Finance Act 2006

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

16

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17

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18

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19

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20

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21

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22

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23

Section 764 shall cease to have effect.

24

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25

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26

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

27

• (1) Paragraph 7 and paragraphs 9 to 26 shall come into force on 6th April 2006 (in relation to settlements whenever created).

• (2) Paragraph 8 shall come into force on 6th April 2007 (in relation to settlements whenever created).

28

• (1) FA 1989 shall be amended as follows.

• (2) The following provisions shall cease to have effect—

• (a) section 68(2)(c),

• (b) section 71(4)(c), and

• (c) section 110.

• (3) In section 68(2)—

• (a) after paragraph (ba) insert “ , and ”, and

• (b) after paragraph (bb) omit “, and”.

• (4) In section 71(4)—

• (a) after paragraph (ba) insert “ , and ”, and

• (b) after paragraph (bb) omit “, and”.

• (5) Sub-paragraph (2)(a) and (b) shall have effect in relation to payments made on or after 6th April 2006.

• (6) Sub-paragraph (2)(c) shall have effect from 6th April 2007 (in relation to settlements whenever created).

• (7) Sub-paragraphs (3) and (4) shall come into force on 6th April 2006.

29

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

30

• (1) In section 25(9)(b) of FA 1990—

• (a) after sub-paragraph (iii) omit “or”, and

• (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

31

• (1) In ITTOIA 2005—

• (a) for “trustees of trusts” in each place in sections 417(2) and 420 substitute “ trustees of settlements ”,

• (b) in section 420(1)(a) and (c) for “trust” substitute “ settlement ”,

• (c) in the title of section 420 for “trust” substitute “ settlement ”.

• (2) For section 623 of ITTOIA 2005 (calculation of income) substitute—

(623) For the purpose of calculating liability to tax under this Chapter (but for no other purpose), a settlor shall be allowed the same deductions and reliefs as if any amount treated under this Chapter as income of the settlor had actually been received by the settlor.

• (3) This paragraph shall come into force on 6th April 2006 in respect of settlements whenever created, and in respect of loans or advances whenever made.

32

• (1) The following provisions of ITTOIA 2005 shall cease to have effect—

• (a) section 457(4), and

• (b) section 568(5).

• (2) In section 457(5) of ITTOIA 2005 for “(2) to (4)” substitute “ (2) and (3) ”.

• (3) In section 467(7) of that Act for paragraph (b) substitute—

(b) at the rate applicable by virtue of section 686A of ICTA (payments treated as income) in any other case.

• (4) This paragraph shall have effect in relation to payments made on or after 6th April 2006 to the trustees of a settlement (whenever created).

33

• (1) In sections 628 and 630 of ITTOIA 2005 for “UK trust” in each place substitute “ UK settlement ”.

• (2) In section 628(6) of that Act for the definition of “UK trust” substitute—

“UK settlement” means a settlement the trustees of which are resident and ordinarily resident in the United Kingdom.

• (3) In section 630(1)(b) of that Act for “terms of the trust” substitute “ terms of the settlement ”.

• (4) In section 631(5)(e)(ii) of that Act for “provisions of the trust” substitute “ terms of the settlement ”.

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

34

• (1) After section 629(7) of ITTOIA 2005 insert—

(8) Subsection (1) is subject to section 28A of FA 2005.

• (2) This paragraph shall have effect in relation to payments made on or after 6th April 2004.

35

• (1) FA 2005 shall be amended as follows.

• (2) In the following provisions for “trustees” substitute “ the trustees of a settlement ”

• (a) section 23(1)(a) and (b) (vulnerable persons: introduction),

• (b) section 24(1) (vulnerable persons: claims),

• (c) section 25(1)(a) (qualifying trusts: income tax), and

• (d) section 37(1) (vulnerable person election).

• (3) In section 25(3)—

• (a) for “section 660G(1) and (2) of ICTA” substitute “ section 620(1) of ITTOIA 2005 ”, and

• (b) for “section 660A of that Act” substitute “ sections 624 and 625 of that Act. ”.

• (4) In section 27(2)(b) (qualifying expenses) for “total income” substitute “ income ”.

• (5) Section 42(5)(b) shall cease to have effect.

• (6) In section 43(4) (penalties) for the first reference to “trustees” substitute “ the trustees of a settlement ”.

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

36

• (1) After section 28 of FA 2005 insert—

(28A) (1) In a case where this section applies, section 629(1) of ITTOIA 2005 shall not apply in respect of a payment by the trustees of a settlement to a beneficiary under the settlement. (2) This section applies if in a year of assessment— (a) the trustees make a payment to a vulnerable person, (b) the payment is made out of qualifying trusts income, (c) the vulnerable person is a relevant child (within the meaning given by section 629 of ITTOIA 2005) of a settlor in relation to the settlement, and (d) the trustees have made a successful claim for special income tax treatment under section 25.

• (2) This paragraph shall have effect in relation to payments made on or after 6th April 2004.

37

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SCHEDULE 14

Part 1 — Limits on gross assets of issuers of shares or securities

Enterprise investment scheme

1

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

Venture capital trusts

2

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

Corporate venturing scheme

3

• (1) In paragraph 22(1) and (2) of Schedule 15 to FA 2000 (corporate venturing scheme: limits on value of gross assets of share-issuing company or its group)—

• (a) in paragraph (a) (value must not exceed £15 million immediately before issue of relevant shares), for “£15 million” substitute “ £7 million ”, and

• (b) in paragraph (b) (value must not exceed £16 million immediately after issue of relevant shares), for “£16 million” substitute “ £8 million ”.

• (2) Sub-paragraph (1) has effect in relation to shares issued on or after 6th April 2006, subject to sub-paragraph (3).

• (3) Sub-paragraph (1) does not have effect in relation to shares issued on or after 6th April 2006 to a person who subscribed for them before 22nd March 2006.

Part 2 — Rate of relief for investments in venture capital trusts

4

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

Part 3 — Enterprise investment scheme: maximum subscriptions and carry-back of relief

5

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

6

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Part 4 — Lengthening of periods applicable to venture capital trusts

7

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Part 5 — Venture capital trusts: meaning of “investments”

8

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SCHEDULE 15

Part 1 — Income tax

Application of this Part of this Schedule

1

• (1) This Part of this Schedule applies where—

• (a) there is a change of accounting approach from one period of account to the next in calculating the profits of a business for income tax purposes,

• (b) the later period of account ends on or after 22nd June 2005 and the basis on which the profits for that period are calculated is in accordance with UK GAAP (including SSAP 9 and Application Note G as interpreted by UITF 40), and

• (c) the earlier period of account ended before that date and the basis on which profits for that period were calculated was in accordance with UK GAAP (including SSAP 9 and Application Note G, but not as interpreted by UITF 40),

and has effect in relation to any adjustment income under Chapter 17 of Part 2 of ITTIOIA 2005 attributable to the change of basis from that mentioned in paragraph (c) to that mentioned in paragraph (b).

• (2) In relation to a period for which accounts are drawn up in accordance with international accounting standards, the references in sub-paragraph (1) to requirements of UK GAAP shall be read as references to the corresponding requirements of international accounting standards.

• (3) In sub-paragraph (1)—

• “SSAP 9” means Statement of Standard Accounting Practice No.9 on Long-term contracts, issued by the Accounting Standards Board;

• “Application Note G” means Application Note G to Financial Reporting Standard 5 issued by the Accounting Standards Board in November 2003;

• “UITF 40” means Abstract No.40 on Revenue recognition and service contracts, issued by the Urgent Issues Task Force of the Accounting Standards Board on 10th March 2005.

• (4) Any reference in this Part of this Schedule to the date on which the change of accounting approach was adopted is to the first day of the first period of account for which it was adopted.

• (5) To determine the amount of adjustment income attributable to the change of basis mentioned in the closing words of sub-paragraph (1), assume that there was no other change of accounting approach.

Spreading of adjustment income

2

• (1) The adjustment income shall be spread in accordance with the following rules.

• (2) In each of the first three tax years beginning with that in which the whole amount of the adjustment income would otherwise be chargeable to tax, an amount equal to whichever is the less of—

• (a) one-third of the original amount of the adjustment income, and

• (b) one-sixth of the profits of the business for that tax year,

is treated as arising and charged to tax.

• (3) In the fourth and fifth tax years, if the whole of the adjustment income has not been charged to tax in previous tax years, an amount equal to whichever is the least of—

• (a) the amount remaining untaxed,

• (b) one-third of the original amount of the adjustment income, and

• (c) one-sixth of the profits of the business for that tax year,

is treated as arising and charged to tax.

• (4) In the sixth tax year so much (if any) of the adjustment income as has not previously been charged to tax is treated as arising and is charged to tax.

• (5) For the purposes of this paragraph “the profits of the business” means the profits of the business as calculated for income tax purposes leaving out of account—

• (a) any adjustment expenses under Chapter 17 of Part 2 of ITTIOIA 2005, and

• (b) any allowances or charges under CAA 2001.

• (6) This paragraph has effect subject to—

• (a) paragraph 3 (effect of cessation of business), and

• (b) paragraph 4 (election to accelerate charge).

Effect of cessation of business

3

If before the whole of the adjustment income has been charged to tax the person permanently ceases to carry on the business in question, paragraph 2 continues to apply but with the omission of the alternative limit in sub-paragraph (2)(b) and (3)(c) referring to the profits of the business.

Election to accelerate charge

4

• (1) A person who under paragraph 2 is liable to tax for a tax year (Year 1) on an amount of adjustment income may elect for an additional amount to be treated as arising in that tax year.

• (2) The election must be made on or before the first anniversary of the 31st January of Year 2.

• (3) The election must specify the amount to be treated as income arising in the tax year (which may be any amount up to the whole of the adjustment income not previously charged to tax).

• (4) If an election is made, paragraph 2 applies in relation to any subsequent tax year as if the original amount of adjustment income (as reduced by the previous application of this sub-paragraph) were reduced by the additional amount treated as arising in the tax year for which the election is made.

Liability of personal representatives

5

• (1) This paragraph applies in the case of the death of a person who would otherwise have been liable to tax under this Part of this Schedule on adjustment income.

• (2) The tax under this Part of this Schedule for which the person would otherwise have been liable—

• (a) shall be assessed and charged on the personal representatives, and

• (b) is a debt due from and payable out of the deceased's estate.

• (3) The personal representatives may make any election under this Part of this Schedule that the deceased might have made.

Meaning of “business”

6

In this Part of this Schedule “business” means—

• (a) a trade, profession or vocation, or

• (b) a UK property business or overseas property business.

Application of provisions to partnerships

7

• (1) This paragraph applies where the business is carried on by the person in partnership.

• (2) The amounts chargeable to tax under this Part of this Schedule for any tax year are calculated as if the partnership were an individual resident in the United Kingdom.

• (3) The person's share of the amount charged to tax is determined—

• (a) for the first tax year, according to the profit-sharing arrangements for the twelve months ending immediately before the date on which the change of accounting practice was adopted;

• (b) for any subsequent tax year, according to the profit-sharing arrangements for the twelve months immediately following the twelve months used to determine the person's share for the previous year.

An election under paragraph 4 (election to accelerate charge) in relation to a tax year must be made jointly by all the persons who have been members of the partnership in the relevant twelve month period and are chargeable to income tax.

• (4) If paragraph 3 applies (effect of cessation of business), each partner's share of any amount charged to tax on or after the cessation is determined as follows—

• (a) if the cessation occurs on the date on which the change of accounting approach was adopted, according to the profit-sharing arrangements for the twelve months ending immediately before that date;

• (b) if the cessation occurs after that date, but on or before the first anniversary of that date, according to the profit-sharing arrangements for the period between that date and the date of cessation;

• (c) if the cessation occurs after the first anniversary of the date on which the change of accounting approach was adopted, according to the profit-sharing arrangements for the period between the immediately preceding anniversary of that date and the date of cessation.

An election under paragraph 4 after the cessation must be made by each former partner separately.

• (5) For the purposes of this paragraph “profit-sharing arrangements” means the rights of the partners to share in the profits of the business for the period in question.

• (6) In the case of a business carried on by a limited liability partnership the operation of this Part of this Schedule is not affected by the partnership's ceasing to be one carrying on a trade, profession or other business with a view to profit.

Cases where spreading already available

8

This Part of this Schedule does not apply to adjustment income to which section 238 of that Act applies (spreading on ending of special provision for barristers and advocates in early years of practice).

Part 2 — Corporation tax

Application of this Part of this Schedule

9

• (1) This Part of this Schedule applies where—

• (a) there is a change of accounting approach from one period of account to the next in calculating the profits of a business for corporation tax purposes,

• (b) the later period of account ends on or after 22nd June 2005 and the basis on which the profits for that period are calculated is in accordance with UK GAAP (including SSAP 9 and Application Note G as interpreted by UITF 40), and

• (c) the earlier period of account ended before that date and the basis on which profits for that period were calculated was in accordance with UK GAAP (including SSAP 9 and Application Note G, but not as interpreted by UITF 40),

and has effect in relation to any positive adjustment under Chapter 14 of Part 3 of or section 262 of CTA 2009 attributable to the change of basis from that mentioned in paragraph (c) to that mentioned in paragraph (b).

• (2) In relation to a period for which accounts are drawn up in accordance with international accounting standards, the references in sub-paragraph (1) to requirements of UK GAAP shall be read as references to the corresponding requirements of international accounting standards.

• (3) In this paragraph—

• “SSAP 9” means Statement of Standard Accounting Practice No.9 on Long-term contracts, issued by the Accounting Standards Board;

• “Application Note G” means Application Note G to Financial Reporting Standard 5 issued by the Accounting Standards Board in November 2003;

• “UITF 40” means Abstract No.40 on Revenue recognition and service contracts, issued by the Urgent Issues Task Force of the Accounting Standards Board on 10th March 2005.

• (4) Any reference in this Part of this Schedule to the date on which the change of accounting approach was adopted is to the first day of the first period of account for which it was adopted.

• (5) To determine the amount of positive adjustment attributable to the change of basis mentioned in the closing words of sub-paragraph (1), assume that there was no other change of accounting approach.

Spreading of adjustment

10

• (1) The adjustment shall be spread in accordance with the following rules.

• (2) In each of the first three accounting periods beginning with that in which the whole of the adjustment would otherwise be charged to tax, an amount equal to whichever is the less of—

• (a) one-third of the amount of the original adjustment, and

• (b) one-sixth of the profits of the business for that period,

is treated as arising and charged to tax.

• (3) In the fourth and fifth accounting periods, if the whole of the adjustment has not been charged to tax in the previous periods, an amount equal to whichever is the least of—

• (a) the amount remaining untaxed,

• (b) one-third of the amount of the original adjustment, and

• (c) one-sixth of the profits of the business for that period,

is treated as arising and charged to tax.

• (4) In the sixth accounting period so much (if any) of the adjustment as has not previously been charged to tax is treated as arising and is charged to tax.

• (5) For the purposes of this paragraph “the profits of the business” means the profits of the business as calculated for corporation tax purposes leaving out of account—

• (a) any adjustment under Chapter 14 of Part 3 of or section 262 of CTA 2009, and

• (b) any allowances or charges under CAA 2001.

• (6) This paragraph has effect subject to—

• (a) paragraph 11 (accounting periods of less than twelve months),

• (b) paragraph 12 (effect of other events bringing accounting period to an end), and

• (c) paragraph 13 (election to accelerate charge).

Accounting periods of less than twelve months

11

• (1) This paragraph applies where by reason of—

• (a) a change of accounting date,

• (b) the company entering administration (see section 10 of CTA 2009), or

• (c) an insurance business transfer scheme (see section 12(7A) and (7B) of that Act),

an accounting period to which paragraph 10 applies is a period of less than twelve months (a “short period”).

• (2) In relation to a short period the references in that paragraph to one-third of the amount of the original adjustment shall be read as references to the proportion of that amount that the period bears to twelve months.

• (3) Where any of the accounting periods of the company falling within the period of six years following the change of accounting approach is a short period—

• (a) the rule in paragraph 10(3) applies in relation to every accounting period after the third and before that in which the sixth anniversary of the change of accounting approach falls, and

• (b) the rule in paragraph 10(4) applies in relation to the accounting period in which that anniversary falls.

Effect of other events bringing accounting period to an end

12

• (1) If before the whole of the adjustment has been charged to tax an accounting period of the company ends by reason of—

• (a) the company ceasing to be within the charge to corporation tax,

• (b) the commencement of winding-up proceedings in respect of the company (see section 12 of CTA 2009),

the rule in paragraph 10(4) applies in relation to that accounting period.

• (2) If the company permanently ceases to carry on the business in question (without there being any event within sub-paragraph (1) above), paragraph 10 continues to apply but with the omission of the alternative limit in sub-paragraph (2)(b) and (3)(c) referring to the profits of the business.

Election to accelerate charge

13

• (1) A company that under paragraph 10 is liable to tax for an accounting period on any amount may elect for an additional amount to be treated as arising in that period.

• (2) The election must be made on or before the first anniversary of the filing date for the company's company tax return for the accounting period for which the election is made.

• (3) The election must specify the amount to be treated as arising in the accounting period (which may be any amount up to the whole of the adjustment not previously charged to tax).

• (4) If an election is made, paragraph 10 applies in relation to any subsequent accounting period as if the amount of the original adjustment (as reduced by any previous application of this sub-paragraph) were reduced by the additional amount treated as arising in the accounting period for which the election is made.

Meaning of “business” etc

14

• (1) In this Part of this Schedule “business” means—

• (a) a trade or vocation, or

• (b) a UK property business or overseas property business.

Application of provisions to partnerships

15

• (1) This paragraph applies where the business is carried on by the company in partnership.

• (2) The amounts chargeable to tax under this Part of this Schedule are calculated as if the partnership were a company resident in the United Kingdom.

• (3) The company's share of any such amount is determined by reference to the profit-sharing arrangements for the previous accounting period.

An election under paragraph 13 (election to accelerate charge) must be made jointly by all the persons who have been members of the partnership in the previous accounting period and are chargeable to corporation tax.

• (4) If paragraph 12(2) applies (effect of cessation of business), each partner's share of any amount charged to tax on or after the cessation is determined as follows—

• (a) if the cessation occurs on the date on which the change of accounting approach was adopted, according to the profit-sharing arrangements for the twelve months ending immediately before that date;

• (b) if the cessation occurs after that date, but on or before the first anniversary of that date, according to the profit-sharing arrangements for the period between that date and the date of cessation;

• (c) if the cessation occurs after the first anniversary of the date on which the change of accounting approach was adopted, according to the profit-sharing arrangements for the period between the immediately preceding anniversary of that date and the date of cessation.

An election under paragraph 13 after the cessation must be made by each former partner separately.

• (5) For the purposes of this paragraph “profit-sharing arrangements” means the rights of the partners to share in the profits of the business for the period in question.

• (6) A change in the persons carrying on a business does not constitute the permanent cessation of the business for the purposes of this Part of this Schedule so long as a person carrying on the business immediately before the change continues to carry on the business immediately after the change.

• (7) In the case of a business carried on by a limited liability partnership the operation of this Part of this Schedule is not affected by the partnership's ceasing to be one carrying on a trade, profession or other business with a view to profit.

• (8) Nothing in this paragraph shall be read as affecting the operation of—

• (a) paragraph 19 of Schedule 9 to FA 1996 (loan relationships), or

• (b) paragraph 49 of Schedule 26 to FA 2002 (derivative contracts),

(under which certain debits and credits are not to be brought into account as if the partnership were a company).

SCHEDULE 16

Part 1 — Classes of business

1

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

2

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

3

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

4

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

5

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

Part 2 — Classes of income or profit

6

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

7

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

8

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

9

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

10

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

11

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

12

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

13

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

Part 3 — Power to amend

14

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

SCHEDULE 17

Introduction

1

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

2

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

3

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

General modification

4

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

Conditions

5

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

6

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

7

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

Entering Real Estate Investment Trust Regime

8

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

9

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

10

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

11

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

12

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

13

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

14

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

Assets, etc

15

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

16

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

Profits

17

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

18

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

19

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20

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

Capital gains

21

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

22

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

Leaving Real Estate Investment Trust Regime

23

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

24

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

25

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

26

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

Anti-avoidance

27

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

28

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

29

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

Manufactured dividends

30

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

Financial statements

31

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

Non-UK resident members

32

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

Takeovers

33

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

SCHEDULE 18

Part 1 — Amendments of the Oil Taxation Act 1975

Introductory

1

OTA 1975 is amended as follows.

Assessable profits and allowable losses

2

• (1) Section 2 is amended as follows.

• (2) In subsection (4)(b) (one-half of the market value in the last calendar month of the preceding period) for “in the last calendar month” substitute “ on the last business day ”.

• (3) In subsection (5)(d) (one-half of the market value in the last calendar month of the period) for “in the last calendar month” substitute “ on the last business day ”.

• (4) In subsection (5A), in the opening words, after “or another country” insert “ , or from its place of extraction (where that is in the territorial sea of the United Kingdom or a designated area), ”.

• (5) In subsection (9)(a)(i) (5% provisional allowance: deliveries)—

• (a) for “in the calendar month in which the delivery was made” substitute “ as determined in accordance with Schedule 3 to this Act for each of the deliveries ”;

• (b) for “Schedule 3 to this Act” substitute “ that Schedule ”.

• (6) In subsection (9)(a)(ii) (5% provisional allowance: relevant appropriations)—

• (a) for “in the calendar month in which the appropriation was made” substitute “ as determined in accordance with Schedule 3 to this Act for each of the appropriations ”;

• (b) for “Schedule 3 to this Act” substitute “ that Schedule ”.

Allowance of exploration and appraisal expenditure

3

• (1) Section 5A is amended as follows.

• (2) In subsection (5B) (oil to be treated as disposed of at its market value in the calendar month) for “in the calendar month in which it was disposed of or appropriated as mentioned” substitute “ determined in accordance with Schedule 3 to this Act for the disposal or appropriation mentioned ”.

• (3) Amend subsection (5C) (application of Schedule 3 with modifications for ascertaining market value for the purposes of subsection (5B)) as follows.

• (4) Omit paragraph (a) (modification of paragraph 2(2)(f)).

• (5) In paragraph (b) (omission of sub-paragraphs (3) and (4)) for “sub-paragraphs (3) and (4)” substitute “ sub-paragraph (4) ”.

• (6) At the end of paragraph (c) insert

; and (d) any reference in paragraph 2 to the notional delivery day for the actual oil shall be construed as a reference to the day on which the oil is disposed of or appropriated as mentioned in subsection (5A)(a) above.

.

Interpretation

4

• (1) In section 12 (interpretation of Part 1 of the Act) subsection (1) (general definitions) is amended as follows.

• (2) Insert each of the following definitions at the appropriate place—

• “business day” has the same meaning as in the Bills of Exchange Act 1882;”;
• “Category 1 oil” and “Category 2 oil” have the meaning given by paragraph 2(1B) of Schedule 3 to this Act;

.

• (3) For the definition of “calendar month” substitute—

“calendar month” (where those words are used) means a month of the calendar year;

.

Date of delivery or appropriation for shipped oil not disposed of in sales at arm’s length

5

• (1) After section 12, insert—

(12A) (1) This section has effect for the purpose of determining the date on which any oil to which it applies is to be regarded for the purposes of this Part as delivered or relevantly appropriated. (2) This section applies to— (a) oil (not being light gases) won from a field and disposed of crude by a participator otherwise than in sales at arm's length, and (b) oil (not being light gases) so won and relevantly appropriated by a participator, if the condition in subsection (3)(a) or (b) below is met. (3) The condition is that the oil is or has been, or is to be,— (a) transported by ship from the place of extraction to a place in the United Kingdom or elsewhere, or (b) transported by pipeline to a place in the United Kingdom and loaded on to a ship there. (4) The date on which the oil is to be taken to be delivered, or (as the case may be) relevantly appropriated, by the participator is— (a) the date of completion of load, in a case where the condition in subsection (3)(a) above is met, (b) the date of the bill of lading, in a case where the condition in subsection (3)(b) above is met.

.

• (2) The amendment made by this paragraph has effect in relation to oil which would (apart from this paragraph) fall to be regarded for the purposes of Part 1 of OTA 1975 as delivered or appropriated on a date after 30th June 2006.

“The Board”

6

• (1) In section 21 (citation, interpretation and construction of the Act) subsection (2) is amended as follows.

• (2) In consequence of the Commissioners for Revenue and Customs Act 2005 (c. 11), for the definition of “the Board” substitute—

“the Board” means the Commissioners for Her Majesty's Revenue and Customs;

.

• (3) The amendment made by this paragraph comes into force on the day on which this Act is passed.

Returns by participators

7

• (1) In Schedule 2 (management and collection) paragraph 2 is amended as follows.

• (2) In sub-paragraph (2)(a)(iii) (market value of oil disposed of otherwise than by sale at arm's length) for “in the calendar month in which the delivery was made” substitute “ as determined in accordance with Schedule 3 to this Act in the case of the delivery ”.

• (3) In sub-paragraph (2)(b)(ii) (market value of oil relevantly appropriated) for “in the calendar month in which the delivery was made” substitute “ as determined in accordance with Schedule 3 to this Act in the case of the appropriation ”.

• (4) In sub-paragraph (2)(d)(ii) (market value of oil not disposed of etc at end of period) for “in the last calendar month” substitute “ on the last business day ”.

Gas fractionation

8

• (1) In Schedule 3 (petroleum revenue tax: miscellaneous provisions) paragraph 2A (market value of oil that consists of or includes gas) is amended as follows.

• (2) In sub-paragraph (1)—

• (a) for “(2D)” substitute “ (2I) ”;

• (b) omit “, or in accordance with those sub-paragraphs as modified by sub-paragraph (3) of that paragraph,”.

• (3) In sub-paragraph (2)—

• (a) for the words from the beginning to “paragraph 2 above” where first occurring substitute “ Sub-paragraph (2)(d) or (as the case may be) (2AA)(d) of paragraph 2 above ”;

• (b) after “in sub-paragraph (2)” insert “ or (2AA) ”.

• (4) In sub-paragraph (3)—

• (a) after “in sub-paragraph (2)” insert “ or (2AA) ”,

• (b) for “(2D)” substitute “ (2I) ”;

• (c) omit “(with sub-paragraphs (2)(f) of paragraph 2 applying accordingly)”.

Aggregate market value of oil for purposes of section 2(5)

9

In Schedule 3, for paragraph 3 substitute—

(3) (1) For the purposes of subsection (5) of section 2 of this Act, the aggregate market value of any oil falling within paragraph (b) or (c) of that subsection is arrived at as follows. (2) In the case of oil falling within paragraph (b) of that subsection and delivered as there mentioned in the chargeable period in question— (a) for each delivery, find (in accordance with paragraph 2 above (read, where applicable, with paragraph 2A above)) the market value of the quantity of oil delivered, and (b) aggregate the market values so found. (3) In the case of oil falling within paragraph (c) of that subsection and appropriated as there mentioned in the chargeable period in question— (a) for each appropriation, find (in accordance with paragraph 2 above (read, where applicable, with paragraph 2A above)) the market value of the quantity of oil appropriated, and (b) aggregate the market values so found.

.

Power to make regulations

10

At the end of Schedule 3 insert—

(12) (1) Any power to make regulations under this Schedule is exercisable by statutory instrument. (2) A statutory instrument containing regulations under this Schedule may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons. (3) Any power to make regulations under this Schedule includes power— (a) to make different provision for different Categories or kinds of oil or for different cases, or (b) to make incidental, consequential, supplemental, or transitional provision or savings.

.

Part 2 — Amendments of other enactments

Finance (No. 2) Act 1987

The designated fraction for the month

11

• (1) Schedule 8 to F(No.2)A 1987 (amendments of Schedule 10 to FA 1987) is amended as follows.

• (2) Omit paragraph 5 (which contains amendments making provision for certain amounts to be multiplied by a fraction greater than unity, and has not been brought into force).

• (3) The amendment made by this paragraph has effect for chargeable periods beginning on or after 1st July 2006.

Income and Corporation Taxes Act 1988

Valuation of oil disposed of or appropriated in certain circumstances.

12

• (1) Section 493 of ICTA (valuation of oil disposed of or appropriated in certain circumstances) is amended as follows.

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) In subsection (1)—

• (a) omit “in a particular month”, and

• (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) In subsection (2), omit “in a particular month”.

• (5) In subsection (3), omit “in the calendar month in which the disposal was made”.

• (6) In subsection (4), omit “in the calendar month in which it was appropriated”.

• (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 19

The following is the Schedule to be inserted as Schedule 19C to ICTA—

SCHEDULE 20

Part 1 — “Trusts for bereaved minors”, “age 18-to-25 trusts” and “accumulation and maintenance” trusts

Trusts for bereaved minors and Age 18-to-25 trusts

1

• (1) In IHTA 1984, after section 71 insert—

(71A) (1) This section applies to settled property (including property settled before 22nd March 2006) if— (a) it is held on statutory trusts for the benefit of a bereaved minor under sections 46 and 47(1) of the Administration of Estates Act 1925 (succession on intestacy and statutory trusts in favour of issue of intestate), or (b) it is held on trusts for the benefit of a bereaved minor and subsection (2) below applies to the trusts, but this section does not apply to property in which a disabled person's interest subsists. (2) This subsection applies to trusts— (a) established under the will of a deceased parent of the bereaved minor, or (b) established under the Criminal Injuries Compensation Scheme, which secure that the conditions in subsection (3) below are met. (3) Those conditions are— (a) that the bereaved minor, if he has not done so before attaining the age of 18, will on attaining that age become absolutely entitled to— (i) the settled property, (ii) any income arising from it, and (iii) any income that has arisen from the property held on the trusts for his benefit and been accumulated before that time, (b) that, for so long as the bereaved minor is living and under the age of 18, if any of the settled property is applied for the benefit of a beneficiary, it is applied for the benefit of the bereaved minor, and (c) that, for so long as the bereaved minor is living and under the age of 18, either— (i) the bereaved minor is entitled to all of the income (if there is any) arising from any of the settled property, or (ii) no such income may be applied for the benefit of any other person. (4) Trusts such as are mentioned in paragraph (a) or (b) of subsection (2) above are not to be treated as failing to secure that the conditions in subsection (3) above are met by reason only of— (a) the trustees' having the powers conferred by section 32 of the Trustee Act 1925 (powers of advancement), (b) the trustees' having those powers but free from, or subject to a less restrictive limitation than, the limitation imposed by proviso (a) of subsection (1) of that section, (c) the trustees' having the powers conferred by section 33 of the Trustee Act (Northern Ireland) 1958 (corresponding provision for Northern Ireland), (d) the trustees' having those powers but free from, or subject to a less restrictive limitation than, the limitation imposed by subsection (1)(a) of that section, or (e) the trustees' having powers to the like effect as the powers mentioned in any of paragraphs (a) to (d) above. (5) In this section “the Criminal Injuries Compensation Scheme” means— (a) the schemes established by arrangements made under the Criminal Injuries Compensation Act 1995, (b) arrangements made by the Secretary of State for compensation for criminal injuries in operation before the commencement of those schemes, and (c) the scheme established under the Criminal Injuries Compensation (Northern Ireland) Order 2002. (6) The preceding provisions of this section apply in relation to Scotland as if, in subsection (2) above, before “which” there were inserted “ the purposes of ”. (71B) (1) Subject to subsections (2) and (3) below, there shall be a charge to tax under this section— (a) where settled property ceases to be property to which section 71A above applies, and (b) in a case where paragraph (a) above does not apply, where the trustees make a disposition as a result of which the value of settled property to which section 71A above applies is less than it would be but for the disposition. (2) Tax is not charged under this section where settled property ceases to be property to which section 71A applies as a result of— (a) the bereaved minor attaining the age of 18 or becoming, under that age, absolutely entitled as mentioned in section 71A(3)(a) above, or (b) the death under that age of the bereaved minor, or (c) being paid or applied for the advancement or benefit of the bereaved minor. (3) Subsections (3) to (8) and (10) of section 70 above apply for the purposes of this section as they apply for the purposes of that section, but— (a) with the substitution of a reference to subsection (1)(b) above for the reference in subsection (4) of section 70 above to subsection (2)(b) of that section, (b) with the substitution of a reference to property to which section 71A above applies for each of the references in subsections (3), (5) and (8) of section 70 above to property to which that section applies, (c) as if, for the purposes of section 70(8) above as applied by this subsection, property— (i) which is property to which section 71A above applies, (ii) which, immediately before it became property to which section 71A above applies, was property to which section 71 above applied, and (iii) which, by the operation of section 71(1B) above, ceased on that occasion to be property to which section 71 above applied, had become property to which section 71A above applies not on that occasion but on the occasion (or last occasion) before then when it became property to which section 71 above applied, and (d) as if, for the purposes of section 70(8) above as applied by this subsection, property— (i) which is property to which section 71A above applies, (ii) which, immediately before it became property to which section 71A above applies, was property to which section 71D below applied, and (iii) which, by the operation of section 71D(5)(a) below, ceased on that occasion (“the 71D-to-71A occasion”) to be property to which section 71D below applied, had become property to which section 71A above applies not on the 71D-to-71A occasion but on the relevant earlier occasion. (4) In subsection (3)(d) above— (a) “the relevant earlier occasion” means the occasion (or last occasion) before the 71D-to-71A occasion when the property became property to which section 71D below applied, but (b) if the property, when it became property to which section 71D below applied, ceased at the same time to be property to which section 71 above applied without ceasing to be settled property, “the relevant earlier occasion” means the occasion (or last occasion) when the property became property to which section 71 above applied. (71C) In sections 71A and 71B above “bereaved minor” means a person— (a) who has not yet attained the age of 18, and (b) at least one of whose parents has died. (71D) (1) This section applies to settled property (including property settled before 22nd March 2006), but subject to subsection (5) below, if— (a) the property is held on trusts for the benefit of a person who has not yet attained the age of 25, (b) at least one of the person's parents has died, and (c) subsection (2) below applies to the trusts. (2) This subsection applies to trusts— (a) established under the will of a deceased parent of the person mentioned in subsection (1)(a) above, or (b) established under the Criminal Injuries Compensation Scheme, which secure that the conditions in subsection (6) below are met. (3) Subsection (4) has effect where— (a) at any time on or after 22nd March 2006 but before 6th April 2008, or on the coming into force of paragraph 3(1) of Schedule 20 to the Finance Act 2006, any property ceases to be property to which section 71 above applies without ceasing to be settled property, and (b) immediately after the property ceases to be property to which section 71 above applies— (i) it is held on trusts for the benefit of a person who has not yet attained the age of 25, and (ii) the trusts secure that the conditions in subsection (6) below are met. (4) From the time when the property ceases to be property to which section 71 above applies, but subject to subsection (5) below, this section applies to the property (if it would not apply to the property by virtue of subsection (1) above) for so long as— (a) the property continues to be settled property held on trusts such as are mentioned in subsection (3)(b)(i) above, and (b) the trusts continue to secure that the conditions in subsection (6) below are met. (5) This section does not apply— (a) to property to which section 71A above applies, (b) to property to which section 71 above, or section 89 below, applies, or (c) to settled property if a person is beneficially entitled to an interest in possession in the settled property and— (i) the person became beneficially entitled to the interest in possession before 22nd March 2006, or (ii) the interest in possession is an immediate post-death interest, or a transitional serial interest, and the person became beneficially entitled to it on or after 22nd March 2006. (6) Those conditions are— (a) that the person mentioned in subsection (1)(a) or (3)(b)(i) above (“B”), if he has not done so before attaining the age of 25, will on attaining that age become absolutely entitled to— (i) the settled property, (ii) any income arising from it, and (iii) any income that has arisen from the property held on the trusts for his benefit and been accumulated before that time, (b) that, for so long as B is living and under the age of 25, if any of the settled property is applied for the benefit of a beneficiary, it is applied for the benefit of B, and (c) that, for so long as B is living and under the age of 25, either— (i) B is entitled to all of the income (if there is any) arising from any of the settled property, or (ii) no such income may be applied for the benefit of any other person. (7) For the purposes of this section, trusts are not to be treated as failing to secure that the conditions in subsection (6) above are met by reason only of— (a) the trustees' having the powers conferred by section 32 of the Trustee Act 1925 (powers of advancement), (b) the trustees' having those powers but free from, or subject to a less restrictive limitation than, the limitation imposed by proviso (a) of subsection (1) of that section, (c) the trustees' having the powers conferred by section 33 of the Trustee Act (Northern Ireland) 1958 (corresponding provision for Northern Ireland), (d) the trustees' having those powers but free from, or subject to a less restrictive limitation than, the limitation imposed by subsection (1)(a) of that section, or (e) the trustees' having powers to the like effect as the powers mentioned in any of paragraphs (a) to (d) above. (8) In this section “the Criminal Injuries Compensation Scheme” means— (a) the schemes established by arrangements made under the Criminal Injuries Compensation Act 1995, (b) arrangements made by the Secretary of State for compensation for criminal injuries in operation before the commencement of those schemes, and (c) the scheme established under the Criminal Injuries Compensation (Northern Ireland) Order 2002. (9) The preceding provisions of this section apply in relation to Scotland— (a) as if, in subsection (2) above, before “which” there were inserted “ the purposes of ”, and (b) as if, in subsections (3)(b)(ii) and (4)(b) above, before “trusts” there were inserted “ purposes of the ”. (71E) (1) Subject to subsections (2) to (4) below, there shall be a charge to tax under this section— (a) where settled property ceases to be property to which section 71D above applies, or (b) in a case where paragraph (a) above does not apply, where the trustees make a disposition as a result of which the value of the settled property to which section 71D above applies is less than it would be but for the disposition. (2) Tax is not charged under this section where settled property ceases to be property to which section 71D above applies as a result of— (a) B becoming, at or under the age of 18, absolutely entitled as mentioned in section 71D(6)(a) above, (b) the death, under the age of 18, of B, (c) becoming, at a time when B is living and under the age of 18, property to which section 71A above applies, or (d) being paid or applied for the advancement or benefit of B— (i) at a time when B is living and under the age of 18, or (ii) on B's attaining the age of 18. (3) Tax is not charged under this section in respect of— (a) a payment of costs or expenses (so far as they are fairly attributable to property to which section 71D above applies), or (b) a payment which is (or will be) income of any person for any of the purposes of income tax or would for any of those purposes be income of a person not resident in the United Kingdom if he were so resident, or in respect of a liability to make such a payment. (4) Tax is not charged under this section by virtue of subsection (1)(b) above if the disposition is such that, were the trustees beneficially entitled to the settled property, section 10 or section 16 above would prevent the disposition from being a transfer of value. (5) For the purposes of this section the trustees shall be treated as making a disposition if they omit to exercise a right (unless it is shown that the omission was not deliberate) and the disposition shall be treated as made at the time or latest time when they could have exercised the right. (71F) (1) Where— (a) tax is charged under section 71E above by reason of the happening of an event within subsection (2) below, and (b) that event happens after B has attained the age of 18, the tax is calculated in accordance with this section. (2) Those events are— (a) B becoming absolutely entitled as mentioned in section 71D(6)(a) above, (b) the death of B, and (c) property being paid or applied for the advancement or benefit of B. (3) The amount of the tax is given by— $Chargeableamount×Relevantfraction×Settlement rate$ (4) For the purposes of subsection (3) above, the “Chargeable amount” is— (a) the amount by which the value of property which is comprised in the settlement and to which section 71D above applies is less immediately after the event giving rise to the charge than it would be but for the event, or (b) where the tax is payable out of settled property to which section 71D above applies immediately after the event, the amount which, after deducting the tax, is equal to the amount on which tax would be charged by virtue of paragraph (a) above. (5) For the purposes of subsection (3) above, the “Relevant fraction” is three tenths multiplied by so many fortieths as there are complete successive quarters in the period— (a) beginning with the day on which B attained the age of 18 or, if later, the day on which the property became property to which section 71D above applies, and (b) ending with the day before the occasion of the charge. (6) Where the whole or part of the Chargeable amount is attributable to property that was excluded property at any time during the period mentioned in subsection (5) above then, in determining the “Relevant fraction” in relation to that amount or part, no quarter throughout which that property was excluded property shall be counted. (7) For the purposes of subsection (3) above, the “Settlement rate” is the effective rate (that is to say, the rate found by expressing the tax chargeable as a percentage of the amount on which it is charged) at which tax would be charged on the value transferred by a chargeable transfer of the description specified in subsection (8) below. (8) The chargeable transfer postulated in subsection (7) above is one— (a) the value transferred by which is equal to an amount determined in accordance with subsection (9) below, (b) which is made at the time of the charge to tax under section 71E above by a transferor who has in the period of seven years ending with the day of the occasion of the charge made chargeable transfers having an aggregate value equal to that of any chargeable transfers made by the settlor in the period of seven years ending with the day on which the settlement commenced, disregarding transfers made on that day, and (c) on which tax is charged in accordance with section 7(2) above. (9) The amount referred to in subsection (8)(a) above is equal to the aggregate of— (a) the value, immediately after the settlement commenced, of the property then comprised in it, (b) the value, immediately afer a related settlement commenced, of the property then comprised in it, and (c) the value, immediately after it became comprised in the settlement, of any property which became so comprised after the settlement commenced and before the occasion of the charge under section 71E above (whether or not it has remained so comprised). (71G) (1) Where— (a) tax is charged under section 71E above, and (b) the tax does not fall to be calculated in accordance with section 71F above, the tax is calculated in accordance with this section. (2) The amount on which the tax is charged is— (a) the amount by which the value of property which is comprised in the settlement and to which section 71D above applies is less immediately after the event giving rise to the charge than it would be but for the event, or (b) where the tax is payable out of settled property to which section 71D above applies immediately after the event, the amount which, after deducting the tax, is equal to the amount on which tax would be charged by virtue of paragraph (a) above. (3) The rate at which the tax is charged is the rate that would be given by subsections (6) to (8) of section 70 above— (a) if the reference to section 70 above in subsection (8)(a) of that section were a reference to section 71D above, (b) if the other references in those subsections to section 70 above were references to section 71E above, and (c) if, for the purposes of section 70(8) above, property— (i) which is property to which section 71D above applies, (ii) which, immediately before it became property to which section 71D above applies, was property to which section 71 applied, and (iii) which ceased on that occasion to be property to which section 71 above applied without ceasing to be settled property, had become property to which section 71D above applies not on that occasion but on the occasion (or last occasion) before then when it became property to which section 71 above applied. (71H) (1) In sections 71A to 71G above “parent” includes step-parent. (2) For the purposes of sections 71A to 71G above, a deceased individual (“D”) shall be taken to have been a parent of another individual (“Y”) if, immediately before D died, D had— (a) parental responsibility for Y under the law of England and Wales, (b) parental responsibilities in relation to Y under the law of Scotland, or (c) parental responsibility for Y under the law of Northern Ireland. (3) In subsection (2)(a) above “parental responsibility” has the same meaning as in the Children Act 1989. (4) In subsection (2)(b) above “parental responsibilities” has the meaning given by section 1(3) of the Children (Scotland) Act 1995. (5) In subsection (2)(c) above “parental responsibility” has the same meaning as in the Children (Northern Ireland) Order 1995.

• (2) Sub-paragraph (1) shall be deemed to have come into force on 22nd March 2006.

Section 71 of IHTA 1984 not to apply to property settled on or after 22nd March 2006

2

• (1) Section 71 of IHTA 1984 (accumulation and maintenance trusts) is amended as follows.

• (2) In subsection (1) (settled property to which section applies, subject to subsection (2)), for “subsection” substitute “ subsections (1A) to ”.

• (3) After subsection (1) insert—

(1A) This section does not apply to settled property at any particular time on or after 22nd March 2006 unless this section— (a) applied to the settled property immediately before 22nd March 2006, and (b) has applied to the settled property at all subsequent times up to the particular time. (1B) This section does not apply to settled property at any particular time on or after 22nd March 2006 if, at that time, section 71A below applies to the settled property.

• (4) Where a chargeable transfer to which section 54A of IHTA 1984 applies was made before 22nd March 2006, that section has effect in relation to that transfer as if references in that section to section 71 of IHTA 1984 were to section 71 of IHTA 1984 without the amendments made by sub-paragraphs (2) and (3).

• (5) There is no charge to tax under section 71 of IHTA 1984 in a case where settled property ceases, by the operation of the subsection (1B) inserted into that section by this paragraph, to be property to which that section applies.

• (6) Sub-paragraphs (1) to (5) shall be deemed to have come into force on 22nd March 2006.

Section 71 of IHTA 1984 to cease to apply to certain settled property from 6th April 2008

3

• (1) In section 71(1)(a) of IHTA 1984 (section applies to settled property only if one or more persons will become beneficially entitled on or before reaching a specified age not exceeding 25)—

• (a) for “twenty-five” substitute “ eighteen ”, and

• (b) omit “or to an interest in possession in it”.

• (2) Sub-paragraph (1) comes into force on 6th April 2008 but only for the purpose of determining whether, at a time on or after that day, section 71 of IHTA 1984 applies to settled property.

• (3) There is no charge to tax under section 71 of IHTA 1984 in a case where—

• (a) settled property ceases, on the coming into force of sub-paragraph (1), to be property to which that section applies, but

• (b) that section would immediately after the coming into force of sub-paragraph (1) apply to the settled property but for the amendments made by sub-paragraph (1).

Part 2 — Interests in possession: when settled property is part of beneficiary's estate

Aggregation with person’s estate of property in which interest in possession subsists

4

• (1) In section 49 of IHTA 1984, after subsection (1) insert—

(1A) Where the interest in possession mentioned in subsection (1) above is one to which the person becomes beneficially entitled on or after 22nd March 2006, subsection (1) above applies in relation to that interest only if, and for so long as, it is— (a) an immediate post-death interest, (b) a disabled person's interest, or (c) a transitional serial interest. (1B) Where the interest in possession mentioned in subsection (1) above is one to which the person became beneficially entitled before 22nd March, subsection (1) above does not apply in relation to that interest at any time when section 71A below applies to the property in which the interest subsists.

• (2) Sub-paragraph (1) shall be deemed to have come into force on 22nd March 2006.

“Immediate post-death interests” and “transitional serial interests”

5

• (1) In IHTA 1984, after section 49 insert—

(49A) (1) Where a person (“L”) is beneficially entitled to an interest in possession in settled property, for the purposes of this Chapter that interest is an “immediate post-death interest” only if the following conditions are satisfied. (2) Condition 1 is that the settlement was effected by will or under the law relating to intestacy. (3) Condition 2 is that L became beneficially entitled to the interest in possession on the death of the testator or intestate. (4) Condition 3 is that— (a) section 71A below does not apply to the property in which the interest subsists, and (b) the interest is not a disabled person's interest. (5) Condition 4 is that Condition 3 has been satisfied at all times since L became beneficially entitled to the interest in possession. (49B) Where a person is beneficially entitled to an interest in possession in settled property, for the purposes of this Chapter that interest is a “transitional serial interest” only— (a) if section 49C or 49D below so provides, or (b) if, and to the extent that, section 49E below so provides. (49C) (1) Where a person (“B”) is beneficially entitled to an interest in possession in settled property (“the current interest”), that interest is a transitional serial interest for the purposes of this Chapter if the following conditions are met. (2) Condition 1 is that— (a) the settlement commenced before 22nd March 2006, and (b) immediately before 22nd March 2006, the property then comprised in the settlement was property in which B, or some other person, was beneficially entitled to an interest in possession (“the prior interest”). (3) Condition 2 is that the prior interest came to an end at a time on or after 22nd March 2006 but before 6th April 2008. (4) Condition 3 is that B became beneficially entitled to the current interest at that time. (5) Condition 4 is that— (a) section 71A below does not apply to the property in which the interest subsists, and (b) the interest is not a disabled person's interest. (49D) (1) Where a person (“E”) is beneficially entitled to an interest in possession in settled property (“the successor interest”), that interest is a transitional serial interest for the purposes of this Chapter if the following conditions are met. (2) Condition 1 is that— (a) the settlement commenced before 22nd March 2006, and (b) immediately before 22nd March 2006, the property then comprised in the settlement was property in which a person other than E was beneficially entitled to an interest in possession (“the previous interest”). (3) Condition 2 is that the previous interest came to an end on or after 6th April 2008 on the death of that other person (“F”). (4) Condition 3 is that, immediately before F died, F was the spouse or civil partner of E. (5) Condition 4 is that E became beneficially entitled to the successor interest on F's death. (6) Condition 5 is that— (a) section 71A below does not apply to the property in which the successor interest subsists, and (b) the successor interest is not a disabled person's interest. (49E) (1) Where— (a) a person (“C”) is beneficially entitled to an interest in possession in settled property (“the present interest”), and (b) on C's becoming beneficially entitled to the present interest, the settled property consisted of, or included, rights under a contract of life insurance entered into before 22nd March 2006, the present interest so far as subsisting in rights under the contract, or in property comprised in the settlement that directly or indirectly represents rights under the contract, is a “transitional serial interest” for the purposes of this Chapter if the following conditions are met. (2) Condition 1 is that— (a) the settlement commenced before 22nd March 2006, and (b) immediately before 22nd March 2006— (i) the property then comprised in the settlement consisted of, or included, rights under the contract, and (ii) those rights were property in which C, or some other person, was beneficially entitled to an interest in possession (“the earlier interest”). (3) Condition 2 is that— (a) the earlier interest came to an end at a time on or after 6th April 2008 (“the earlier-interest end-time”) on the death of the person beneficially entitled to it and C became beneficially entitled to the present interest— (i) at the earlier-interest end-time, or (ii) on the coming to an end, on the death of the person beneficially entitled to it, of an interest in possession to which that person became beneficially entitled at the earlier-interest end-time, or (iii) on the coming to an end of the second or last in an unbroken sequence of two or more consecutive interests in possession to the first of which a person became beneficially entitled at the earlier-interest end-time and each of which ended on the death of the person beneficially entitled to it, or (b) C became beneficially entitled to the present interest— (i) on the coming to an end, on the death of the person entitled to it, of an interest in possession that is a transitional serial interest under section 49C above, or (ii) on the coming to an end of the second or last in an unbroken sequence of two or more consecutive interests in possession the first of which was a transitional serial interest under section 49C above and each of which ended on the death of the person beneficially entitled to it. (4) Condition 3 is that rights under the contract were comprised in the settlement throughout the period beginning with 22nd March 2006 and ending with C's becoming beneficially entitled to the present interest. (5) Condition 4 is that— (a) section 71A below does not apply to the property in which the present interest subsists, and (b) the present interest is not a disabled person's interest.

• (2) Sub-paragraph (1) shall be deemed to have come into force on 22nd March 2006.

Disabled persons' trusts: meaning of “disabled person’s interest” and “disabled person”

6

• (1) After section 89 (trusts for disabled persons) insert—

(89A) (1) This section applies to property transferred by a person (“A”) into settlement on or after 22nd March 2006 if— (a) A was beneficially entitled to the property immediately before transferring it into settlement, (b) A satisfies the Commissioners for Her Majesty's Revenue and Customs that, when the property was transferred into settlement, A had a condition that it was at that time reasonable to expect would have such effects on A as to lead to A becoming— (i) a person falling within section 89(4)(a) above, (ii) in receipt of an attendance allowance mentioned in section 89(4)(b) above, or (iii) in receipt of a disability living allowance mentioned in section 89(4)(c) above by virtue of entitlement to the care component at the highest or middle rate, and (c) the property is held on trusts— (i) under which, during the life of A, no interest in possession in the settled property subsists, and (ii) which secure that Conditions 1 and 2 are met. (2) Condition 1 is that if any of the settled property is applied during A's life for the benefit of a beneficiary, it is applied for the benefit of A. (3) Condition 2 is that any power to bring the trusts mentioned in subsection (1)(c) above to an end during A's life is such that, in the event of the power being exercised during A's life, either— (a) A or another person will, on the trusts being brought to an end, be absolutely entitled to the settled property, or (b) on the trusts being brought to an end, a disabled person's interest within section 89B(1)(a) or (c) below will subsist in the settled property. (4) If this section applies to settled property transferred into settlement by a person, the person shall be treated as beneficially entitled to an interest in possession in the settled property. (5) For the purposes of subsection (1)(b)(ii) above, assume— (a) that A will meet the conditions as to residence under section 64(1) of whichever of the 1992 Acts is applicable, and (b) that there will be no provision made by regulations under section 67(1) and (2) of that Act. (6) For the purposes of subsection (1)(b)(iii) above, assume— (a) that A will meet the prescribed conditions as to residence under section 71(6) of whichever of the 1992 Acts is applicable, and (b) that there will be no provision made by regulations under section 72(8) of that Act. (7) For the purposes of subsection (3) above, ignore— (a) power to give directions as to the settled property that is exercisable jointly by the persons who between them are entitled to the entire beneficial interest in the property, and (b) anything that could occur as a result of exercise of any such power. (8) In this section “the 1992 Acts” means— - the Social Security Contributions and Benefits Act 1992, and - the Social Security Contributions and Benefits (Northern Ireland) Act 1992. (89B) (1) In this Act “disabled person's interest” means— (a) an interest in possession to which a person is under section 89(2) above treated as beneficially entitled, (b) an interest in possession to which a person is under section 89A(4) above treated as beneficially entitled, (c) an interest in possession in settled property (other than an interest within paragraph (a) or (b) above) to which a disabled person becomes beneficially entitled on or after 22nd March 2006, or (d) an interest in possession in settled property (other than an interest within paragraph (a) or (b) above) to which a person (“A”) is beneficially entitled if— (i) A is the settlor, (ii) A was beneficially entitled to the property immediately before transferring it into settlement, (iii) A satisfies Her Majesty's Commissioners for Revenue and Customs as mentioned in section 89A(1)(b) above, (iv) the settled property was transferred into settlement on or after 22nd March 2006, and (v) the trusts on which the settled property is held secure that, if any of the settled property is applied during A's life for the benefit of a beneficiary, it is applied for the benefit of A. (2) Subsections (4) to (6) of section 89 above (meaning of “disabled person” in subsection (1) of that section) have effect for the purposes of subsection (1)(c) above as they have effect for the purposes of subsection (1) of that section. (3) Section 71D above does not apply to property in which there subsists a disabled person's interest within subsection (1)(c) above (but see also section 71D(5) above).

• (2) In section 89, after subsection (4) insert—

(5) The reference in subsection (1) above to a disabled person includes, in relation to any settled property, a reference to a person who, when the property was transferred into settlement,— (a) would have been in receipt of attendance allowance under section 64 of either of the Acts mentioned in subsection (4)(b) above had provision made by regulations under section 67(1) or (2) of that Act (non-satisfaction of conditions for attendance allowance where person is undergoing treatment for renal failure in a hospital or is provided with certain accommodation) been ignored, or (b) would have been in receipt of disability living allowance by virtue of entitlement to the care component at the highest or middle rate had provision made by regulations under section 72(8) of either of the Acts mentioned in subsection (4)(c) above (no payment of disability living allowance for persons for whom certain accommodation is provided) been ignored. (6) The reference in subsection (1) above to a disabled person also includes, in relation to any settled property, a reference to a person who satisfies the Commissioners for Her Majesty's Revenue and Customs— (a) that he would, when the property was transferred into settlement, have been in receipt of attendance allowance under section 64 of either of the Acts mentioned in subsection (4)(b) above— (i) had he met the conditions as to residence under section 64(1) of that Act, and (ii) had provision made by regulations under section 67(1) or (2) of that Act been ignored, or (b) that he would, when the property was transferred into settlement, have been in receipt of a disability living allowance by virtue of entitlement to the care component at the highest or middle rate— (i) had he met the prescribed conditions as to residence under section 71(6) of either of the Acts mentioned in subsection (4)(c) above, and (ii) had provision made by regulations under section 72(8) of that Act been ignored.

• (3) Sub-paragraph (1) shall be deemed to have come into force on 22nd March 2006.

• (4) Sub-paragraph (2) shall be deemed to have come into force on 22nd March 2006, but only in respect of property transferred into settlement on or after that day.

Part 3 — Related amendments in IHTA 1984

Commencement

7

The following paragraphs of this Part of this Schedule shall be deemed to have come into force on 22nd March 2006.

Deemed disposition where omission to exercise a right increases value of another person’s estate or of settled property not aggregated with a person’s estate

8

In section 3(3) of IHTA 1984 (failure to exercise a right treated as disposition if the omission increases the value of another person's estate or the value of settled property in which no interest in possession subsists), for the words from the beginning to “increased” substitute—

Where the value of a person's estate is diminished, and the value— (a) of another person's estate, or (b) of any settled property, other than settled property treated by section 49(1) below as property to which a person is beneficially entitled, is increased

.

Potentially exempt transfers: provision in consequence of section 71 of IHTA 1984 not applying to property settled on or after 22nd March 2006

9

• (1) Section 3A of IHTA 1984 (potentially exempt transfers) is amended as follows.

• (2) In subsection (1)(a) (transfer must be one made on or after 18th March 1986), after “1986” insert “ but before 22nd March 2006 ”.

• (3) After subsection (1) insert—

(1A) Any reference in this Act to a potentially exempt transfer is also a reference to a transfer of value— (a) which is made by an individual on or after 22nd March 2006, (b) which, apart from this section, would be a chargeable transfer (or to the extent to which, apart from this section, it would be such a transfer), and (c) to the extent that it constitutes— (i) a gift to another individual, (ii) a gift into a disabled trust, or (iii) a gift into a bereaved minor's trust on the coming to an end of an immediate post-death interest. (1B) Subsections (1) and (1A) above have effect subject to any provision of this Act which provides that a disposition (or transfer of value) of a particular description is not a potentially exempt transfer.

• (4) In subsection (2) (extent to which transfer is a gift to another individual), after “subsection (1)(c)” insert “ or (1A)(c)(i) ”.

• (5) After subsection (3) insert—

(3A) Subject to subsection (6) below, a transfer of value falls within subsection (1A)(c)(ii) above to the extent that the value transferred is attributable to property which, by virtue of the transfer, becomes settled property to which section 89 below applies. (3B) A transfer of value falls within subsection (1A)(c)(iii) above to the extent that the value transferred is attributable to settled property (whenever settled) that becomes property to which section 71A below applies in the following circumstances— (a) under the settlement, a person (“L”) is beneficially entitled to an interest in possession in the settled property, (b) the interest in possession is an immediate post-death interest, (c) on or after 22nd March 2006, but during L's life, the interest in possession comes to an end, (d) L is beneficially entitled to the interest in possession immediately before it comes to an end, and (e) on the interest in possession coming to an end, the property— (i) continues to be held on the trusts of the settlement, and (ii) becomes property to which section 71A below applies.

• (6) In subsection (7) (application of section in relation to charge to tax under section 52), after “subsection (1)(a)” insert “ or (1A)(a) ”.

Person’s “estate” not to include certain interests in possession

10

• (1) Section 5 of IHTA 1984 (meaning of “estate”) is amended as follows.

• (2) In subsection (1) (person's estate is aggregate of all property to which person beneficially entitled, except that person's estate immediately before death does not include excluded property), for “except that the” substitute

except that— (a) the estate of a person— (i) does not include an interest in possession in settled property to which section 71A or 71D below applies, and (ii) does not include an interest in possession that falls within subsection (1A) below, and (b) the

.

• (3) After subsection (1) insert—

(1A) An interest in possession falls within this subsection if— (a) it is an interest in possession in settled property, (b) the settled property is not property to which section 71A or 71D below applies, (c) the person is beneficially entitled to the interest in possession, (d) the person became beneficially entitled to the interest in possession on or after 22nd March 2006, and (e) the interest in possession is— (i) not an immediate post-death interest, (ii) not a disabled person's interest, and (iii) not a transitional serial interest.

Life assurance policies entered into before 22nd March 2006

11

• (1) After section 46 of IHTA 1984 insert—

(46A) (1) Subsections (2) and (4) below apply where— (a) a settlement commenced before 22nd March 2006, (b) a contract of life insurance was entered into before that day, (c) a premium payable under the contract is paid, or an allowed variation is made to the contract, at a particular time on or after that day, (d) immediately before that day, and at all subsequent times up to the particular time, there were rights under the contract that— (i) were comprised in the settlement, and (ii) were settled property in which a transitionally-protected interest (whether or not the same such interest throughout that period) subsisted, (e) rights under the contract become, by reference to payment of the premium or as a result of the variation,— (i) comprised in the settlement, and (ii) part of the settled property in which the then-current transitionally-protected interest subsists, and (f) any variation of the contract on or after 22nd March 2006 but before the particular time, so far as it is a variation that— (i) increased the benefits secured by the contract, or (ii) extended the term of the insurance provided by the contract, was an allowed variation. (2) For the purposes of the provisions mentioned in subsection (3) below— (a) the rights mentioned in subsection (1)(e) above shall be taken to have become comprised in the settlement, and (b) the person beneficially entitled to the then-current transitionally-protected interest shall be taken to have become beneficially entitled to his interest in possession so far as it subsists in those rights, before 22nd March 2006. (3) Those provisions are— - section 3A(2) above; - section 5(1A) above; - section 49(1A) and (1B) below; - section 51(1A) and (1B) below; - section 52(2A) and (3A) below; - section 53(1A) and (2A) below; - section 54(2A) and (2B) below; - section 54A(1A) below; - section 57A(1A) below; - section 58(1B) and (1C) below; - section 59(1) and (2) below; - section 80(4) below; - section 100(1A) below; - section 101(1A) below; - section 102ZA(1) of the Finance Act 1986 (gifts with reservation); and - sections 72(1A) and (2A) and 73(2A) of the 1992 Act. (4) If payment of the premium is a transfer of value made by an individual, that transfer of value is a potentially exempt transfer. (5) In this section— - “allowed variation”, in relation to a contract, means a variation that takes place by operation of, or as a result of exercise of rights conferred by, provisions forming part of the contract immediately before 22nd March 2006; - “transitionally-protected interest” means— 1. an interest in possession to which a person was beneficially entitled immediately before, and on, 22nd March 2006, or 2. a transitional serial interest. (46B) (1) Subsections (2) and (5) below apply where— (a) a settlement commenced before 22nd March 2006, (b) a contract of life insurance was entered into before that day, (c) a premium payable under the contract is paid, or an allowed variation is made to the contract, at a particular time on or after that day, (d) immediately before that day, and at all subsequent times up to the particular time, there were rights under the contract that— (i) were comprised in the settlement, and (ii) were settled property to which section 71 below applied, (e) rights under the contract become, by reference to payment of the premium or as a result of the variation, comprised in the settlement, and (f) any variation of the contract on or after 22nd March 2006 but before the particular time, so far as it was a variation that— (i) increased the benefits secured by the contract, or (ii) extended the term of the insurance provided by the contract, was an allowed variation. (2) If the rights mentioned in subsection (1)(e) above would, but for subsection (1A) of section 71 below, become property to which that section applies, those rights shall become settled property to which that section applies when they become comprised in the settlement. (3) Subsection (5) below also applies where— (a) a settlement commenced before 22nd March 2006, (b) a contract of life insurance was entered into before that day, (c) a premium payable under the contract is paid, or an allowed variation is made to the contract, at a particular time on or after that day when there are rights under the contract— (i) that are comprised in the settlement and are settled property to which section 71A or 71D below applies, (ii) that immediately before that day were settled property to which section 71 below applied, and (iii) that on or after that day, but before the particular time, became property to which section 71A or 71D below applies in circumstances falling within subsection (4) below, (d) rights under the contract become, by reference to payment of the premium or as a result of the variation, comprised in the settlement, and (e) any variation of the contract on or after 22nd March 2006 but before the particular time, so far as it was a variation that— (i) increased the benefits secured by the contract, or (ii) extended the term of the insurance provided by the contract, was an allowed variation. (4) The circumstances referred to in subsection (3)(c)(iii) above are— (a) in the case of property to which section 71D below applies, that the property on becoming property to which section 71D below applies ceased to be property to which section 71 below applied without ceasing to be settled property; (b) in the case of property to which section 71A below applies— (i) that the property on becoming property to which section 71A below applies ceased, by the operation of section 71(1B) below, to be property to which section 71 below applied, or (ii) that the property, having become property to which section 71D below applied in circumstances falling within paragraph (a) above, on becoming property to which 71A below applies ceased, by the operation of section 71D(5)(a) below, to be property to which section 71D below applied. (5) If payment of the premium is a transfer of value made by an individual, that transfer of value is a potentially exempt transfer. (6) In this section “allowed variation”, in relation to a contract, means a variation that takes place by operation of, or as a result of exercise of rights conferred by, provisions forming part of the contract immediately before 22nd March 2006.

• (2) Sub-paragraph (1) shall be deemed to have come into force on 22nd March 2006.