After that paragraph there shall be inserted the following paragraph—

“ Settlements created before 17th March 1998

2A

(1)

In determining for the purposes of section 86(1)(d) whether the settlor has an interest at any time during any year of assessment in a settlement created before 17th March 1998, paragraphs (da) and (db) of paragraph 2(3) above, and the reference to those paragraphs in paragraph 2(3)(e), shall be disregarded unless—

(a)

that year is a year in which one of the four conditions set out in the following provisions of this paragraph becomes fulfilled as regards the settlement; or

(b)

one of those conditions became fulfilled as regards that settlement in any previous year of assessment ending on or after 5th April 1998.

(2)

The first condition is (subject to sub-paragraph (3) below) that on or after 17th March 1998 property or income is provided directly or indirectly for the purposes of the settlement—

(a)

otherwise than under a transaction entered into at arm’s length, and

(b)

otherwise than in pursuance of a liability incurred by any person before that date.

(3)

For the purposes of the first condition, where the settlement’s expenses relating to administration and taxation for a year of assessment exceed its income for the year, property or income provided towards meeting those expenses shall be ignored if the value of the property or income so provided does not exceed the difference between the amount of those expenses and the amount of the settlement’s income for the year.

(4)

The second condition is that—

(a)

the trustees become on or after 17th March 1998 neither resident nor ordinarily resident in the United Kingdom, or

(b)

the trustees, while continuing to be resident and ordinarily resident in the United Kingdom, become on or after 17th March 1998 trustees who fall to be regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom.

(5)

The third condition is that on or after 17th March 1998 the terms of the settlement are varied so that any person falling within sub-paragraph (7) below becomes for the first time a person who will or might benefit from the settlement.

(6)

The fourth condition is that—

(a)

on or after 17th March 1998 a person falling within sub-paragraph (7) below enjoys a benefit from the settlement for the first time, and

(b)

the person concerned is not one who (looking only at the terms of the settlement immediately before 17th March 1998) would be capable of enjoying a benefit from the settlement on or after that date.

(7)

Each of the following persons falls within this sub-paragraph—

(a)

any grandchild of the settlor or of the settlor’s spouse;

(b)

the spouse of any such grandchild;

(c)

a company controlled by a person or persons falling within paragraph (a) or (b) above;

(d)

a company controlled by any such person or persons together with any person or persons (not so falling) each of whom is for the purposes of paragraph 2(1) above a defined person in relation to the settlement;

(e)

a company associated with a company falling within paragraph (c) or (d) above.

(8)

For the purposes of sub-paragraph (7) above the question whether a company is controlled by a person or persons shall be construed in accordance with section 416 of the Taxes Act; but in deciding that question for those purposes no rights or powers of (or attributed to) an associate or associates of a person shall be attributed to him under section 416(6) if he is not a participator in the company.

(9)

For the purposes of sub-paragraph (7) above the question whether one company is associated with another shall be construed in accordance with section 416 of the Taxes Act; but where in deciding that question for those purposes it falls to be decided whether a company is controlled by a person or persons, no rights or powers of (or attributed to) an associate or associates of a person shall be attributed to him under section 416(6) if he is not a participator in the company.

(10)

In this paragraph—

• 'child' includes a step-child;

• 'grandchild' means a child of a child;

• 'participator' has the meaning given by section 417(1) of the Taxes Act.”

For sub-paragraph (11) of that paragraph there shall be substituted the following sub-paragraph—

“(11)

In this paragraph—

• 'child’ includes a step-child;

• 'grandchild’ means a child of a child;

• 'participator’ has the meaning given by section 417(1) of the Taxes Act.”