Finance Act 2016

SCHEDULE 7ZB (1) (1) Sub-paragraph (2) applies where— (a) shares in a company are issued to a qualifying person (“the investor”) on a particular date, (b) any of those shares would, apart from this Schedule, be or be treated as being qualifying shares or potentially qualifying shares at a particular time (“the relevant time”), and (c) the investor receives any value, other than insignificant value, from the company at any time in the period of restriction. (2) The shares in question are to be treated for the purposes of this Chapter as being excluded shares at the relevant time. (3) Where— (a) the investor receives value (“the relevant receipt”) from the company during the period of restriction, (b) the investor has received from the company one or more receipts of insignificant value at a time or times— (i) during that period, but (ii) not later than the time of the relevant receipt, and (c) the aggregate amount of the value of the receipts within paragraphs (a) and (b) is not an amount of insignificant value, the investor is to be treated for the purposes of this Schedule as if the relevant receipt had been a receipt of an amount equal to that aggregate amount. For this purpose a receipt does not fall within paragraph (b) in relation to the shares if it has previously been aggregated under this sub-paragraph in relation to them. (4) In this Schedule “the period of restriction” means the period— (a) beginning one year before the date the shares are issued, and (b) ending immediately before the third anniversary of the date the shares are issued. (5) In sub-paragraphs (3) and (4) and in the following provisions of this Schedule references to “the shares” are to the shares referred to in sub-paragraph (1)(a). (6) This paragraph is subject to paragraph 4. (2) (1) For the purposes of this Schedule the investor receives value from the company if the company— (a) repays, redeems or repurchases any of its share capital or securities which belong to the investor or makes any payment to the investor for giving up a right to any of the company's share capital or any security on its cancellation or extinguishment, (b) repays, in pursuance of any arrangements for or in connection with the acquisition of the shares, any debt owed to the investor other than a debt which was incurred by the company— (i) on or after the date of issue of the shares, and (ii) otherwise than in consideration of the extinguishment of a debt incurred before that date, (c) makes to the investor any payment for giving up the investor's right to any debt on its extinguishment, (d) releases or waives any liability of the investor to the company or discharges, or undertakes to discharge, any liability of the investor to a third person, (e) makes a loan or advance to the investor which has not been repaid in full before the issue of the shares, (f) provides a benefit or facility for the investor, (g) disposes of an asset to the investor for no consideration or for a consideration which is or the value of which is less than the market value of the asset, (h) acquires an asset from the investor for a consideration which is or the value of which is more than the market value of the asset, or (i) makes any payment to the investor other than a qualifying payment. (2) For the purposes of sub-paragraph (1)(e) there is to be treated as if it were a loan made by the company to the investor— (a) the amount of any debt (other than an ordinary trade debt) incurred by the investor to the company, and (b) the amount of any debt due from the investor to a third person which has been assigned to the company. (3) For the purposes of this paragraph the investor also receives value from the company if any person connected with the company— (a) purchases any of its share capital or securities which belong to the investor, or (b) makes any payment to the investor for giving up any right in relation to any of the company's share capital or securities. (4) In this paragraph “qualifying payment” means— (a) the payment by any company of such remuneration for service as an officer or employee of that company as may be reasonable in relation to the duties of that office or employment, (b) any payment or reimbursement by any company of travelling or other expenses wholly, exclusively and necessarily incurred by the investor to whom the payment is made in the performance of duties as an officer or employee of that company, (c) the payment by any company of any interest which represents no more than a reasonable commercial return on money lent to that company, (d) the payment by any company of any dividend or other distribution which does not exceed a normal return on any investment in shares in or other securities of that company, (e) any payment for the supply of goods which does not exceed their market value, (f) any payment for the acquisition of an asset which does not exceed its market value, (g) the payment by any company, as rent for any property occupied by the company, of an amount not exceeding a reasonable and commercial rent for the property, (h) any reasonable and necessary remuneration which— (i) is paid by any company for services rendered to that company in the course of a trade or profession carried on wholly or partly in the United Kingdom; and (ii) is taken into account in calculating for tax purposes the profits of that trade or profession, or (i) a payment in discharge of an ordinary trade debt. (5) For the purposes of this paragraph a company is to be treated as having released or waived a liability if the liability is not discharged within 12 months of the time when it ought to have been discharged. (6) In this paragraph— (a) references to a debt or liability do not, in relation to a company, include references to any debt or liability which would be discharged by the making by that company of a qualifying payment, and (b) references to a benefit or facility do not include references to any benefit or facility provided in circumstances such that, if a payment had been made of an amount equal to its value, that payment would be a qualifying payment. (7) In this paragraph and paragraph 3— (a) any reference to a payment or disposal to the investor includes a reference to a payment or disposal made to the investor indirectly or to the investor's order or for the investor's benefit; (b) any reference to the investor includes an associate of the investor; (c) any reference to a company includes a person who at any time in the period of restriction is connected with the company, whether or not that person is connected at the material time. (8) In this paragraph “ordinary trade debt” means any debt for goods or services supplied in the ordinary course of a trade or business where any credit given— (a) does not exceed six months, and (b) is not longer than that normally given to customers of the person carrying on the trade or business. (3) (1) For the purposes of paragraph 1, the value received by the investor is— (a) in a case within paragraph 2(1)(a), (b) or (c), the amount received by the investor or, if greater, the market value of the share capital, securities or debt in question; (b) in a case within paragraph 2(1)(d), the amount of the liability; (c) in a case within paragraph 2(1)(e), the amount of the loan or advance reduced by the amount of any repayment made before the issue of the shares; (d) in a case within paragraph 2(1)(f), the cost to the company of providing the benefit or facility less any consideration given for it by the investor; (e) in a case within paragraph 2(1)(g) or (h), the difference between the market value of the asset and the consideration (if any) given for it; (f) in a case within paragraph 2(1)(i), the amount of the payment; (g) in a case within paragraph 2(3), the amount received by the investor or, if greater, the market value of the share capital or securities in question. (2) In this Schedule references to a receipt of insignificant value (however expressed) are references to a receipt of an amount of insignificant value. This is subject to sub-paragraph (4). (3) For the purposes of this Schedule “an amount of insignificant value” means an amount of value which does not exceed £1,000. (4) For the purposes of this Schedule, if at any time in the period— (a) beginning one year before the shares are issued, and (b) expiring at the end of the issue date, arrangements are in existence which provide for the investor to receive or to be entitled to receive, at any time in the period of restriction, any value from the company that issued the shares, no amount of value received by the investor is to be treated as a receipt of insignificant value. (5) In sub-paragraph (4)— (a) any reference to the investor includes a reference to any person who, at any time in the period of restriction, is an associate of the investor (whether or not that person is such an associate at the material time), and (b) the reference to the company includes a reference to any person who, at any time in the period of restriction, is connected with the company (whether or not that person is so connected at the material time). (4) (1) Where— (a) by reason of a receipt of value within sub-paragraph (1) (other than paragraph (b)) or sub-paragraph (3) of paragraph 2 (“the original value”), any shares would, in the absence of this paragraph, be treated under this Schedule as excluded shares at a particular time, (b) at or before that time the original supplier receives value (“the replacement value”) from the original recipient by reason of a qualifying receipt, and (c) the amount of the replacement value is not less than the amount of the original value, the receipt of the original value is to be disregarded for the purposes of this Schedule. (2) This paragraph is subject to paragraph 5. (3) For the purposes of this paragraph and paragraph 5— (a) “the original recipient” means the person who receives the original value, and (b) “the original supplier” means the person from whom that value was received. (4) A receipt of the replacement value is a qualifying receipt for the purposes of sub-paragraph (1) if it arises— (a) by reason of the original recipient doing one or more of the following— (i) making a payment to the original supplier, other than a payment which falls within paragraph (c) or to which sub-paragraph (5) applies, (ii) acquiring any asset from the original supplier for a consideration the amount or value of which is more than the market value of the asset, (iii) disposing of any asset to the original supplier for no consideration or for a consideration the amount or value of which is less than the market value of the asset, (b) where the receipt of the original value was within paragraph 2(1)(d), by reason of an event the effect of which is to reverse the event which constituted the receipt of the original value, or (c) where the receipt of the original value was within paragraph 2(3), by reason of the original recipient repurchasing the share capital or securities in question, or (as the case may be) reacquiring the right in question, for a consideration the amount or value of which is not less than the amount of the original value. (5) This sub-paragraph applies to— (a) any payment for any goods, services or facilities, provided (whether in the course of a trade or otherwise) by— (i) the original supplier, or (ii) any other person who, at any time in the period of restriction, is an associate of, or connected with, that supplier (whether or not that person is such an associate, or so connected, at the material time), which is reasonable in relation to the market value of those goods, services or facilities, (b) any payment of any interest which represents no more than a reasonable commercial return on money lent to— (i) the original recipient, or (ii) any person who, at any time in the period of restriction, is an associate of the original recipient (whether or not such an associate at the material time), (c) any payment for the acquisition of an asset which does not exceed its market value, (d) any payment, as rent for any property occupied by— (i) the original recipient, or (ii) any person who, at any time in the period of restriction, is an associate of the original recipient (whether or not such an associate at the material time), of an amount not exceeding a reasonable and commercial rent for the property, (e) any payment in discharge of an ordinary trade debt (within the meaning of paragraph 2(8)), and (f) any payment for shares in or securities of any company in circumstances that do not fall within sub-paragraph (4)(a)(ii). (6) For the purposes of this paragraph, the amount of the replacement value is— (a) in a case within paragraph (a) of sub-paragraph (4), the aggregate of— (i) the amount of any payment within sub-paragraph (i) of that paragraph, and (ii) the difference between the market value of any asset within sub-paragraph (ii) or (iii) of that paragraph and the amount or value of the consideration (if any) received for it, (b) in a case within sub-paragraph (4)(b), the same as the amount of the original value, and (c) in a case within sub-paragraph (4)(c), the amount or value of the consideration received by the original supplier, and paragraph 3(1) applies for the purposes of determining the amount of the original value. (7) In this paragraph any reference to a payment to a person (however expressed) includes a reference to a payment made to the person indirectly or to the person's order or for the person's benefit. (5) (1) The receipt of the replacement value by the original supplier is to be disregarded for the purposes of paragraph 4, as it applies in relation to the shares, to the extent to which that receipt has previously been set (under that paragraph) against any receipts of value which are, in consequence, disregarded for the purposes of paragraph 4 as that paragraph applies in relation to those shares or any other shares subscribed for by the investor. (2) The receipt of the replacement value by the original supplier (“the event”) is also be disregarded for the purposes of paragraph 4 if— (a) the event occurs before the start of the period of restriction, or (b) in a case where the event occurs after the time the original recipient receives the original value, it does not occur as soon after that time as is reasonably practicable in the circumstances. But nothing in paragraph 4 or this paragraph requires the replacement value to be received after the original value. (3) In this paragraph “the original value” and “the replacement value” are to be construed in accordance with paragraph 4. (6) In this Schedule— - “arrangements” includes any scheme, agreement, understanding, transaction or series of transactions (whether or not legally enforceable); - “associate” has the meaning that would be given by section 448 of CTA 2010 if in that section “relative” did not include a brother or sister; - “period of restriction” has the meaning given by paragraph 1(4); - “the shares” has the meaning given by paragraph 1(5).

SCHEDULE 15

1

IHTA 1984 is amended as follows.

2

• (1) Section 8D (extra nil-rate band on death if interest in home goes to descendants etc) is amended as follows.

• (2) In subsection (4), after “8G” insert “ (and see also section 8M) ”.

• (3) In subsection (9), before the definition of “tax year” insert—

“consumer prices index” means the all items consumer prices index published by the Statistics Board,

.

3

• (1) Section 8E (residence nil-rate amount: interest in home goes to descendants etc) is amended as follows.

• (2) In subsection (6), after “(7)” insert “ and sections 8FC and 8M(2B) to (2E) ”.

• (3) In subsection (7), for paragraphs (a) and (b) substitute—

(a) the person's residence nil-rate amount is equal to VT, (b) where E is less than or equal to TT, an amount, equal to the difference between VT and the person's default allowance, is available for carry-forward, and (c) where E is greater than TT, an amount, equal to the difference between VT and the person's adjusted allowance, is available for carry-forward.

• (4) In subsection (8)—

• (a) before the entry for section 8H insert— “ section 8FC (modifications of this section where there is entitlement to a downsizing addition), ”, and

• (b) in the entry for section 8H, after “ “qualifying residential interest”” insert “, “ qualifying former residential interest ” and “residential property interest” ”.

4

In section 8F(4) (list of other relevant sections)—

• (a) before the entry for section 8H insert— “ section 8FD (which applies instead of this section where there is entitlement to a downsizing addition), ”, and

• (b) in the entry for section 8H, after “ “qualifying residential interest”” insert “, “ qualifying former residential interest ” and “residential property interest” ”.

5

After section 8F insert—

(8FA) (1) There is entitlement to a downsizing addition in calculating the person's residence nil-rate amount if each of conditions A to F is met (see subsection (8) for the amount of the addition). (2) Condition A is that— (a) the person's residence nil-rate amount is given by section 8E(2) or (4), or (b) the person's estate immediately before the person's death includes a qualifying residential interest but none of the interest is closely inherited, and— (i) where E is less than or equal to TT, so much of VT as is attributable to the person's qualifying residential interest is less than the person's default allowance, or (ii) where E is greater than TT, so much of VT as is attributable to the person's qualifying residential interest is less than the person's adjusted allowance. Section 8E(6) and (7) do not apply, and any entitlement to a downsizing addition is to be ignored, when deciding whether paragraph (a) of condition A is met. (3) Condition B is that not all of VT is attributable to the person's qualifying residential interest. (4) Condition C is that there is a qualifying former residential interest in relation to the person (see sections 8H(4A) to (4F) and 8HA). (5) Condition D is that the value of the qualifying former residential interest exceeds so much of VT as is attributable to the person's qualifying residential interest. Section 8FE(2) explains what is meant by the value of the qualifying former residential interest. (6) Condition E is that at least some of the remainder is closely inherited, where “the remainder” means everything included in the person's estate immediately before the person's death other than the person's qualifying residential interest. (7) Condition F is that a claim is made for the addition in accordance with section 8L(1) to (3). (8) Where there is entitlement as a result of this section, the addition— (a) is equal to the lost relievable amount (see section 8FE) if that amount is less than so much of VT as is attributable to so much of the remainder as is closely inherited, and (b) otherwise is equal to so much of VT as is attributable to so much of the remainder as is closely inherited. (9) Subsection (8) has effect subject to section 8M(2G) (reduction of downsizing addition in certain cases involving conditional exemption). (10) See also— - section 8FC (effect of an addition: section 8E case), - section 8FD (effect of an addition: section 8F case), - section 8H (meaning of “qualifying residential interest”, “qualifying former residential interest” and “residential property interest”), - section 8J (meaning of “inherit”), - section 8K (meaning of “closely inherited”), and - section 8M (cases involving conditional exemption). (8FB) (1) There is also entitlement to a downsizing addition in calculating the person's residence nil-rate amount if each of conditions G to K is met (see subsection (7) for the amount of the addition). (2) Condition G is that the person's estate immediately before the person's death (“the estate”) does not include a residential property interest. (3) Condition H is that VT is greater than nil. (4) Condition I is that there is a qualifying former residential interest in relation to the person (see sections 8H(4A) to (4F) and 8HA). (5) Condition J is that at least some of the estate is closely inherited. (6) Condition K is that a claim is made for the addition in accordance with section 8L(1) to (3). (7) Where there is entitlement as a result of this section, the addition— (a) is equal to the lost relievable amount (see section 8FE) if that amount is less than so much of VT as is attributable to so much of the estate as is closely inherited, and (b) otherwise is equal to so much of VT as is attributable to so much of the estate as is closely inherited. (8) Subsection (7) has effect subject to section 8M(2G) (reduction of downsizing addition in certain cases involving conditional exemption). (9) See also— - section 8FD (effect of an addition: section 8F case), - section 8H (meaning of “qualifying residential interest”, “qualifying former residential interest” and “residential property interest”), - section 8J (meaning of “inherit”), - section 8K (meaning of “closely inherited”), and - section 8M (cases involving conditional exemption). (8FC) (1) Subsection (2) applies if— (a) as a result of section 8FA, there is entitlement to a downsizing addition in calculating the person's residence nil-rate amount, and (b) the person's residence nil-rate amount is given by section 8E. (2) Section 8E has effect as if, in subsections (2) to (5) of that section, each reference to NV/100 were a reference to the total of— (a) NV/100, and (b) the downsizing addition. (8FD) (1) This section applies if— (a) as a result of section 8FA or 8FB, there is entitlement to a downsizing addition in calculating the person's residence nil-rate amount, and (b) apart from this section, the person's residence nil-rate amount is given by section 8F. (2) Subsections (3) to (6) apply instead of section 8F. (3) The person's residence nil-rate amount is equal to the downsizing addition. (4) Where— (a) E is less than or equal to TT, and the downsizing addition is equal to the person's default allowance, or (b) E is greater than TT, and the downsizing addition is equal to the person's adjusted allowance, no amount is available for carry-forward. (5) Where— (a) E is less than or equal to TT, and (b) the downsizing addition is less than the person's default allowance, an amount, equal to the difference between the downsizing addition and the person's default allowance, is available for carry-forward. (6) Where— (a) E is greater than TT, and (b) the downsizing addition is less than the person's adjusted allowance, an amount, equal to the difference between the downsizing addition and the person's adjusted allowance, is available for carry-forward. (8FE) (1) This section is about how to calculate the person's lost relievable amount for the purposes of sections 8FA(8) and 8FB(7). (2) For the purposes of this section and section 8FA(5), the value of the person's qualifying former residential interest is the value of the interest at the time of completion of the disposal of the interest. (3) In this section, the person's “former allowance” is the total of— (a) the residential enhancement at the time of completion of the disposal of the qualifying former residential interest, (b) any brought-forward allowance that the person would have had if the person had died at that time, having regard to the circumstances of the person at that time (see section 8G as applied by subsection (4)), and (c) if the person's allowance on death includes an amount of brought-forward allowance which is greater than the amount of brought-forward allowance given by paragraph (b), the difference between those two amounts. (4) For the purposes of calculating any brought-forward allowance that the person (“P”) would have had as mentioned in subsection (3)(b)— (a) section 8G (brought-forward allowance) applies, but as if references to the residential enhancement at P's death were references to the residential enhancement at the time of completion of the disposal of the qualifying former residential interest, and (b) assume that a claim for brought-forward allowance was made in relation to an amount available for carry-forward from a related person's death if, on P's death, a claim was in fact made in relation to the amount. (5) For the purposes of subsection (3)(c), where the person's allowance on death is equal to the person's adjusted allowance, the amount of brought-forward allowance included in the person's allowance on death is calculated as follows. - Step 1 Express the person's brought-forward allowance as a percentage of the person's default allowance. - Step 2 Multiply—$E − TT 2$by the percentage given by step 1. - Step 3 Reduce the person's brought-forward allowance by the amount given by step 2.The result is the amount of brought-forward allowance included in the person's allowance on death. (6) If completion of the disposal of the qualifying former residential interest occurs before 6 April 2017— (a) for the purposes of subsection (3)(a), the residential enhancement at the time of completion of the disposal is treated as being £100,000, and (b) for the purposes of subsection (3)(b), the amount of brought-forward allowance that the person would have had at that time is treated as being nil. (7) In this section, the person's “allowance on death” means— (a) where E is less than or equal to TT, the person's default allowance, or (b) where E is greater than TT, the person's adjusted allowance. (8) For the purposes of this section, “completion” of the disposal of a residential property interest occurs at the time of the disposal or, if the disposal is under a contract which is completed by a conveyance, at the time when the interest is conveyed. (9) Where, as a result of section 8FA, there is entitlement to a downsizing addition in calculating the person's residence nil-rate amount, take the following steps to calculate the person's lost relievable amount. - Step 1 Express the value of the person's qualifying former residential interest as a percentage of the person's former allowance, but take that percentage to be 100% if it would otherwise be higher. - Step 2 Express QRI as a percentage of the person's allowance on death, where QRI is so much of VT as is attributable to the person's qualifying residential interest, but take that percentage to be 100% if it would otherwise be higher. - Step 3 Subtract the percentage given by step 2 from the percentage given by step 1, but take the result to be 0% if it would otherwise be negative. The result is P%. - Step 4 The person's lost relievable amount is equal to P% of the person's allowance on death. (10) Where, as a result of section 8FB, there is entitlement to a downsizing addition in calculating the person's residence nil-rate amount, take the following steps to calculate the person's lost relievable amount. - Step 1 Express the value of the person's qualifying former residential interest as a percentage of the person's former allowance, but take that percentage to be 100% if it would otherwise be higher. - Step 2 Calculate that percentage of the person's allowance on death. The result is the person's lost relievable amount.

6

In section 8G (meaning of “brought-forward allowance”), in subsection (3)(a), for “and 8F” substitute “ , 8F and 8FD ”.

7

• (1) Section 8H (meaning of “qualifying residential interest”) is amended as follows.

• (2) In the heading, at the end insert “, “ qualifying former residential interest ” and “residential property interest” ”.

• (3) In subsection (1), for “and 8F” substitute “ to 8FE and section 8M ”.

• (4) In subsection (2), for “In this section” substitute “ A ”.

• (5) After subsection (4) insert—

(4A) Subsection (4B) or (4C) applies where— (a) a person disposes of a residential property interest in a dwelling-house on or after 8 July 2015 (and before the person dies), and (b) the person's personal representatives nominate— (i) where there is only one such dwelling-house, that dwelling-house, or (ii) where there are two or more such dwelling-houses, one (and only one) of those dwelling-houses. (4B) Where— (a) the person— (i) disposes of a residential property interest in the nominated dwelling-house at a post-occupation time, or (ii) disposes of two or more residential property interests in the nominated dwelling-house at the same post-occupation time or at post-occupation times on the same day, and (b) the person does not otherwise dispose of residential property interests in the nominated dwelling-house at post-occupation times, the interest disposed of is, or the interests disposed of are, a qualifying former residential interest in relation to the person. (4C) Where— (a) the person disposes of residential property interests in the nominated dwelling-house at post-occupation times on two or more days, and (b) the person's personal representatives nominate one (and only one) of those days, the interest or interests disposed of at post-occupation times on the nominated day is or are a qualifying former residential interest in relation to the person. (4D) For the purposes of subsections (4A) to (4C)— (a) a person is to be treated as not disposing of a residential property interest in a dwelling-house where the person disposes of an interest in the dwelling-house by way of gift and the interest is, in relation to the gift and the donor, property subject to a reservation within the meaning of section 102 of the Finance Act 1986 (gifts with reservation), and (b) a person is to be treated as disposing of a residential property interest in a dwelling-house if the person is treated as making a potentially exempt transfer of the interest as a result of the operation of section 102(4) of that Act (property ceasing to be subject to a reservation). (4E) Where— (a) a transfer of value by a person is a conditionally exempt transfer of a residential property interest, and (b) at the time of the person's death, no chargeable event has occurred with respect to that interest, that interest may not be, or be included in, a qualifying former residential interest in relation to the person. (4F) In subsections (4B) and (4C) “post-occupation time” means a time— (a) on or after 8 July 2015, (b) after the nominated dwelling-house first became the person's residence, and (c) before the person dies. (4G) For the purposes of subsections (4A) to (4C), if the disposal is under a contract which is completed by a conveyance, the disposal occurs at the time when the interest is conveyed.

8

After section 8H insert—

(8HA) (1) This section applies for the purposes of determining whether certain interests may be, or be included in, a qualifying former residential interest in relation to a person (see section 8H(4A) to (4C)). (2) This section applies where— (a) a person (“P”) is beneficially entitled to an interest in possession in settled property, and (b) the settled property consists of, or includes, an interest in a dwelling-house. (3) Subsection (4) applies where— (a) the trustees of the settlement dispose of the interest in the dwelling-house to a person other than P, (b) P's interest in possession in the settled property subsists immediately before the disposal, and (c) P's interest in possession— (i) falls within subsection (7) throughout the period beginning with P becoming beneficially entitled to it and ending with the disposal, or (ii) falls within subsection (8). (4) The disposal is to be treated as a disposal by P of the interest in the dwelling-house to which P is beneficially entitled as a result of the operation of section 49(1). (5) Subsection (6) applies where— (a) P disposes of the interest in possession in the settled property, or P's interest in possession in the settled property comes to an end in P's lifetime, (b) the interest in the dwelling-house is, or is part of, the settled property immediately before the time when that happens, and (c) P's interest in possession— (i) falls within subsection (7) throughout the period beginning with P becoming beneficially entitled to it and ending with the time mentioned in paragraph (b), or (ii) falls within subsection (8). (6) The disposal, or (as the case may be) the coming to an end of P's interest in possession, is to be treated as a disposal by P of the interest in the dwelling-house to which P is beneficially entitled as a result of the operation of section 49(1). (7) An interest in possession falls within this subsection if— (a) P became beneficially entitled to it before 22 March 2006 and section 71A does not apply to the settled property; or (b) P becomes beneficially entitled to it on or after 22 March 2006 and the interest is— (i) an immediate post-death interest, (ii) a disabled person's interest, or (iii) a transitional serial interest. (8) An interest in possession falls within this subsection if P becomes beneficially entitled to it on or after 22 March 2006 and it falls within section 5(1B).

9

In section 8J (meaning of “inherited”), in subsection (1), for “and 8F” substitute “ , 8F, 8FA, 8FB and 8M ”.

10

In section 8K (meaning of “closely inherited”), in subsection (1), for “and 8F” substitute “ , 8F, 8FA, 8FB and 8M ”.

11

In section 8L (claims for brought-forward allowance)—

• (a) in the heading, at the end insert “ and downsizing addition ”, and

• (b) in subsection (1), after “(see section 8G)” insert “ or for a downsizing addition for a person (see sections 8FA to 8FD) ”.

12

• (1) Section 8M (residence nil-rate amount: cases involving conditional exemption) is amended as follows.

• (2) For subsections (1) and (2) substitute—

(1) This section applies where— (a) a person (“D”) dies on or after 6 April 2017, (b) ignoring the application of this section, D's residence nil-rate amount is greater than nil, and (c) some or all of the transfer of value under section 4 on D's death is a conditionally exempt transfer of property consisting of, or including, any of the following— (i) some or all of a qualifying residential interest; (ii) some or all of a residential property interest, at least some portion of which is closely inherited, and which is not, and is not included in, a qualifying residential interest; (iii) one or more closely inherited assets that are not residential property interests. (2) Subsections (2B) to (2E) apply for the purposes of sections 8E to 8FD if— (a) ignoring the application of this section, D's residence nil-rate amount is given by section 8E, and (b) some or all of the transfer of value under section 4 is a conditionally exempt transfer of property mentioned in subsection (1)(c)(i). (2A) In subsections (2B) to (2E), but subject to subsection (3)(a), “the exempt percentage of the QRI” is given by— $$X QRI × 100$where—X is the attributable portion of the value transferred by the conditionally exempt transfer,QRI is the attributable portion of the value transferred by the transfer of value under section 4, and“the attributable portion” means the portion (which may be the whole) attributable to the qualifying residential interest.$ (2B) If— (a) the exempt percentage of the QRI is 100%, and (b) D has no entitlement to a downsizing addition, D's residence nil-rate amount and amount available for carry-forward are given by section 8F(2) and (3) (instead of section 8E). (2C) If— (a) the exempt percentage of the QRI is 100%, and (b) D has an entitlement to a downsizing addition, D's residence nil-rate amount and amount available for carry-forward are given by section 8FD(3) to (6) (instead of section 8E as modified by section 8FC(2)). See also subsection (2G). (2D) If— (a) the exempt percentage of the QRI is less than 100%, and (b) D has no entitlement to a downsizing addition, D's residence nil-rate amount and amount available for carry-forward are given by section 8E but as if, in subsections (2) to (5) of that section, each reference to NV/100 were a reference to NV/100 multiplied by the percentage that is the difference between 100% and the exempt percentage of the QRI. (2E) If— (a) the exempt percentage of the QRI is less than 100%, and (b) D has an entitlement to a downsizing addition, D's residence nil-rate amount and amount available for carry-forward are given by section 8E as modified by section 8FC(2), but as if the reference to NV/100 in section 8FC(2)(a) were a reference to NV/100 multiplied by the percentage that is the difference between 100% and the exempt percentage of the QRI. See also subsection (2G). (2F) Subsection (2G) applies for the purposes of sections 8FA to 8FD if— (a) some or all of the transfer of value under section 4 is a conditionally exempt transfer of property mentioned in subsection (1)(c)(ii) or (iii) (or both), (b) D has an entitlement to a downsizing addition, and (c) DA exceeds Y (see subsection (2H)). (2G) Subject to subsection (3)(aa) and (ab), the amount of the downsizing addition is treated as reduced by whichever is the smaller of— (a) the difference between DA and Y, and (b) Z. (2H) In subsections (2F) and (2G)— - DA is the amount of the downsizing addition to which D has an entitlement (ignoring the application of subsection (2G)); - Y is so much (if any) of the value transferred by the transfer of value under section 4 as— 1. is not transferred by a conditionally exempt transfer, and 2. is attributable to— 1. the closely inherited portion (which may be the whole) of any residential property interests that are not, and are not included in, a qualifying residential interest, or 2. closely inherited assets that are not residential property interests; - Z is the total of— 1. the closely inherited conditionally exempt values of all residential property interests mentioned in subsection (1)(c)(ii), and 2. so much of the value transferred by the conditionally exempt transfer as is attributable to property mentioned in subsection (1)(c)(iii). (2I) For the purposes of the definition of “Z”, “the closely inherited conditionally exempt value” of a residential property interest means— (a) so much of the value transferred by the conditionally exempt transfer as is attributable to the interest, multiplied by (b) the percentage of the interest which is closely inherited.

• (3) In subsection (3), for the words before paragraph (b) substitute—

(3) For the purposes of calculating tax chargeable under section 32 or 32A by reference to a chargeable event related to property forming the subject-matter of the conditionally exempt transfer where D is the relevant person for the purposes of section 33— (a) where subsections (2B) to (2E) apply and the chargeable event relates to property mentioned in subsection (1)(c)(i), in calculating the exempt percentage of the QRI, X is calculated as if the attributable portion of the value transferred by the conditionally exempt transfer had not included the portion (which may be the whole) of the qualifying residential interest on which the tax is chargeable, (aa) where subsection (2G) applies and the chargeable event relates to property mentioned in subsection (1)(c)(ii), Z is calculated as if it had not included the portion (which may be the whole) of the closely inherited conditionally exempt value of the residential property interest on which the tax is chargeable, (ab) where subsection (2G) applies and the chargeable event relates to an asset mentioned in subsection (1)(c)(iii) (“the taxable asset”), Z is calculated as if it had not included so much of the value transferred by the conditionally exempt transfer as is attributable to the taxable asset,

.

• (4) In subsection (3)—

• (a) at the beginning of paragraph (b) insert “ in the cases mentioned in paragraphs (a), (aa) and (ab), ”,

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

• (c) in paragraph (c), for “less” substitute “ reduced (but not below nil) by ”, and

• (d) after paragraph (c) insert

, and (d) where the chargeable event relates to property mentioned in subsection (1)(c)(i) and subsections (2B) to (2E) do not apply, section 33 has effect as if in subsection (1)(b)(ii) after “in accordance with” there were inserted “ section 8D(2) and (3) above and ”.

• (5) In subsection (5), for “the qualifying residential interest which” substitute “ property which forms the subject-matter of the conditionally exempt transfer where the chargeable event ”.

• (6) In subsection (6), for “the qualifying residential interest which” substitute “ property which forms the subject-matter of the conditionally exempt transfer and the chargeable event ”.

• (7) In subsection (7), for “the qualifying residential interest” substitute “ property which forms the subject-matter of the conditionally exempt transfer ”.

SCHEDULE 16

PART 1 — Co-ownership authorised contractual schemes

1

In FA 2003, after section 102 insert—

(102A) (1) This section has effect for the purposes of this Part. (2) This Part, with the exception of Schedule 7 (see subsection (10)), applies in relation to a co-ownership authorised contractual scheme as if— (a) the scheme were a company, and (b) the rights of the participants were shares in the company. (3) An “umbrella COACS” means a co-ownership authorised contractual scheme— (a) whose arrangements provide for separate pooling of the contributions of the participants and the profits or income out of which payments are made to them (“pooling arrangements”), and (b) under which the participants are entitled to exchange rights in one pool for rights in another. (4) A “sub-scheme”, in relation to an umbrella COACS, means such of the pooling arrangements as relate to a separate pool. (5) Each of the sub-schemes of an umbrella COACS is regarded as a separate co-ownership authorised contractual scheme, and the umbrella COACS as a whole is not so regarded. (6) In relation to a sub-scheme of an umbrella COACS— (a) references to chargeable interests are references to such of the chargeable interests as under the pooling arrangements form part of the separate pool to which the sub-scheme relates, and (b) references to the scheme documents are references to such parts of the documents as apply to the sub-scheme. (7) References to a co-ownership authorised contractual scheme are treated as including a collective investment scheme which— (a) is constituted under the law of an EEA State other than the United Kingdom by a contract, (b) is managed by a body corporate incorporated under the law of an EEA State, and (c) is authorised under the law of the EEA State mentioned in paragraph (a) in a way which makes it, under that law, the equivalent of a co-ownership authorised contractual scheme as defined in subsection (8), provided that, apart from this section, no charge to tax is capable of arising to the scheme under this Part. (8) Subject to any regulations under subsection (9)— - “co-ownership authorised contractual scheme” means a co-ownership scheme which is authorised for the purposes of FSMA 2000 by an authorisation order in force under section 261D(1) of that Act; - “co-ownership scheme” has the same meaning as in FSMA 2000 (see section 235A of that Act). (9) The Treasury may by regulations provide that a scheme of a description specified in the regulations is to be treated as not being a co-ownership authorised contractual scheme for the purposes of this Part. Any such regulations may contain such supplementary and transitional provisions as appear to the Treasury to be necessary or expedient. (10) A co-ownership authorised contractual scheme is not to be treated as a company for the purposes of Schedule 7 (group relief, reconstruction relief or acquisition relief). (11) In relation to a land transaction in respect of which a co-ownership authorised contractual scheme is treated as the purchaser by virtue of this section, references to the purchaser in the following provisions are to be read as references to the operator of the scheme— (a) sections 76, 80, 81, 81A and 108(2) and Schedule 10 (provisions about land transaction returns and further returns, enquiries, assessments and related matters), (b) section 85 (liability for tax), and (c) section 90 (application to defer payment in case of contingent or unascertained consideration). (12) In this section— - “collective investment scheme” has the meaning given by section 235 of FSMA 2000; - “FSMA 2000” means the Financial Services and Markets Act 2000; - “operator”— 1. in relation to a co-ownership authorised contractual scheme constituted under the law of the United Kingdom, has the meaning given by section 237(2) of FSMA 2000, and 2. in relation to a collective investment scheme treated as a co-ownership authorised contractual scheme by virtue of subsection (7) (equivalent EEA schemes), means the corporate body responsible for the management of the scheme (however described); - “participant” is to be read in accordance with section 235 of FSMA 2000.

PART 2 — Seeding relief for property authorised investment funds and co-ownership authorised contractual schemes

2

FA 2003 is amended in accordance with this Part.

3

After section 65 insert—

(65A) (1) Schedule 7A provides for relief from stamp duty land tax. (2) In that Schedule— (a) Part 1 makes provision for relief for property authorised investment funds (PAIF seeding relief), and (b) Part 2 makes provision for relief for co-ownership authorised contractual schemes (COACS seeding relief). (3) Any relief under that Schedule must be claimed in a land transaction return or an amendment of such a return, and must be accompanied by a notice to HMRC referring to the claim. (4) In the case of a claim for PAIF seeding relief, the notice must confirm that the purchaser is— (a) a property AIF as defined in paragraph 2(2) of Schedule 7A, or (b) a company treated as a property AIF by virtue of paragraph 2(5) of Schedule 7A (equivalent EEA funds). (5) In the case of a claim for COACS seeding relief, the notice must confirm that the purchaser is— (a) a co-ownership authorised contractual scheme as defined in section 102A(8), or (b) an entity treated as a co-ownership authorised contractual scheme by virtue of section 102A(7) (equivalent EEA schemes). (6) The notice must be in such form, and contain such further information, as HMRC may require.

4

After Schedule 7 insert—

SCHEDULE 7A (1) Relief under this paragraph is referred to in this Part of this Act as “PAIF seeding relief”. (1) A land transaction is exempt from charge if conditions A to D are met. (2) Condition A is that the purchaser is a property AIF (see paragraph 2). (3) Condition B is that the main subject-matter of the transaction consists of a major interest in land. (4) Condition C is that the only consideration for the transaction is the issue of units in the property AIF to a person who is the vendor. (5) Condition D is that the effective date of the transaction is a day within the seeding period (see paragraph 3). (6) This paragraph is subject to paragraph 4 (restrictions on availability of relief) and paragraphs 5 to 8 (withdrawal of relief). (2) (1) This paragraph has effect for the purposes of this Schedule. (2) A “property AIF” is an open-ended investment company to which Part 4A of the AIF (Tax) Regulations applies. (3) In sub-paragraph (2) “open-ended investment company” is to be read in accordance with regulation 7(1) and (2) of those Regulations (part of an umbrella company is regarded as an open-ended investment company). (4) Regulation 7(3)(a) of those Regulations applies for the purposes of this Schedule as it applies for the purposes of those Regulations but as if references to investments and scheme property were a reference to chargeable interests. (5) References to a property AIF are treated as including a collective investment scheme which— (a) is a company incorporated under the law of an EEA State other than the United Kingdom, and (b) is authorised under the law of that EEA State in a way which makes it, under that law, the equivalent of a property AIF as defined in sub-paragraph (2). (6) In sub-paragraph (5) “collective investment scheme” has the meaning given by section 235 of FSMA 2000. (3) Where an election is made, the seeding period is the period beginning with the first property seeding date and ending with the date specified in the election. (1) In this Part of this Schedule, subject to sub-paragraph (2), the “seeding period” means— (a) the period beginning with the first property seeding date and ending with the date of the first external investment into the property AIF, or (b) if shorter, the period of 18 months beginning with the first property seeding date. (2) The property AIF may elect to bring the seeding period to an end sooner than it would otherwise end under sub-paragraph (1). (3) An election under sub-paragraph (2) may be made— (a) by being included in a notice accompanying a claim for PAIF seeding relief (see section 65A), or (b) by separate notice in writing to HMRC. (4) In sub-paragraphs (1) and (2), “the first property seeding date” means the earliest effective date of a transaction in respect of which conditions A to C in paragraph 1 are met. (5) In this paragraph— - “external investment” means a non-land transaction in which the vendor is an external investor; - “external investor” means a person other than a person who has been a vendor in a transaction— 1. the effective date of which is on or before the date of the non-land transaction, and 2. in respect of which conditions A to C in paragraph 1 are met; - “non-land transaction” means a transaction by which the property AIF acquires assets which do not consist of or include a chargeable interest. (4) (1) This paragraph restricts the availability of PAIF seeding relief for a transaction in respect of which conditions A to D in paragraph 1 are met. (2) PAIF seeding relief is not available unless, at the effective date of the transaction, the property AIF has arrangements in place requiring a person who is the vendor to notify the authorised corporate director of the property AIF of the following matters— (a) the identity of the beneficial owner of the units in the property AIF received in consideration of the transaction, and (b) any disposal of units in the property AIF on or after the effective date of that transaction by that owner (or, where that person is a company, by a group company) which is or could be a relevant disposal (see paragraph 7). In paragraph (b) “group company” means a company which is a member of the same group of companies as the person mentioned in paragraph (a) for the purposes mentioned in paragraph 1(2) of Schedule 7 (group relief). (3) PAIF seeding relief is not available if at the effective date of the transaction there are arrangements in existence by virtue of which, at that or some later time, a person who is the vendor makes or could make a disposal of units in the property AIF which is or could be a relevant disposal (see paragraph 7). (4) PAIF seeding relief is not available if the transaction— (a) is not effected for bona fide commercial reasons, or (b) forms part of arrangements of which the main purpose, or one of the main purposes, is the avoidance of liability to tax. “Tax” here means stamp duty, income tax, corporation tax, capital gains tax or tax under this Part. (5) (1) Where PAIF seeding relief has been allowed in respect of a transaction (“the relevant transaction”), and the purchaser ceases to be a property AIF— (a) at any time after the effective date of that transaction but within the seeding period, (b) at any time in the control period (see paragraph 21), or (c) in pursuance of, or in connection with, arrangements made before the end of the control period, then, subject to sub-paragraph (2), the relief, or an appropriate proportion of it, is withdrawn, and tax is chargeable in accordance with this paragraph. (2) Relief is withdrawn only if, at the time when the purchaser ceases to be a property AIF, the purchaser holds— (a) the chargeable interest that was acquired by the purchaser under the relevant transaction, or (b) a chargeable interest that is derived from that interest. (3) The amount chargeable is the amount that would have been chargeable in respect of the relevant transaction but for PAIF seeding relief or, as the case may be, an appropriate proportion of the tax that would have been so chargeable. (4) In sub-paragraphs (1) and (3) an “appropriate proportion” means an appropriate proportion having regard to the subject-matter of the relevant transaction and what is held by the purchaser at the time it ceases to be a property AIF. (6) (1) Where PAIF seeding relief has been allowed in respect of a transaction, and the portfolio test is not met immediately before the end of the seeding period, the relief is withdrawn and tax is chargeable in accordance with sub-paragraph (2). See sub-paragraph (7) for the meaning of “portfolio test”. (2) The amount chargeable is the amount that would have been chargeable in respect of the transaction but for PAIF seeding relief. (3) Where PAIF seeding relief has been allowed in respect of a transaction (“the relevant transaction”), and the portfolio test is met immediately before the end of the seeding period, but is not met— (a) at a time in the control period, or (b) at a time after the end of the control period, where the failure is pursuant to or in connection with arrangements made before the end of that period, then, subject to sub-paragraph (4), the relief, or an appropriate proportion of it, is withdrawn, and tax is chargeable in accordance with sub-paragraph (5). (4) The requirement to meet the portfolio test at a time mentioned in sub-paragraph (3)(a) or (b) applies only to times when the property AIF holds— (a) the chargeable interest that was acquired by the property AIF under the relevant transaction, or (b) a chargeable interest that is derived from that interest. (5) The amount chargeable is the amount that would have been chargeable in respect of the relevant transaction but for PAIF seeding relief or, as the case may be, an appropriate proportion of the tax that would have been so chargeable. (6) In sub-paragraphs (3) and (5) an “appropriate proportion” means an appropriate proportion having regard to the subject-matter of the relevant transaction and what is held by the property AIF at the time when the portfolio test is not met. (7) The portfolio test is a requirement that the property AIF meets— (a) the non-residential portfolio test (see sub-paragraph (8)), or (b) the residential portfolio test (see sub-paragraph (9)). (8) The “non-residential portfolio test” is met at any time if— (a) the property AIF holds at least 10 seeded interests at that time, (b) so much of the total chargeable consideration as is attributable to all the seeded interests held by the property AIF at that time (“the seeded portfolio”) is at least £100 million, and (c) so much of the total chargeable consideration as is attributable to so many of those seeded interests as are interests in or over residential property (if any) does not exceed 10% of the seeded portfolio. (9) The “residential portfolio test” is met at any time if— (a) so much of the total chargeable consideration as is attributable to all the seeded interests held by the property AIF at that time is at least £100 million, and (b) at least 100 of the seeded interests held by the property AIF at that time are interests in or over residential property. (10) In sub-paragraphs (8) and (9)— - “seeded interest” means a chargeable interest acquired by the property AIF in a transaction for which PAIF seeding relief is allowed (whether or not relief is subsequently withdrawn to any extent) (a “seeding transaction”), and - “total chargeable consideration” means the total of the chargeable consideration for all seeding transactions. (11) For the purposes of this paragraph, section 116(7) does not apply (modification of what counts as residential property). (7) (1) This paragraph applies where— (a) a person (“V”) makes a relevant disposal of one or more units in a property AIF— (i) at any time in the seeding period, (ii) at any time in the control period, or (iii) in pursuance of, or in connection with, arrangements made before the end of the control period, and (b) there is, in relation to that disposal, a relevant seeding transaction (see sub-paragraph (6)). (2) In respect of a transaction which is, in relation to the relevant disposal, a relevant seeding transaction— (a) PAIF seeding relief is withdrawn to the extent set out in this paragraph, and (b) tax is chargeable in accordance with this paragraph. (3) V's disposal of units in a property AIF is a “relevant disposal” for the purposes of this paragraph if, in relation to the disposal, A exceeds B. (4) In this paragraph— - “A” means— 1. where the value of V's investment in the property AIF immediately before the disposal is equal to or greater than the total of the chargeable consideration for all relevant seeding transactions, the total of the chargeable consideration for all relevant seeding transactions, or 2. where the value of V's investment in the property AIF immediately before the disposal is less than the total of the chargeable consideration for all relevant seeding transactions, the value of V's investment in the property AIF immediately before the disposal, and - “B” means the value of V's investment in the property AIF immediately after the disposal. (5) The amount chargeable in respect of a relevant seeding transaction (“RST”) is— $$C CCRST × SDLT$where—“C” means the difference between A and B;“CCRST” means the total of the chargeable consideration for all relevant seeding transactions;“SDLT” means the amount of tax that would have been chargeable in respect of RST but for PAIF seeding relief, ignoring any amount of tax that has been charged under this paragraph in respect of RST in relation to an earlier disposal of units by V.$ (6) In this paragraph— - “group company” means (where V is a company) a company which is a member of the same group of companies as V for the purposes mentioned in paragraph 1(2) of Schedule 7 (group relief); - “relevant seeding transaction”, in relation to a disposal of units by V in a property AIF, means a seeding transaction— 1. the effective date of which is, or is before, the date of the disposal, 2. in which that property AIF is the purchaser, and 3. in which a vendor is— 1. V, or 2. (where V is a company) a company which is a group company at the time of the disposal; - “seeding transaction” means a transaction in respect of which PAIF seeding relief is allowed (whether or not relief is subsequently withdrawn to any extent); - “the value of V's investment in the property AIF” at a particular time means the market value of all units in the property AIF held at that time by— 1. V, and 2. (where V is a company) a company which— 1. is a group company at that time, and 2. before that time, has been a vendor in one or more seeding transactions in which the property AIF was the purchaser. (7) For the purposes of this paragraph, the “market value” on a particular date of units in the property AIF is an amount equal to the buying price (that is, the lower price) published by the authorised corporate director on that date (or, if no such price is published on that date, on the latest date before). (8) (1) This paragraph applies to a transaction (“the relevant transaction”) if— (a) PAIF seeding relief has been allowed in respect of the transaction, (b) the main subject-matter of the transaction consists of a chargeable interest in or over land which is or includes a dwelling, and (c) a non-qualifying individual (see paragraph 9) is permitted to occupy the dwelling at any time on or after the effective date of the transaction. The dwelling which a non-qualifying individual is permitted to occupy is referred to as “the disqualifying dwelling”. (2) The relief, or an appropriate proportion of it, is withdrawn, and tax is chargeable in accordance with this paragraph. This is subject to sub-paragraphs (3) and (4). (3) Relief is withdrawn only if, at the time a non-qualifying individual is permitted to occupy the disqualifying dwelling, the property AIF holds a chargeable interest in or over that dwelling— (a) that was acquired by the property AIF under the relevant transaction, or (b) that is derived from an interest so acquired. (4) Where a non-qualifying individual is first permitted to occupy the disqualifying dwelling at a time after the end of the control period, relief is withdrawn only if, at that time, the purchaser in the relevant transaction fails to meet the genuine diversity of ownership condition set out in regulation 9A of the AIF (Tax) Regulations. For the purposes of this sub-paragraph, regulation 9A(2)(a) of those Regulations is to be read as if the words “throughout the accounting period” were omitted. (5) The amount chargeable is the amount that would have been chargeable in respect of the relevant transaction but for PAIF seeding relief or, as the case may be, an appropriate proportion of the tax that would have been so chargeable. (6) In sub-paragraphs (2) and (5), an “appropriate proportion” means an appropriate proportion having regard to the extent to which the subject-matter of the relevant transaction was an interest in or over land other than the disqualifying dwelling. (9) (1) In paragraph 8 “non-qualifying individual”, in relation to a land transaction and a property AIF, means any of the following— (a) an individual who is a major participant in the property AIF; (b) an individual who is connected with a major participant in the property AIF; (c) an individual who is connected with the property AIF; (d) a relevant settlor; (e) the spouse or civil partner of an individual falling within paragraph (b), (c) or (d); (f) a relative of an individual falling within paragraph (b), (c) or (d), or the spouse or civil partner of a relative of an individual falling within paragraph (b), (c) or (d); (g) a relative of the spouse or civil partner of an individual falling within paragraph (b), (c) or (d); (h) the spouse or civil partner of an individual falling within paragraph (g). (2) An individual who participates in a property AIF is a “major participant” in it if the individual— (a) is entitled to a share of at least 50% either of all the profits or income arising from the property AIF or of any profits or income arising from it that may be distributed to participants, or (b) would in the event of the winding up of the property AIF be entitled to 50% or more of the assets of the property AIF that would then be available for distribution among the participants. (3) The reference in sub-paragraph (2)(a) to profits or income arising from the property AIF is to profits or income arising from the acquisition, holding, management or disposal of the property subject to the property AIF. (4) In this paragraph— - “relative” means brother, sister, ancestor or lineal descendant; - “relevant settlor”, in relation to a land transaction, means an individual who is a settlor in relation to a relevant settlement (as defined in sub-paragraph (5)); - “settlement” has the same meaning as in Chapter 5 of Part 5 of ITTOIA 2005 (see section 620 of that Act). (5) Where a person, in the capacity of trustee of a settlement, is connected with a person who is the purchaser under a land transaction, that settlement is a “relevant settlement” in relation to the transaction. (6) In sub-paragraph (5) “trustee” is to be read in accordance with section 1123(3) of CTA 2010 (“connected” persons: supplementary). (7) Section 1122 of CTA 2010 (connected persons) has effect for the purposes of this paragraph, but for those purposes, subsections (7) and (8) of that section (application of rules about connected persons to partnerships) are to be disregarded. (10) (1) A land transaction is exempt from charge if conditions A to D are met. Relief under this paragraph is referred to in this Part of this Act as “COACS seeding relief”. (2) Condition A is that the purchaser is a co-ownership authorised contractual scheme (see section 102A). (3) Condition B is that the main subject-matter of the transaction consists of a major interest in land. (4) Condition C is that the only consideration for the transaction is the issue of units in the co-ownership authorised contractual scheme to a person who is the vendor. (5) Condition D is that the effective date of the transaction is a day within the seeding period (see paragraph 11). (6) This paragraph is subject to paragraph 12 (restrictions on availability of relief) and paragraphs 13, 14, 16, 17 and 18 (withdrawal of relief). (11) Where an election is made, the seeding period is the period beginning with the first property seeding date and ending with the date specified in the election. (1) In this Part of this Schedule, subject to sub-paragraph (2), the “seeding period” means— (a) the period beginning with the first property seeding date and ending with the date of the first external investment into the co-ownership authorised contractual scheme, or (b) if shorter, the period of 18 months beginning with the first property seeding date. (2) The co-ownership authorised contractual scheme may elect to bring the seeding period to an end sooner than it would otherwise end under sub-paragraph (1). (3) An election under sub-paragraph (2) may be made— (a) by being included in a notice accompanying a claim for COACS seeding relief (see section 65A), or (b) by separate notice in writing to HMRC. (4) In sub-paragraphs (1) and (2), “the first property seeding date” means the earliest effective date of a transaction in respect of which conditions A to C in paragraph 10 are met. (5) In this paragraph— - “external investment” means a non-land transaction in which the vendor is an external investor; - “external investor” means a person other than a person who has been a vendor in a transaction— 1. the effective date of which is on or before the date of the non-land transaction, and 2. in respect of which conditions A to C in paragraph 10 are met; - “non-land transaction” means a transaction by which the scheme acquires assets which do not consist of or include a chargeable interest. (12) (1) This paragraph restricts the availability of COACS seeding relief for a transaction in respect of which conditions A to D in paragraph 10 are met. (2) COACS seeding relief is not available unless, at the effective date of the transaction, the arrangements constituting the co-ownership authorised contractual scheme require a person who is the vendor to notify the operator of the scheme of the following matters— (a) the identity of the beneficial owner of the units in the scheme received in consideration of the transaction, and (b) any disposal of units in the scheme on or after the effective date of that transaction by that owner (or, where that person is a company, by a group company) which is or could be a relevant disposal (see paragraph 17). In paragraph (b) “group company” means a company which is a member of the same group of companies as the person mentioned in paragraph (a) for the purposes mentioned in paragraph 1(2) of Schedule 7 (group relief). (3) COACS seeding relief is not available if at the effective date of the transaction there are arrangements in existence by virtue of which, at that or some later time, a person who is the vendor makes or could make a disposal of units in the co-ownership authorised contractual scheme which is or could be a relevant disposal (see paragraph 17). (4) COACS seeding relief is not available if the transaction— (a) is not effected for bona fide commercial reasons, or (b) forms part of arrangements of which the main purpose, or one of the main purposes, is the avoidance of liability to tax. “Tax” here means stamp duty, income tax, corporation tax, capital gains tax or tax under this Part. (13) (1) Where COACS seeding relief has been allowed in respect of a transaction (“the relevant transaction”), and the purchaser ceases to be a co-ownership authorised contractual scheme— (a) at any time after the effective date of that transaction but within the seeding period, (b) at any time in the control period (see paragraph 21), or (c) in pursuance of, or in connection with, arrangements made before the end of the control period, then, subject to sub-paragraph (2), the relief, or an appropriate proportion of it, is withdrawn, and tax is chargeable in accordance with this paragraph. (2) Relief is withdrawn only if, at the time when the purchaser ceases to be a co-ownership authorised contractual scheme, the purchaser holds— (a) the chargeable interest that was acquired by the purchaser under the relevant transaction, or (b) a chargeable interest that is derived from that interest. (3) The amount chargeable is the amount that would have been chargeable in respect of the relevant transaction but for COACS seeding relief or, as the case may be, an appropriate proportion of the tax that would have been so chargeable. (4) In sub-paragraphs (1) and (3) an “appropriate proportion” means an appropriate proportion having regard to the subject-matter of the relevant transaction and what is held by the purchaser at the time it ceases to be a co-ownership authorised contractual scheme. (14) (1) Where COACS seeding relief has been allowed in respect of a transaction (“the relevant transaction”), and the genuine diversity of ownership condition (see paragraph 15) is not met— (a) immediately before the end of the seeding period, (b) at a time in the control period, or (c) at a time after the end of the control period, where the failure is pursuant to or in connection with arrangements made before the end of that period, then, subject to sub-paragraph (2), the relief, or an appropriate proportion of it, is withdrawn, and tax is chargeable in accordance with this paragraph. (2) The requirement to meet the genuine diversity of ownership condition at a time mentioned in sub-paragraph (1) applies only to times when the co-ownership authorised contractual scheme holds— (a) the chargeable interest that was acquired by the scheme under the relevant transaction, or (b) a chargeable interest that is derived from that interest. (3) The amount chargeable is the amount that would have been chargeable in respect of the relevant transaction but for COACS seeding relief or, as the case may be, an appropriate proportion of the tax that would have been so chargeable. (4) In sub-paragraphs (1) and (3) an “appropriate proportion” means an appropriate proportion having regard to the subject-matter of the relevant transaction and what is held by the scheme at the time when the genuine diversity of ownership condition is not met. (5) For the purposes of this paragraph, the operator of a co-ownership authorised contractual scheme may apply to HMRC in writing for clearance that the scheme meets the genuine diversity of ownership condition, and where an application is made, HMRC must notify the scheme of its decision within 28 days of the receipt of all the information that is needed to make the decision. (6) Any such clearance has effect only for so long as the information on which HMRC relies in granting clearance is materially unchanged and the scheme is operated in accordance with it (including, in particular, continuing to operate in accordance with condition C of the genuine diversity of ownership condition). (15) (1) This paragraph has effect for the purposes of paragraphs 14 and 18(4). (2) A co-ownership authorised contractual scheme meets the genuine diversity of ownership condition at any time when it meets conditions A to C. (3) Condition A is that the scheme documents, which are available to investors and to HMRC, contain— (a) a statement specifying the intended categories of investor, (b) an undertaking that units in the scheme will be widely available, and (c) an undertaking that units in the scheme will be marketed and made available in accordance with the requirements of sub-paragraph (6)(a). (4) Condition B is that— (a) the specification of the intended categories of investor does not have a limiting or deterrent effect, and (b) any other terms or conditions governing participation in the scheme do not have a limiting or deterrent effect. (5) In sub-paragraph (4) “limiting or deterrent effect” means an effect which— (a) limits investors to a limited number of specific persons or specific groups of connected persons, or (b) deters a reasonable investor falling within one of (what are specified as) the intended categories of investor from investing in the scheme. (6) Condition C is that— (a) units in the scheme are marketed and made available— (i) sufficiently widely to reach the intended categories of investors, and (ii) in a manner appropriate to attract those categories of investors, and (b) a person who falls within one of the intended categories of investors can, upon request to the operator of the scheme, obtain information about the scheme and acquire units in it. (7) A scheme is not regarded as failing to meet condition C at any time by reason of the scheme's having, at that time, no capacity to receive additional investments, unless— (a) the capacity of the scheme to receive investments in it is fixed by the scheme documents (or otherwise), and (b) a pre-determined number of specific persons or specific groups of connected persons make investments in the scheme which collectively exhaust all, or substantially all, of that capacity. (8) A co-ownership authorised contractual scheme also meets the genuine diversity of ownership condition at any time when— (a) there is a feeder fund in relation to the scheme (see paragraph 20), and (b) conditions A to C are met in relation to the scheme after taking into account— (i) the scheme documents relating to the feeder fund, and (ii) the intended investors in the feeder fund. (9) Section 1122 of CTA 2010 (connected persons) has effect for the purposes of this paragraph. (16) (1) Where COACS seeding relief has been allowed in respect of a transaction, and the portfolio test is not met immediately before the end of the seeding period, the relief is withdrawn and tax is chargeable in accordance with sub-paragraph (2). See sub-paragraph (7) for the meaning of “portfolio test”. (2) The amount chargeable is the amount that would have been chargeable in respect of the transaction but for COACS seeding relief. (3) Where COACS seeding relief has been allowed in respect of a transaction (“the relevant transaction”), and the portfolio test is met immediately before the end of the seeding period, but is not met— (a) at a time in the control period, or (b) at a time after the end of the control period, where the failure is pursuant to or in connection with arrangements made before the end of that period, then, subject to sub-paragraph (4), the relief, or an appropriate proportion of it, is withdrawn, and tax is chargeable in accordance with sub-paragraph (5). (4) The requirement to meet the portfolio test at a time mentioned in sub-paragraph (3)(a) or (b) applies only to times when the co-ownership authorised contractual scheme holds— (a) the chargeable interest that was acquired by the scheme under the relevant transaction, or (b) a chargeable interest that is derived from that interest. (5) The amount chargeable is the amount that would have been chargeable in respect of the relevant transaction but for COACS seeding relief or, as the case may be, an appropriate proportion of the tax that would have been so chargeable. (6) In sub-paragraphs (3) and (5) an “appropriate proportion” means an appropriate proportion having regard to the subject-matter of the relevant transaction and what is held by the scheme at the time when the portfolio test is not met. (7) The portfolio test is a requirement that the scheme meets— (a) the non-residential portfolio test (see sub-paragraph (8)), or (b) the residential portfolio test (see sub-paragraph (9)). (8) The “non-residential portfolio test” is met at any time if— (a) the scheme holds at least 10 seeded interests at that time, (b) so much of the total chargeable consideration as is attributable to all the seeded interests held by the scheme at that time (“the seeded portfolio”) is at least £100 million, and (c) so much of the total chargeable consideration as is attributable to so many of those seeded interests as are interests in or over residential property (if any) does not exceed 10% of the seeded portfolio. (9) The “residential portfolio test” is met at any time if— (a) so much of the total chargeable consideration as is attributable to all the seeded interests held by the scheme at that time is at least £100 million, and (b) at least 100 of the seeded interests held by the scheme at that time are interests in or over residential property. (10) In sub-paragraphs (8) and (9)— - “seeded interest” means a chargeable interest acquired by the scheme in a transaction for which COACS seeding relief is allowed (whether or not relief is subsequently withdrawn to any extent) (a “seeding transaction”), and - “total chargeable consideration” means the total of the chargeable consideration for all seeding transactions. (11) For the purposes of this paragraph, section 116(7) does not apply (modification of what counts as residential property). (17) (1) This paragraph applies where— (a) a person (“V”) makes a relevant disposal of one or more units in a co-ownership authorised contractual scheme— (i) at any time in the seeding period, (ii) at any time in the control period, or (iii) in pursuance of, or in connection with, arrangements made before the end of the control period, and (b) there is, in relation to that disposal, a relevant seeding transaction (see sub-paragraph (6)). (2) In respect of a transaction which is, in relation to the relevant disposal, a relevant seeding transaction— (a) COACS seeding relief is withdrawn to the extent set out in this paragraph, and (b) tax is chargeable in accordance with this paragraph. (3) V's disposal of units in a scheme is a “relevant disposal” for the purposes of this paragraph if, in relation to the disposal, A exceeds B. (4) In this paragraph— - “A” means— 1. where the value of V's investment in the scheme immediately before the disposal is equal to or greater than the total of the chargeable consideration for all relevant seeding transactions, the total of the chargeable consideration for all relevant seeding transactions, or 2. where the value of V's investment in the scheme immediately before the disposal is less than the total of the chargeable consideration for all relevant seeding transactions, the value of V's investment in the scheme immediately before the disposal, and - “B” means the value of V's investment in the scheme immediately after the disposal. (5) The amount chargeable in respect of a relevant seeding transaction (“RST”) is— $$C CCRST × SDLT$where—“C” means the difference between A and B;“CCRST” means the total of the chargeable consideration for all relevant seeding transactions;“SDLT” means the amount of tax that would have been chargeable in respect of RST but for COACS seeding relief, ignoring any amount of tax that has been charged under this paragraph in respect of RST in relation to an earlier disposal of units by V.$ (6) In this paragraph— - “group company” means (where V is a company) a company which is a member of the same group of companies as V for the purposes mentioned in paragraph 1(2) of Schedule 7 (group relief); - “relevant seeding transaction”, in relation to a disposal of units by V in a co-ownership authorised contractual scheme, means a seeding transaction— 1. the effective date of which is, or is before, the date of the disposal, 2. in which that scheme is the purchaser, and 3. in which a vendor is— 1. V, or 2. (where V is a company) a company which is a group company at the time of the disposal; - “seeding transaction” means a transaction in respect of which COACS seeding relief is allowed (whether or not relief is subsequently withdrawn to any extent); - “the value of V's investment in the scheme” at a particular time means the market value of all units in the co-ownership authorised contractual scheme held at that time by— 1. V, and 2. (where V is a company) a company which— 1. is a group company at that time, and 2. before that time, has been a vendor in one or more seeding transactions in which the scheme was the purchaser. (7) For the purposes of this paragraph, the “market value” on a particular date of units in the scheme is an amount equal to the buying price (that is, the lower price) published by the operator on that date (or, if no such price is published on that date, on the latest date before). (18) (1) This paragraph applies to a transaction (“the relevant transaction”) if— (a) COACS seeding relief has been allowed in respect of the transaction, (b) the main subject-matter of the transaction consists of a chargeable interest in or over land which is or includes a dwelling, and (c) a non-qualifying individual (see paragraph 19) is permitted to occupy the dwelling at any time on or after the effective date of the transaction. The dwelling which a non-qualifying individual is permitted to occupy is referred to as “the disqualifying dwelling”. (2) The relief, or an appropriate proportion of it, is withdrawn, and tax is chargeable in accordance with this paragraph. This is subject to sub-paragraphs (3) and (4). (3) Relief is withdrawn only if, at the time a non-qualifying individual is permitted to occupy the disqualifying dwelling, the co-ownership authorised contractual scheme holds a chargeable interest in or over that dwelling— (a) that was acquired by the scheme under the relevant transaction, or (b) that is derived from an interest so acquired. (4) Where a non-qualifying individual is first permitted to occupy the disqualifying dwelling at a time after the end of the control period, relief is withdrawn only if, at that time, the scheme fails to meet the genuine diversity of ownership condition (see paragraph 15). (5) The amount chargeable is the amount that would have been chargeable in respect of the relevant transaction but for COACS seeding relief or, as the case may be, an appropriate proportion of the tax that would have been so chargeable. (6) In sub-paragraphs (2) and (5), an “appropriate proportion” means an appropriate proportion having regard to the extent to which the subject-matter of the relevant transaction was an interest in or over land other than the disqualifying dwelling. (19) (1) In paragraph 18 “non-qualifying individual”, in relation to a land transaction and a co-ownership authorised contractual scheme, means any of the following— (a) an individual who is a major participant in the scheme; (b) an individual who is connected with a major participant in the scheme; (c) an individual who is connected with the operator of the scheme (see section 102A) or the depositary of the scheme; (d) a relevant settlor; (e) the spouse or civil partner of an individual falling within paragraph (b), (c) or (d); (f) a relative of an individual falling within paragraph (b), (c) or (d), or the spouse or civil partner of a relative of an individual falling within paragraph (b), (c) or (d); (g) a relative of the spouse or civil partner of an individual falling within paragraph (b), (c) or (d); (h) the spouse or civil partner of an individual falling within paragraph (g). (2) An individual who participates in a scheme is a “major participant” in it if the individual— (a) is entitled to a share of at least 50% either of all the profits or income arising from the scheme or of any profits or income arising from it that may be distributed to participants, or (b) would in the event of the winding up of the scheme be entitled to 50% or more of the assets of the scheme that would then be available for distribution among the participants. (3) The reference in sub-paragraph (2)(a) to profits or income arising from the scheme is to profits or income arising from the acquisition, holding, management or disposal of the property subject to the scheme. (4) In this paragraph— - “depositary”, in relation to a co-ownership authorised contractual scheme, means the person to whom the property subject to the scheme is entrusted for safekeeping; - “relative” means brother, sister, ancestor or lineal descendant; - “relevant settlor”, in relation to a land transaction, means an individual who is a settlor in relation to a relevant settlement (as defined in sub-paragraph (5)); - “settlement” has the same meaning as in Chapter 5 of Part 5 of ITTOIA 2005 (see section 620 of that Act). (5) Where a person, in the capacity of trustee of a settlement, is connected with a person who is the purchaser under a land transaction, that settlement is a “relevant settlement” in relation to the transaction. (6) In sub-paragraph (5) “trustee” is to be read in accordance with section 1123(3) of CTA 2010 (“connected” persons: supplementary). (7) Section 1122 of CTA 2010 (connected persons) has effect for the purposes of this paragraph, but for those purposes, subsections (7) and (8) of that section (application of rules about connected persons to partnerships) are to be disregarded. (20) In this Schedule— - a “feeder fund” of a property AIF means a unit trust scheme— 1. one of the main objects of which is investment in the property AIF, and 2. which is managed by the same person as the property AIF; - a “feeder fund” of a co-ownership authorised contractual scheme means an open-ended investment company, an offshore fund or a unit trust scheme— 1. one of the main objects of which is investment in the co-ownership authorised contractual scheme, and 2. which is managed by the same person as the scheme; - “units in the property AIF” means— 1. units in the property AIF (and, where the property AIF is a part of an umbrella company as mentioned in regulation 7(1) and (2) of the AIF (Tax) Regulations, this means units in the separate pool to which that part of the umbrella company relates), and 2. units in a feeder fund of the property AIF; - “units in the co-ownership authorised contractual scheme” means— 1. units in the co-ownership authorised contractual scheme (and, where the co-ownership authorised contractual scheme is a sub-scheme of an umbrella COACS (see section 102A(3) and (4)), this means units in the separate pool to which that sub-scheme relates), and 2. units in a feeder fund of the scheme; - “units” means the rights or interests (however described) of the participants in the property AIF or the co-ownership authorised contractual scheme. (21) In this Schedule— - the “AIF (Tax) Regulations” means the Authorised Investment Funds (Tax) Regulations 2006 (S.I. 2006/964); - “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable; - “attributable” means attributable on a just and reasonable basis; - “authorised corporate director”, in relation to a property AIF, has the same meaning as in regulation 8 of the AIF (Tax) Regulations; - “COACS seeding relief” means relief under paragraph 10; - “control period” means the period of 3 years beginning with the day following the last day of the seeding period; - “co-ownership authorised contractual scheme” is to be construed in accordance with section 102A (see in particular subsections (2), (5), (7) and (8) of that section); - “CTA 2010” means the Corporation Tax Act 2010; - “FSMA 2000” means the Financial Services and Markets Act 2000; - the “genuine diversity of ownership condition”, in relation to a co-ownership authorised contractual scheme, has the meaning given by paragraph 15; - “ITTOIA 2005” means the Income Tax (Trading and Other Income) Act 2005; - “non-qualifying individual” has the meaning given by paragraph 9 (in relation to a property AIF) and paragraph 19 (in relation to a co-ownership authorised contractual scheme); - “offshore fund” has the meaning given by section 355 of the Taxation (International and Other Provisions) Act 2010; - “open-ended investment company” has the meaning given by section 236 of FSMA 2000; - “operator”, in relation to a co-ownership authorised contractual scheme, has the same meaning as in section 102A; - “PAIF seeding relief” means relief under paragraph 1; - “participant” is to be read in accordance with section 235 of FSMA 2000; - “portfolio test” has the meaning given by paragraph 6(7) (in relation to a property AIF) and paragraph 16(7) (in relation to a co-ownership authorised contractual scheme); - “property AIF” is to be construed in accordance with paragraph 2 (see in particular sub-paragraphs (2), (3) and (5) of that paragraph); - “relevant disposal” has the meaning given by paragraph 7(3) (in relation to a property AIF) and paragraph 17(3) (in relation to a co-ownership authorised contractual scheme); - “seeding period” has the meaning given by paragraph 3 (in relation to a property AIF) and paragraph 11 (in relation to a co-ownership authorised contractual scheme); - “unit trust scheme” has the meaning given by section 237(1) of FSMA 2000.

PART 3 — Consequential amendments

5

FA 2003 is amended in accordance with this Part.

6

In section 75C (anti-avoidance: supplemental), in subsection (4), after “Schedule 6A” insert “ , 7A ”.

7

• (1) Section 81 (further return where relief withdrawn) is amended as follows.

• (2) In subsection (1)—

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

• (b) after paragraph (b) insert—

(ba) paragraph 5, 7 or 8 of Schedule 7A (PAIF seeding relief), (bb) paragraph 13, 17 or 18 of Schedule 7A (COACS seeding relief), or

.

• (3) In subsection (1A), after “transactions)” insert “ , or under paragraph 6 of Schedule 7A (PAIF seeding relief) or paragraph 14 or 16 of Schedule 7A (COACS seeding relief), ”.

• (4) In subsection (1B), after paragraph (e) insert—

(f) in the case of relief under paragraph 6 of Schedule 7A (PAIF seeding relief: portfolio test)— (i) where relief is withdrawn under paragraph 6(1), the last day of the seeding period (see paragraph 3 of that Schedule), or (ii) where relief is withdrawn under paragraph 6(3), the first time mentioned in paragraph 6(3)(a) or (b) at which the portfolio test was not met; (g) in the case of relief under paragraph 14 of Schedule 7A (COACS seeding relief: genuine diversity of ownership condition), the first time mentioned in paragraph 14(1) at which the genuine diversity of ownership condition was not met; (h) in the case of relief under paragraph 16 of Schedule 7A (COACS seeding relief: portfolio test)— (i) where relief is withdrawn under paragraph 16(1), the last day of the seeding period (see paragraph 11 of that Schedule), or (ii) where relief is withdrawn under paragraph 16(3), the first time mentioned in paragraph 16(3)(a) or (b) at which the portfolio test was not met.

• (5) In subsection (4), after paragraph (b) insert—

(ba) in relation to the withdrawal of PAIF seeding relief— (i) the purchaser ceasing to be a property AIF as mentioned in paragraph 5 of Schedule 7A, (ii) a person making a relevant disposal of units as mentioned in paragraph 7 of that Schedule, or (iii) the grant of permission to a non-qualifying individual to occupy a dwelling as mentioned in paragraph 8 of that Schedule; (bb) in relation to the withdrawal of COACS seeding relief— (i) the purchaser ceasing to be a co-ownership authorised contractual scheme as mentioned in paragraph 13 of Schedule 7A, (ii) a person making a relevant disposal of units as mentioned in paragraph 17 of that Schedule, or (iii) the grant of permission to a non-qualifying individual to occupy a dwelling as mentioned in paragraph 18 of that Schedule;

.

8

In section 86 (payment of tax), in subsection (2)—

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

• (b) after paragraph (b) insert—

(ba) Part 1 of Schedule 7A (PAIF seeding relief), (bb) Part 2 of Schedule 7A (COACS seeding relief), or

.

9

• (1) Section 87 (interest on unpaid tax) is amended as follows.

• (2) In subsection (3)—

• (a) in paragraph (a)—

• (i) omit “or” at the end of sub-paragraph (ii), and

• (ii) after sub-paragraph (ii) insert—

(iia) paragraph 5, 7 or 8 of Schedule 7A (PAIF seeding relief), (iib) paragraph 13, 17 or 18 of Schedule 7A (COACS seeding relief), or

;

• (b) after paragraph (aza) insert—