Finance (No. 2) Act 2017

PART 3 U.K. Exclusions

Commercial transactions U.K.

25 U.K. Chapter 2 of Part 7A of ITEPA 2003 does not apply by reason of a relevant step within paragraph 1 which is treated as being taken by a person (“P”) if—

(a) P is treated as taking a relevant step by that paragraph by reason of the payment of a sum of money by way of a loan,

(b) the loan is (at the time it is made) a loan on ordinary commercial terms within the meaning of section 176 of ITEPA 2003, ignoring conditions B and C in that section, and

(c) there is no connection (direct or indirect) between the relevant step and a tax avoidance arrangement.

26 U.K. In section 554F of ITEPA 2003 (exclusions: commercial transactions), at the end insert—

“(6) See paragraph 25 of Schedule 11 to F(No. 2)A 2017 for provision about exclusions where a loan is made on ordinary commercial terms and the relevant step is within paragraph 1 of that Schedule.”

Transfer of employment-related loans U.K.

27 (1) Chapter 2 of Part 7A of ITEPA 2003 does not apply by reason of a relevant step within paragraph 1 which is treated as being taken by a person (“P”) if— U.K.

(a) P is treated as taking a relevant step within that paragraph by reason of making a quasi-loan by acquiring a right to payment of an amount equal to the whole or part of a payment made by way of a loan to a relevant person (the “borrower”),

(b) the loan, at the time it was made, was an employment-related loan,

(c) at the time the right is acquired, the section 180 threshold is not exceeded in relation to the loan,

(d) at the time the right is acquired, the borrower is an employee, or a prospective employee, of P, and

(e) there is no connection (direct or indirect) between the acquisition of the right and a tax avoidance arrangement.

(2) Subsections (2) to (5) of section 554OA of ITEPA 2003 (section 180 threshold) apply for the purposes of this paragraph as they apply for the purposes of that section.

(3) In this paragraph, “employment-related loan” has the same meaning as it has for the purposes of Chapter 7 of Part 3.

28 U.K. In section 554OA of ITEPA 2003 (exclusions: transfer of employment-related loans), at the end insert—

“(6) See paragraph 27 of Schedule 11 to F(No. 2)A 2017 for provision about exclusions where a loan is an employment-related loan and the relevant step is within paragraph 1 of that Schedule.”

Transactions under employee benefit packages U.K.

29 (1) Chapter 2 of Part 7A of ITEPA 2003 does not apply by reason of a relevant step within paragraph 1 which is treated as being taken by a person (“P”) if— U.K.

(a) P is treated as taking a relevant step by that paragraph by reason of the payment of a sum of money by way of a loan,

(b) the step is not taken under a pension scheme,

(c) the loan was made for the sole purpose of a transaction of P's with A and which P entered into in the ordinary course of P's business,

(d) at the time the loan was made (the “relevant time”)—

(i) a substantial proportion of P's business involved making similar loans to members of the public,

(ii) the transaction with A was part of a package of benefits which was available to a substantial proportion of B's employees, and

(iii) sub-paragraph (3) does not apply,

(e) the terms on which similar transactions were offered by P under the package of benefits mentioned in paragraph (d)(ii) were generous enough to enable substantially all of the employees of B to whom the package was available at or around the relevant time to take advantage of what was offered (if they wanted to),

(f) the terms on which P entered into the transaction with A were substantially the same as the terms on which at or around the relevant time P normally entered into similar transactions with employees of B under the package of benefits,

(g) if B is a company, a majority of B's employees to whom the package of benefits was available at the relevant time did not have a material interest (as defined in section 68 of ITEPA 2003) in B, and

(h) there is no connection (direct or indirect) between the relevant step and a tax avoidance arrangement.

(2) For the purposes of sub-paragraph (1)(d)(i)—

(a) a loan is “similar” if it is made for the same or similar purposes as the loan which is the subject of the relevant step, and

(b) “members of the public” means members of the public at large with whom P deals at arm‘s length.

(3) This sub-paragraph applies if any feature of the package of benefits mentioned in sub-paragraph (1)(d)(ii) had or would have been likely to have had the effect that, of the employees of B to whom the package was available, it is employees within sub-paragraph (4) on whom benefits under the package will be wholly or mainly conferred.

(4) The employees within this sub-paragraph are—

(a) directors,

(b) senior employees,

(c) employees who at the relevant time received, or as a result of the package of benefits would have been likely to have received, the higher or highest levels of remuneration, and

(d) if, at the relevant time, B was a company and was a member of a group of companies, any employees not within paragraph (b) or (c) who—

(i) were senior employees in the group, or

(ii) received, or as a result of the package of benefits would have been likely to have received, the higher or highest levels of remuneration in the group.

(5) For the purposes of sub-paragraph (1)(d) and (e) a transaction is “similar” if it is of the same or a similar type to the transaction which P has or had with A.

(6) In this paragraph references to A include references to any person linked with A.

(7) In this paragraph “pension scheme” has the same meaning as in Part 4 of FA 2004 (see section 150(1) of that Act).

30 U.K. In section 554G of ITEPA 2003 (exclusions: transactions under employee benefit packages), at the end insert—

“(8) See paragraph 29 of Schedule 11 to F(No. 2)A 2017 for provision about exclusions for transactions under employee benefit packages in a case in which the relevant step is within paragraph 1 of that Schedule.”

Cases involving employment-related securities U.K.

31 U.K. Chapter 2 of Part 7A of ITEPA 2003 does not apply by reason of a relevant step within paragraph 1 which is treated as being taken by a person (“P”) if—

(a) P is treated as taking a relevant step by that paragraph by reason of the payment of a sum of money by way of a loan (the “relevant loan”),

(b) the relevant loan is made and used solely for the purpose of enabling A to exercise an employment-related securities option (within the meaning of Chapter 5 of Part 7 of ITEPA 2003),

(c) the exercise of the option by A gives rise to employment income of A in respect of A's employment with B—

(i) which is chargeable to income tax or would be chargeable apart from Chapter 5B of Part 2 of ITEPA 2003, or

(ii) which is exempt income, and

(d) there is no connection (direct or indirect) between the relevant step and a tax avoidance arrangement.

32 U.K. In section 554N of ITEPA 2003 (exclusions: other cases involving employment-related securities etc.), at the end insert—

“(17) See paragraph 31 of Schedule 11 to F(No. 2)A 2017 for provision about exclusions where a loan is made for the purpose of enabling the exercise of an employment-related securities option and the relevant step is within paragraph 1 of that Schedule.”

Employee car ownership schemes U.K.

33 (1) This paragraph applies if— U.K.

(a) there is an arrangement (“the car ownership arrangement”) which—

(i) provides for A to purchase a new car from another person (“S”) using a loan (“the car loan”) to be made to A by an authorised lender,

(ii) specifies the date (“the repayment date”) by which the car loan must be fully repaid which must be no later than four years after the date on which the car loan is made, and

(iii) permits A, in order to obtain funds to repay the car loan, to sell the car back to S on a specified date at a specified price based on an estimate (made at the time the car ownership arrangement is made) of the likely outstanding amount of the car loan on the specified date, and

(iv) as provided for by the car ownership arrangement, A purchases the car using the car loan.

(2) Chapter 2 does not apply by reason of a relevant step within paragraph 1 which is treated as being taken by a person if—

(a) the person is treated as taking a relevant step by that paragraph by reason of making the car loan, and

(b) the car ownership arrangement is not a tax avoidance arrangement and there is no other connection (direct or indirect) between the relevant step and a tax avoidance arrangement.

(3) In this paragraph—

• “car” has the meaning given by section 235(2) of ITEPA 2003, and

• “authorised lender” means a person who—

  (a)

  has permission under Part 4A of the Financial Services and Markets Act 2000 to enter into, or to exercise or have the right to exercise rights and duties under, a contract of the kind mentioned in paragraph 23 of Schedule 2 to that Act, and

  (b)

  is not acting as a trustee.

(4) The definition of “authorised lender” must be read with—

(a) section 22 of the Financial Services and Markets Act 2000,

(b) any relevant order under that section, and

(c) Schedule 2 to that Act.

34 U.K. In section 554O of ITEPA 2003 (exclusions: employee car ownership schemes), at the end insert—

“(7) See paragraph 33 of Schedule 11 to F(No. 2)A 2017 for provision about exclusions for car loans in a case in which the relevant step is within paragraph 1 of that Schedule.”

Acquisition of unlisted employer shares U.K.

35 (1) Chapter 2 of Part 7A of ITEPA 2003 does not apply by reason of a relevant step within paragraph 1 which is treated as being taken by a person (“P”) if the conditions in sub-paragraph (2) are met. U.K.

(2) The conditions are that—

(a) the loan or quasi-loan concerned was made before 9 December 2010,

(b) if P is treated as taking a relevant step by paragraph 1 by reason of the payment of a sum of money by way of loan, the sum is used by A solely to acquire employer shares,

(c) if P is treated as taking a relevant step by paragraph 1 by reason of making a quasi-loan, the transfer of assets mentioned in paragraph 2(3)(b) is the transfer of employer shares to A,

(d) the employer shares are acquired, or transferred, before the end of the period of one year beginning with the day on which the loan, or quasi-loan, is made, and

(e) the employer shares are not listed on a recognised stock exchange at any time during the period beginning with the day on which the loan, or quasi-loan, is made and ending with the earlier of—

(i) the day on which A ceases to hold the shares, or

(ii) the day on which the loan, or quasi-loan, is repaid.

(3) In this paragraph “employer shares” means shares that form part of the ordinary share capital of—

(a) B, or

(b) if B is a company and is a member of a group of companies at the time the shares are acquired, any other company which is a member of that group at that time.

(4) Sub-paragraph (6) applies if—

(a) apart from sub-paragraph (1), Chapter 2 of Part 7A would apply by reason of the relevant step mentioned in sub-paragraph (1), and

(b) at the end of the relevant period, an amount of the loan, or quasi-loan, is outstanding.

(5) In this paragraph “the relevant period” means the period of 12 months beginning with the day on which A ceases to hold the shares.

(6) Part 7A of ITEPA 2003 has effect as if—

(a) a relevant step within paragraph 1 were taken by reason of making a loan, or quasi-loan, of an amount equal to the amount of the loan, or quasi-loan, outstanding at the end of the relevant period, and

(b) the relevant step were taken on the day after the end of the relevant period.

[F1 Exclusion for relevant step within paragraph 1A where initial step excluded U.K.

Textual Amendments

F1 Sch. 11 para. 35ZA and cross-heading inserted (22.7.2020) by Finance Act 2020 (c. 14), Sch. 2 para. 38

35ZA U.K. Chapter 2 of Part 7A of ITEPA 2003 does not apply by reason of a relevant step within paragraph 1A if that Chapter does not apply by reason of the initial step (within the meaning given by sub-paragraph (1)(a) of paragraph 1A).]