SCHEDULES

SCHEDULE 34Policies of life insurance etc: miscellaneous amendments

Part 2Charitable and non-charitable trusts

Interpretation

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In section 539 of the Taxes Act 1988 (introductory) in subsection (3), insert each of the following definitions at the appropriate place—

““charitable trust” means any trust established for charitable purposes only;”;

““non-charitable trust” means any trust other than a charitable trust.”.

Method of charging gain to tax

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(1)

Section 547 of the Taxes Act 1988 is amended as follows.

(2)

In subsection (1) (attribution of gain) in paragraph (a) (which refers to trusts created by an individual) before “trusts” insert “ non-charitable ”.

(3)

In paragraph (b) of that subsection (which refers to trusts created by a company) before “trusts” insert “ non-charitable ”.

(4)

After paragraph (c) of that subsection (personal representatives) insert—

“(cc)

if, immediately before the happening of that event, those rights—

(i)

were held on charitable trusts, or

(ii)

were held as security for a debt owed by trustees of a charitable trust,

subsection (9) or (10) below (as the case may be) shall apply in relation to the amount of the gain;”.

(5)

In paragraph (d) of that subsection (trusts) in sub-paragraph (i) (rights held on trusts etc) before “trusts”, where first occurring, insert “ non-charitable ”.

(6)

For the word “or” at the end of sub-paragraph (i) of that paragraph substitute the following sub-paragraph—

“(ia)

those rights were held on non-charitable trusts and the circumstances were not such as are mentioned in paragraph (a), (b) or (c) above or sub-paragraph (i) above, or”.

(7)

In sub-paragraph (ii) of that paragraph (rights held as security for debt owed by trustees) after “trustees” insert “ of a non-charitable trust ”.

(8)

After subsection (4) insert—

“(4A)

In subsection (1) above—

(a)

paragraph (cc) is subject to paragraph 12(1) of Schedule 34 to the Finance Act 2003 (which applies paragraph 7(1) of Schedule 14 to the Finance Act 1998);

(b)

paragraph (d)(ia) is subject to paragraph 12(2) of that Schedule (exception for certain cases where insurance etc made or effected before 9th April 2003).”.

(9)

In subsection (5AA) (which, in a case falling within subsection (1)(d), applies, with modifications, to trustees the tax treatment for individuals under subsection (5)) for “subsection (1)(d)” substitute “ subsection (1)(cc) or (d) ”.

(10)

In subsection (9) (treatment of gains in case falling within subsection (1)(d) where trustees resident in United Kingdom)—

(a)

for “(1)(d)” substitute “ (1)(cc) or (d) ”; and

(b)

in paragraph (b) (gain to be chargeable to income tax at the rate applicable to trusts) for “the rate applicable to trusts” substitute “ the appropriate rate ”.

(11)

After subsection (9) insert—

“(9A)

For the purposes of subsection (9) above, the “appropriate rate” for any year—

(a)

in a case falling within subsection (1)(cc) above, is the basic rate for that year; and

(b)

in a case falling within subsection (1)(d) above, is the rate applicable to trusts for that year.”.

(12)

In subsection (10) (treatment of gains in case falling within subsection (1)(d) where trustees not resident in United Kingdom) for “(1)(d)” substitute “ (1)(cc) or (d) ”.

Method of charging gain to tax: multiple interests

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(1)

Section 547A of the Taxes Act 1988 is amended as follows.

(2)

In subsection (3) (the cases where a person has a relevant interest) in paragraph (a) (which refers to trusts created by an individual) before “trusts” insert “ non-charitable ”.

(3)

In paragraph (b) of that subsection (which refers to trusts created by a company) before “trusts” insert “ non-charitable ”.

(4)

After paragraph (c) of that subsection (personal representatives) insert—

“(cc)

in the case of trustees of a charitable trust, if a share in the rights is held by them or as security for a debt owed by them;”.

(5)

In paragraph (d) of that subsection (trustees) after “trustees” insert “ of a non-charitable trust ”.

(6)

For the word “or” at the end of sub-paragraph (i) of that paragraph substitute the following sub-paragraph—

“(ia)

if a share in the rights is held by them which does not also fall within paragraph (a), (b) or (c) above or sub-paragraph (i) above; or”.

(7)

In subsection (6) (rights or share held on trusts created by two or more persons) before “trusts”, where first occurring, insert “ non-charitable ”.

(8)

In subsection (10) (case where different shares of the whole trust property originate from different persons)—

(a)

in paragraph (a), before “trusts” insert “ non-charitable ”; and

(b)

in the closing words, before “trusts” insert “ non-charitable ”.

Deemed surrender of certain loans

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(1)

Section 548(1) of the Taxes Act 1988 is amended as follows.

(2)

In paragraph (a) (condition that gain would be treated under section 547 as part of an individual’s total income or income of a company) after “income of a company” insert “ or of any trustees ”.

(3)

In paragraph (c) (condition that sum is lent to, or at the direction of, the individual or company by, or by arrangement with, the body issuing etc the policy or contract) after “company” insert “ or those trustees ”.

Right of individual to recover tax from trustees

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In section 551 of the Taxes Act 1988, in subsection (1) (individual liable as settlor) in paragraph (b), for “trust” substitute “ non-charitable trusts ”.

Right of company to recover tax from trustees

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In section 551A of the Taxes Act 1988, in subsection (1) (company liable as settlor) in paragraph (b), for “trust” substitute “ non-charitable trusts ”.

Section 547(1)(cc) and (d)(ia): exception for certain old policies and contracts

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(1)

Paragraph 7(1) of Schedule 14 to the Finance Act 1998 (c. 36) (exception for certain cases where the trust was created before 17th March 1998, the creator etc was an individual who died before that date and the insurance etc was made or effected before that date) has effect in relation to section 547(1)(cc) of the Taxes Act 1988 as it has effect in relation to section 547(1)(d) of that Act.

(2)

Paragraph (d) of section 547(1) of the Taxes Act 1988 (trustees of a non-charitable trust) does not have effect by virtue of sub-paragraph (ia) of that paragraph in relation to the amount of a gain if the gain is treated as arising on the happening of a chargeable event in relation to a pre-commencement policy or contract.

(3)

In this paragraph “pre-commencement policy or contract” means—

(a)

any policy of life insurance issued in respect of an insurance made before 9th April 2003,

(b)

any contract for a life annuity made before that date, or

(c)

any capital redemption policy where the contract was effected before that date,

but does not include any such policy or contract falling within sub-paragraph (4).

(4)

A policy or contract falls within this sub-paragraph if, on or after 9th April 2003 (but before the happening of the chargeable event in question),—

(a)

the policy or contract has been varied so as to increase the benefits secured or to extend the term of the insurance, annuity or capital redemption policy (any exercise of rights conferred by the policy being regarded for this purpose as a variation); or

(b)

there has been an assignment (whether or not for money’s worth) of the rights, or a share in the rights, conferred by the policy or contract to trustees of a non-charitable trust, as defined in section 539(3) of the Taxes Act 1988.