation to whom section 77(2A)(a) or (b) applies.

(2) Sub-paragraph (1) shall have effect for the purpose of determining whether a settlor is regarded as having an interest in a settlement (whenever created) for the purposes of Schedule 4A to TCGA 1992 on or after 6th April 2006.

Part 2 — Sub-fund settlements

6

(1) After section 69 of TCGA 1992 insert—

(69A) Schedule 4ZA (which makes provision about sub-fund settlements) shall have effect.

(2) After Schedule 4 to TCGA 1992 insert—

SCHEDULE 4ZA (1) The trustees of a settlement (the “principal settlement”) may elect that a fund or other specified portion of the settled property (the “sub-fund”) be treated, unless the context otherwise requires, as a separate settlement (the “sub-fund settlement”) for the purposes of this Act, and the election shall have effect. (2) (1) An election under paragraph 1 (a “sub-fund election”) must specify the date on which it is to be treated as having taken effect, which must not be later than the date on which it is made. (2) The election shall be treated as having taken effect— (a) at the beginning of the specified date, or (b) if there is a deemed disposal of an asset by the trustees of the principal settlement under section 71(1) (by virtue of paragraph 19) or section 80(2) (by virtue of paragraph 18(2)), on the specified date immediately after the deemed disposal. (3) Trustees may make a sub-fund election only if— (a) Conditions 1 to 4 are satisfied when the election is made, and (b) Conditions 2 to 4 were satisfied throughout the period beginning with the time when the election is to be treated as having taken effect and ending immediately before the election is made. (4) Condition 1 is that the principal settlement is not itself a sub-fund settlement. (5) Condition 2 is that the sub-fund is not the whole of the property comprised in the principal settlement. (6) Condition 3 is that, if the sub-fund election had taken effect, the sub-fund settlement would not consist of or include an interest in an asset any other interest in which would be comprised in the principal settlement. (7) For the purpose of Condition 3— (a) sections 104(1) and 109(2)(a) shall not have effect, and (b) “interest”, in relation to any asset, means an interest as a co-owner of the asset (whether the asset is owned jointly or in common and whether or not the interests of the co-owners are equal). (8) Condition 4 is that, if the sub-fund election had taken effect, no person would be a beneficiary under both the sub-fund settlement and the principal settlement. (9) (1) For the purpose of Condition 4 a person is a beneficiary under a settlement— (a) if— (i) any property which is or may at any time be comprised in the settlement, or (ii) any derived property, is, or will or may become, payable to him or applicable for his benefit in any circumstances whatsoever, or (b) if he enjoys a benefit deriving directly or indirectly from— (i) any property which is comprised in the settlement, or (ii) any derived property. (2) But for the purpose of Condition 4 a person is not to be regarded as a beneficiary under a settlement if property comprised in the settlement, or any derived property, will or may become payable to him or applicable for his benefit by reason only of— (a) his marrying, or entering into a civil partnership with, a beneficiary under the settlement, (b) the death of a beneficiary under the settlement, (c) the exercise by the trustees of the settlement of— (i) a power conferred by section 32 of the Trustee Act 1925 (c. 19) or section 33 of the Trustee Act (Northern Ireland) 1958 (c. 23 (N.I.)) (powers of advancement), (ii) a power conferred by the law of a jurisdiction other than England and Wales or Northern Ireland which makes provision similar to the provisions specified in sub-paragraph (i), or (iii) a power of advancement which is conferred by the instrument creating the principal settlement, or by another instrument made in accordance with the terms of the principal settlement, and which is subject to the same restrictions as those specified in section 32(1)(a) and (c) of the Trustee Act 1925, or (d) the failure or determination of trusts of the kind described in section 33 of the Trustee Act 1925 (protective trusts). (3) In this paragraph “derived property”, in relation to any property, means— (a) income from that property, (b) property directly or indirectly representing— (i) proceeds of that property, or (ii) proceeds of income from that property, or (c) income from property which is derived property by virtue of paragraph (b). (10) A sub-fund election must be made— (a) by notice to an officer of Revenue and Customs, and (b) in such form as the Commissioners for Her Majesty's Revenue and Customs may require. (11) A sub-fund election may not be made after the second 31st January after the year of assessment in which the date on which the election is to be treated as having taken effect falls. (12) A sub-fund election must contain— (a) a declaration by each trustee of the principal settlement that he consents to the election, (b) a statement by the trustees of the principal settlement that the requirement in paragraph 3 is satisfied, (c) such information as the Commissioners for Her Majesty's Revenue and Customs may require in relation to the principal settlement (which may, in particular, include information relating to the trustees, the trusts, property which is or has been comprised in the settlement, the settlors or the beneficiaries), (d) a declaration by the trustees of the principal settlement that the information given in the election is correct, to the best of their knowledge and belief, and (e) such other declarations as the Commissioners for Her Majesty's Revenue and Customs may require. (13) A sub-fund election may not be revoked. (14) Where a sub-fund election has been made, an officer of Revenue and Customs may by notice require a person specified in paragraph 16 to supply information for the purposes of determining whether paragraph 3 was satisfied. (15) The notice shall specify a period of not less than 60 days within which the information must be supplied. (16) (1) The persons mentioned in paragraph 14 are— (a) a person who is or has been a trustee of a relevant settlement; (b) a person who is or has been a beneficiary under a relevant settlement; (c) a person who is or has been a settlor in relation to a relevant settlement. (2) For the purposes of sub-paragraph (1) a settlement is a relevant settlement if it is— (a) the sub-fund settlement, or (b) the principal settlement. (17) The sub-fund settlement shall be treated, for the purposes of this Act, as having been created at the time when the sub-fund election is treated as having taken effect. (18) (1) Each trustee of the trusts on which the property comprised in the sub-fund settlement is held shall be treated as a trustee of the sub-fund settlement for the purposes of this Act. (2) A person who is a trustee of the sub-fund settlement shall be treated for the purposes of this Act, from the time when the election is treated as having taken effect, as having ceased to be a trustee of the principal settlement unless he is also a trustee of trusts on which property comprised in the principal settlement is held. (3) A person who is a trustee of the principal settlement shall not be treated for the purposes of this Act as a trustee of the sub-fund settlement unless he is also a trustee of trusts on which property comprised in the sub-fund settlement is held. (19) The trustees of the sub-fund settlement shall be treated for the purposes of this Act as having become absolutely entitled, at the time when the sub-fund election is treated as having taken effect, to the property comprised in that settlement as against the trustees of the principal settlement. (20) (1) A deemed disposal by the trustees of the principal settlement of an asset under section 71(1) (by virtue of paragraph 19) or section 80(2) (by virtue of paragraph 18(2)) shall be treated as having been made at the beginning of the date on which the sub-fund election is treated as having taken effect. (2) If the trustees of the sub-fund settlement have acquired an asset of which the trustees of the principal settlement are deemed to have disposed under section 71(1) (by virtue of paragraph 19), they shall be deemed to have acquired it at the time when the election is treated as having taken effect. (3) The trustees of the principal settlement shall not be treated as having disposed of an asset under section 80(2) by virtue of paragraph 18(2) if they are treated as having disposed of the same asset under section 71(1) by virtue of paragraph 19. (21) If the trustees of the sub-fund settlement are treated by virtue of paragraph 19 as having become absolutely entitled to money expressed in sterling, for the purposes of this Act— (a) the trustees of the principal settlement shall be treated as having disposed of the money at the beginning of the day on which the sub-fund election is treated as having taken effect, and (b) the trustees of the sub-fund settlement shall be treated as having acquired the money at the time when the election is treated as having taken effect. (22) (1) If the trustees of the principal settlement are deemed to have disposed of an asset under section 71(1) (by virtue of paragraph 19), the trustees of the principal settlement shall be treated for the purposes of sections 90 and 94 as having transferred the asset to the trustees of the sub-fund settlement. (2) Sub-paragraph (1) also applies where the trustees of the principal settlement would be deemed to have disposed of money expressed in sterling under subsection (1) of section 71 if in that subsection— (a) the reference to “assets” were a reference to “property”, and (b) for “their” there were substituted “ its ”.

(3) This paragraph shall have effect in relation to years of assessment beginning on or after 6th April 2006 (but a sub-fund election may not be treated as having taken effect before 6th April 2006).

Part 3 — Consequential and minor amendments

Introduction

7

Paragraphs 8 to 45 amend TCGA 1992.

General

8

(1) In section 13(10) (participators in non-resident companies) for “trustees who are participators” substitute “ the trustees of a settlement who are participators ”.

(2) This paragraph shall have effect in relation to gains accruing on or after 6th April 2006.

9

For section 21(1)(b) (definition of “asset”) substitute—

(b) currency, with the exception (subject to express provision to the contrary) of sterling,

10

(1) In section 60(1) (nominees and bare trustees) in each place for “assets” substitute “ property ”.

(2) In section 60(2) (interpretation: property held for person absolutely entitled) in each place for “asset” substitute “ property ”.

(3) This paragraph shall have effect from 6th April 2006.

11

(1) In section 63 (death: application of law in Scotland)—

(a) in subsection (1) omit the words “an heir of entail in possession of any property in Scotland subject to an entail, whether sui juris or not, or of”, and

(b) in subsection (2)—

(i) omit the words “For the purposes of this Act,”,

(ii) omit the words “heir or” before “liferenter”, and

(iii) omit the words “the heir of entail next entitled to the entailed property under the entail or, as the case may be,”.

(2) After section 63 insert—

(63A) (1) The provisions of this Act, so far as relating to the consequences of the death of a person to whom property in Northern Ireland stands limited for life (“the deceased”), shall have effect subject to the provisions of this section. (2) A person who acquires property in fee simple absolute or fee tail in possession as a consequence of the deceased's death shall be deemed to have acquired all the assets forming part of the property at the date of the deceased's death for a consideration equal to their market value at that date.

(3) The provisions of this paragraph shall have effect in relation to a death occurring on or after 6th April 2006.

12

(1) In section 64(1) (expenses in administration)—

(a) for the words from “an asset” to the beginning of paragraph (a) substitute “ an asset held by another person as trustee, or as a personal representative of a deceased person, to which he became absolutely entitled as legatee or as against the trustee ”, and

(b) in paragraphs (a) and (b) for “personal representatives or trustees” substitute “ personal representative or trustee ”.

(2) This paragraph shall have effect in relation to disposals made on or after 6th April 2006.

13

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14

(1) In section 79B(1) (attribution to trustees of gains of non-resident company) before “trustees of a settlement” insert “ the ”.

(2) This paragraph shall have effect in relation to gains accruing on or after 6th April 2006.

15

(1) In section 97(7) (supplementary provisions for offshore settlements: interpretation)—

(a) omit “the preceding provisions of”,

(b) for the definition of “settlement” and “settlor” substitute—

“settlement” has the meaning given by section 620 of ITTOIA 2005, and “settled property” and references (however expressed) to property comprised in a settlement shall be construed accordingly.

(2) After section 97(7) insert—

(7A) In this section, sections 86A to 96 and Schedule 4C “trustee”, in relation to a settlement in relation to which there would be no trustees apart from this subsection, means any person in whom the settled property or its management is for the time being vested (and a person who is treated as a trustee of the settlement by virtue of this subsection shall be treated as a trustee of the settlement for the purposes of section 69).

(3) This paragraph shall come into force on 6th April 2006 (in relation to settlements whenever created).

16

(1) In section 98(2) (information: application of section 745 of ICTA)—

(a) for “(2) to (5)” substitute “ (2) to (6) ”,

(b) omit “and” at the end of paragraph (a), and

(2) This paragraph shall come into force on 6th April 2006 (in relation to settlements whenever created).

17

(1) In section 104(1) (share pooling) after “for the purposes of this Act” insert “ (subject to express provision to the contrary) ”.

(2) This paragraph shall come into force on 6th April 2006.

18

(1) In section 109(2)(a) (share pooling: pre-1982 holdings) after “for the purposes of this Act” insert “ (subject to express provision to the contrary) ”.

(2) This paragraph shall come into force on 6th April 2006.

19

(1) In section 169D(5) after “(3)” insert “ and to an individual's dependent child in section 169F(2A) ”.

(2) This paragraph shall come into force on 6th April 2006.

20

(1) In section 217 (building societies: successor companies)—

(a) in subsection (3)(a)—

(i) for “trustees” substitute “ the trustees of a settlement ”, and

(ii) omit the word “and” at the end of the paragraph,

(b) omit subsection (3)(b), and

(2) This paragraph shall have effect in relation to a transfer falling within section 216(1) which is effected on or after 6th April 2006.

21

(1) In section 227(2) (employee share ownership trusts: conditions for roll-over relief) for “the trustees of a trust” substitute “ the trustees of a settlement ”.

(2) This paragraph shall have effect in relation to disposals made on or after 6th April 2006.

22

(1) In section 228(5)(b) (employee share ownership trusts: unauthorised arrangement) for “a beneficiary under the trust” substitute “ a beneficiary under the settlement ”.

(2) In section 228(7) (qualifying employee share ownership trust) for “whether a trust is” substitute “ whether a settlement is ”.

(3) Sub-paragraph (1) shall have effect in relation to arrangements which allow an acquisition to be made on or after 6th April 2006 (irrespective of when the arrangements were made).

(4) Sub-paragraph (2) shall have effect for the purposes of determining what constitutes a qualifying share ownership trust for the purpose of section 227 on or after 6th April 2006.

23

(1) In section 251(5) (debts: trustee creditors)—

(a) for “Where the original creditor is a trustee and the debt, when created, is settled property” substitute “ Where the trustees of a settlement are the original creditor ”, and

(b) for “as against the trustee” substitute “ as against the trustees ”.

(2) This paragraph shall have effect in relation to debts created on or after 6th April 2006.

24

(1) In section 283(4) (repayment supplements)—

(a) for “a trust or,” substitute “ the trustees of a settlement or ”, and

(b) omit “as such (within the meaning of section 701(4) of that Act)”.

(2) Sub-paragraph (1)(a) shall have effect in relation to a repayment made on or after 6th April 2006.

(3) Sub-paragraph (1)(b) shall have effect in relation to a repayment made on or after 6th April 2006 (irrespective of the date on which the deceased person died).

25

(1) In section 286(3) (connected persons: trustees) omit the words following paragraph (c).

(2) After section 286(3) insert—

(3ZA) For the purpose of subsection (3) above— (a) “settlement” has the same meaning as in section 620 of ITTOIA 2005, and (b) “trustee”, in relation to a settlement in relation to which there would be no trustees apart from this paragraph, means any person in whom the settled property or its management is for the time being vested.

(3) This paragraph shall come into force (in relation to settlements whenever created) on 6th April 2006.

26

(1) In section 288(8) (interpretation) at the appropriate places insert—

“Principal settlement”... ...	Sch.4ZA para. 1

“Settlor” ... ... ... ... ...	S.68A

“Settlor of property”... ...	S.68A

“Sub-fund”... ... ... ...	Sch.4ZA para. 1

“Sub-fund election”... ...	Sch.4ZA para. 2

“Sub-fund settlement” ...	Sch.4ZA para. 1

(2) This paragraph shall come into force on 6th April 2006 (in relation to settlements whenever created).

27

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28

(1) In paragraph 1(6) of Schedule 1 (exempt amount: interpretation) for the words “ “settlor” and “excluded settlement” have the same meanings” substitute “ “excluded settlement” has the same meaning ”.

(2) In paragraph 2(7) of that Schedule (meaning of “settlor” and “excluded settlement”) omit the words from “settlor” to “intestate and”.

(3) This paragraph shall have effect for the purposes of determining, for the purposes of Schedule 1, whether a person is a settlor in relation to a settlement (whenever created) on or after 6th April 2006.

29

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Residence of trustees

30

(1) In each of the provisions set out in sub-paragraph (2) for “not resident or ordinarily resident in the United Kingdom” substitute “ neither resident nor ordinarily resident in the United Kingdom ”.

(2) Those provisions are—

(a) section 76(1B)(a) (disposal of interest in settled property),

(b) section 86(2)(a) (attribution of gains to settlors: residence condition), and

(3) In paragraph (2)(1)(d) of Schedule 5A for “resident or ordinarily resident” substitute “ resident and ordinarily resident ”.

(4) The amendments to sections 76(1B)(a) and 86(2)(a) shall come into force on 6th April 2007 (in relation to settlements whenever created).

(5) The amendments to paragraph 2(1)(c) and (d) of Schedule 5A shall have effect in relation to transfers of property made on or after 6th April 2007 (in relation to settlements whenever created).

(6) The amendments to paragraphs 3(1)(a) and 4(1)(a) of Schedule 5A shall have effect in relation to settlements created on or after 6th April 2007.

31

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

32

In section 83A(3) (trustee residence: split years)—

(a) in paragraph (a)—

(i) after “resident” insert “ and ordinarily resident ”, and

(ii) at the end omit “or”, and

(b) omit paragraph (b).

33

Paragraphs 31 and 32 shall come into force on 6th April 2007 (in relation to settlements whenever created).

34

(1) In each of the provisions set out in sub-paragraph (2) for “resident or ordinarily resident in the United Kingdom” substitute “ resident and ordinarily resident in the United Kingdom ”.

(2) Those provisions are—

(a) section 83A(4)(b) (trustees to be treated as non-resident),

(b) section 85A(3) (attribution of gains to beneficiaries on transfer of value to trustees),

(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(e) paragraph 5(2) of Schedule 4A (dual resident trustees),

(f) paragraphs 4(2) and 10(1) and (3) of Schedule 4C (trustees: chargeable amount and residence), and

(g) paragraphs 3(1)(b) and 4(1)(b) of Schedule 5A (settlement with foreign element: information).

(3) The amendments to sections 83A(4)(b), 85A(3), 86(3) and 87(2), paragraph 5(2) of Schedule 4A and paragraphs 4(2) and 10(1) and (3) of Schedule 4C shall come into force on 6th April 2007 (in relation to settlements whenever created).

(4) The amendments to paragraphs 3(1)(b) and 4(1)(b) of Schedule 5A shall have effect in relation to settlements created on or after 6th April 2007.

35

(1) In each of the provisions set out in sub-paragraph (2)—

(a) for “resident in the United Kingdom during any part of the year or ordinarily resident in the United Kingdom during the year” substitute “ resident and ordinarily resident in the United Kingdom during any part of the year ”, and

(b) for “such residence or ordinary residence” substitute “ such residence and ordinary residence ”.

(2) Those provisions are—

(a) section 86(2)(b) (trustees resident outside United Kingdom),

(b) section 88(1) (gains of dual resident settlements), and

(3) Sub-paragraph (2)(c) shall have effect in relation to a transfer of value made on or after 6th April 2007 (in relation to settlements whenever created).

36

(1) In each of the provisions set out in sub-paragraph (2) for “at no time resident or ordinarily resident in the United Kingdom” substitute “ at no time resident and ordinarily resident in the United Kingdom ”.

(2) Those provisions are—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) paragraph 4(1) of Schedule 4C (chargeable amount: non-resident settlement).

(3) Sub-paragraph (2)(b) shall have effect in relation to a transfer of value made on or after 6th April 2007 (in relation to settlements whenever created).

37

(1) In section 169(3)(a) (availability of hold-over relief)—

(a) for “fall to be treated, under section 69, as” substitute “ are ”, and

(b) omit the words from “, although” to the end of the paragraph.

(2) In section 169(3)(b)(ii) (notional disposal) for “arising” substitute “ accruing ”.

(3) This paragraph shall have effect in relation to relevant disposals (within the meaning given by section 169(2)) made on or after 6th April 2007 (in relation to settlements whenever created).

38

In paragraph 2(7)(a) of Schedule 1 (meaning of “excluded settlement”) omit “treated under section 69(1) as”.

39

In paragraph 5(1) of Schedule 4A (residence of trustees) for the words from “either” to the end of the sub-paragraph substitute “ resident and ordinarily resident in the United Kingdom during any part of the year ”.

40

In paragraph 10(2) of Schedule 4C (capital payments received by beneficiaries when trustees resident in United Kingdom) for paragraphs (a) and (b) substitute “ during the whole of which the trustees are resident and ordinarily resident in the United Kingdom ”.

41

Paragraphs 35 to 40 shall, unless otherwise expressly provided, come into force on 6th April 2007 (in relation to settlements whenever created).

Sub-fund settlements

42

After section 73(1) of TCGA 1992 (death of life tenant: exclusion of chargeable gain) insert—

(1A) Subsection (1)(b) above shall be treated as having effect in relation to a sub-fund settlement if the property does not revert to the trustees of the principal settlement in relation to that sub-fund settlement by reason only that— (a) a sub-fund election is or has been made in respect of another sub-fund of the principal settlement, and (b) the property becomes comprised in that other sub-fund settlement on the death of the person entitled to the interest in possession.

43

In section 286(3) of TCGA 1992 (connected persons: trustees)—

(a) omit “and” at the end of paragraph (b), and

(b) after paragraph (c) insert—

(d) if the settlement is the principal settlement in relation to one or more sub-fund settlements, the trustees of the sub-fund settlements, and (e) if the settlement is a sub-fund settlement in relation to a principal settlement, the trustees of any other sub-fund settlements in relation to the principal settlement.

44

(1) At the beginning of Schedule 1 to TCGA 1992 (trustees: exempt amount, etc) insert—

(A1) (1) In determining the exempt amount available to the trustees of a settlement in relation to a year of assessment— (a) a principal settlement and its sub-fund settlements shall be treated, for the purposes of paragraphs 1 and 2 below, as if no sub-fund elections had been made, and (b) paragraph 3 below shall apply for the purposes of determining the exempt amount available to each member of the class consisting of a principal settlement and its sub-fund settlements. (2) The reference in sub-paragraph (1) above to a principal settlement and its sub-fund settlements means a principal settlement in respect of which one or more sub-fund elections are treated as having taken effect.

(2) After paragraph 2 of Schedule 1 to TCGA 1992 insert—

(3) (1) The exempt amount available in relation to a year of assessment to the trustees of each settlement in the class consisting of a principal settlement and its sub-fund settlements shall be the exempt amount available to the trustees of the principal settlement in relation to the year, determined in accordance with paragraph 1 or 2 above as if no sub-fund elections had been made. (2) But if there are two or more non-excluded settlements in the class consisting of a principal settlement and its sub-fund settlements, the exempt amount available to the trustees of each settlement in the class in relation to the year shall be the amount specified in sub-paragraph (1) above divided by the number of non-excluded settlements in the class. (3) In this paragraph— - “excluded settlement” has the meaning given by paragraph 2(7) above, and - references to a settlement having sub-fund settlements, and similar expressions, are references to a settlement being the principal settlement in respect of which one or more sub-fund elections are treated as having taken effect.

45

Paragraphs 42 to 44 shall have effect in relation to years of assessment beginning on or after 6th April 2006.

Amendments of other Acts

46

(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2) In the second column of the table in section 98 of TMA 1970 insert at the appropriate place— “ paragraph 12 of Schedule 4ZA to the 1992 Act ”.

(3) This paragraph shall come into force on 6th April 2006.

47

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

48

(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2) In section 34(3) of that Act (disabled persons) for the words from “the powers” to the end of the subsection substitute

— (a) a power conferred on the trustees by section 32 of the Trustee Act 1925 or section 33 of the Trustee Act (Northern Ireland) 1958) (powers of advancement), (b) a power conferred on the trustees by the law of a jurisdiction other than England and Wales or Northern Ireland which makes provision similar to the provisions specified in paragraph (a), or (c) a power of advancement which is conferred on the trustees by the instrument creating the settlement, or by another instrument made in accordance with the terms of the settlement, and which is subject to the same restrictions as those specified in section 32(1)(a) and (c) of the Trustee Act 1925 (c. 19).

(3) In section 35(4) of that Act (relevant minors) for the words from “the powers” to the end of the subsection substitute

— (a) a power conferred on the trustees by section 32 of the Trustee Act 1925 or section 33 of the Trustee Act (Northern Ireland) 1958) (powers of advancement), (b) a power conferred on the trustees by the law of a jurisdiction other than England and Wales or Northern Ireland which makes provision similar to the provisions specified in paragraph (a), or (c) a power of advancement which is conferred on the trustees by the instrument creating the settlement, or by another instrument made in accordance with the terms of the settlement, and which is subject to the same restrictions as those specified in section 32(1)(a) and (c) of the Trustee Act 1925 (c. 19).

(4) After section 37(6) of that Act (vulnerable person election) insert—

(7) Where— (a) a vulnerable person election has effect in relation to qualifying trusts, (b) the property held on those trusts is treated for the purposes of TCGA 1992 and of the Tax Acts as comprised in a sub-fund settlement, and (c) the vulnerable person election was not made by the trustees of the sub-fund settlement, the vulnerable person election shall have effect, in relation to the trusts mentioned in paragraph (a), in respect of matters arising at or after the time when the sub-fund election is treated as having taken effect, as if it had been made by the trustees of the sub-fund settlement and the vulnerable person. (8) In relation to matters arising before the time when the sub-fund election is treated as having taken effect, nothing in subsection (7)— (a) relieves the trustees of the settlement which is the principal settlement in relation to the sub-fund settlement of their obligation under subsection (6), or (b) prevents a notice from being given to those trustees under section 40(1) or (3). (9) In this section— (a) “principal settlement” has the meaning given by paragraph 1 of Schedule 4ZA to TCGA 1992, (b) “sub-fund election” has the meaning given by paragraph 2 of that Schedule, (c) “sub-fund settlement” has the meaning given by paragraph 1 of that Schedule, and (d) the time when a sub-fund election is treated as having taken effect shall be the time when it is treated as having taken effect under paragraph 2 of that Schedule.

(5) This paragraph shall come into force on 6th April 2006 (in relation to vulnerable person elections whenever made).

SCHEDULE 13

Part 1 — Principal amendments

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

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4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

(1) For section 619(2) to (4) of ITTOIA 2005 (charge to tax on settlor) substitute—

(2) For the purposes of sections 1 to 1B of ICTA, where income of another person is treated as income of the settlor and is charged to tax under subsection (1)(a) or (b) above, it shall be charged in accordance with whichever provisions of the Tax Acts would have been applied in charging it if it had arisen directly to the settlor.

(2) This paragraph shall have effect—

(a) in relation to income which arises or is treated as arising on or after 6th April 2006, and

(b) in relation to income which is paid to a minor child of the settlor, where the child is unmarried and is not in a civil partnership, on or after 6th April 2006 and in relation to which section 631 of ITTOIA 2005 applies (irrespective of when the income arose).

6

(1) After section 685 of ITTOIA 2005 insert—

(685A) (1) This section applies if— (a) a person receives an annual payment in respect of income from the trustees of a settlement, (b) the payment is made in the exercise of a discretion (whether of the trustees of the settlement or any other person), and (c) a settlor is charged to tax under section 619(1) on the income arising to the trustees of the settlement (whether in the current year of assessment or in a previous year of assessment) out of which the annual payment is made. (2) This section applies only in respect of that proportion of the annual payment which corresponds to the proportion of the total income arising to the trustees of the settlement in respect of which a settlor is chargeable to tax under section 619(1). (3) If and in so far as this section applies, the recipient of the annual payment shall be treated for the purposes of this Chapter as having paid income tax at the higher rate in respect of the annual payment. (4) But— (a) tax which the recipient is treated by virtue of this section as having paid is not repayable, (b) tax which the recipient is treated by virtue of this section as having paid may not be taken into account in relation to a tax liability of the recipient in respect of any other income of his, and (c) the annual payment shall be treated for the purposes of sections 348 and 349(1) of ICTA as payable wholly out of profits or gains not brought into charge to income tax. (5) If the recipient of the annual payment is a settlor in relation to the settlement, if and in so far as this section applies the annual payment shall not be treated as his income for the purposes of the Income Tax Acts (and subsection (3) does not apply). (6) Section 687 of ICTA shall not apply in relation to an annual payment if and in so far as this section applies.

(2) This paragraph shall have effect for payments in respect of income made on or after 6th April 2006.

Part 2 — Minor and consequential amendments

7

Paragraphs 8 to 26 amend ICTA.

8

Section 220(2) shall cease to have effect.

9

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11

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12

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13

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14

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15

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