Finance (No. 2) Act 2017

ITA 2007 U.K.

27 U.K. Chapter 2 of Part 13 of ITA 2007 (transfer of assets abroad) is amended as follows.

28 U.K. In section 721 (income of a person abroad that is treated as arising to a UK resident individual), for subsection (3B) (amount treated as arising) substitute—

“(3B) The amount of the income treated as arising under subsection (1) is (subject to sections 724 and 725) given by the following rules—

• Rule 1 The amount is equal to the amount of the income of the person abroad if the individual—

  (a)

  is domiciled in the United Kingdom at any time in the tax year, or

  (b)

  is at any time in the tax year regarded for the purposes of section 718(1)(b) as domiciled in the United Kingdom as a result of section 835BA having effect because of Condition A in that section being met.

• Rule 2 In any other case, the amount is equal to so much of the income of the person abroad as is not protected foreign-source income (see section 721A).

(3BA) In a case in which rule 2 of subsection (3B) applies, so much of the income of the person abroad as is protected foreign-source income for the purposes of that rule counts as “protected income” for the purposes of section 733A(1)(b)(i).”

29 U.K. After section 721 insert—

“721A Meaning of “protected foreign-source income” in section 721

(1) This section has effect for the purposes of rule 2 of section 721(3B) (cases where the individual is not UK domiciled and is not deemed domiciled by virtue of Condition A in section 835BA).

(2) The income of the person abroad is “protected foreign-source income” so far as it is within subsection (3) or (4).

(3) Income is within this subsection if—

(a) it would be relevant foreign income if it were the individual's,

(b) the person abroad is the trustees of a settlement,

(c) the trustees are non-UK resident for the tax year,

(d) when the settlement is created, the individual is—

(i) not domiciled in the United Kingdom, and

(ii) if the settlement is created on or after 6 April 2017, not deemed domiciled in the United Kingdom, and

(e) no property or income is provided directly or indirectly for the purposes of the settlement by the individual, or by the trustees of any other settlement of which the individual is a beneficiary or settlor, at a time in the period—

(i) beginning with the start of 6 April 2017 or, if later, the creation of the settlement, and

(ii) ending with the end of the tax year,

when the individual is domiciled or deemed domiciled in the United Kingdom.

(4) Income is within this subsection if—

(a) it would be relevant foreign income if it were the individual's,

(b) the person abroad is a company,

(c) the trustees of a settlement—

(i) are participators in the person abroad, or

(ii) are participators in the first in a chain of two or more companies where the last company in the chain is the person abroad and where each company in the chain (except the last) is a participator in the next company in the chain,

(d) the individual's power to enjoy the income results from the trustees being participators as mentioned in paragraph (c)(i) or (ii),

(e) the trustees are not UK resident for the tax year,

(f) when the settlement is created, the individual is—

(i) not domiciled in the United Kingdom, and

(ii) if the settlement is created on or after 6 April 2017, not deemed domiciled in the United Kingdom, and

(g) no property or income is provided directly or indirectly for the purposes of the settlement by the individual, or by the trustees of any other settlement of which the individual is a beneficiary or settlor, at a time in the period—

(i) beginning with the start of 6 April 2017 or, if later, the creation of the settlement, and

(ii) ending with the end of the tax year,

when the individual is domiciled or deemed domiciled in the United Kingdom.

(5) For the purposes of subsections (3)(e) and (4)(g), the addition of value to property comprised in the settlement is to be treated as the direct provision of property for the purposes of the settlement.

(6) Section 721B (tainting) contains further provision for the purposes of subsections (3)(e) and (4)(g).

(7) In this section—

• “participator”, in relation to a company, has the meaning given by section 454 of CTA 2010;

• “deemed domiciled” means regarded for the purposes of section 718(1)(b) as domiciled in the United Kingdom as a result of section 835BA of ITA 2007 having effect.

721B Section 721A: tainting

(1) This section applies for the purposes of subsections (3)(e) and (4)(g) of section 721A.

(2) Ignore—

(a) property or income provided under a transaction, other than a loan, where the transaction is entered into on arm's length terms,

(b) property or income provided, otherwise than under a loan, without any intention by the person providing it to confer a gratuitous benefit on any person,

(c) the principal of a loan which is made to the trustees of the settlement on arm's length terms,

(d) the payment of interest to the trustees of the settlement under a loan made by them on arm's length terms,

(e) repayment to the trustees of the settlement of the principal of a loan made by them,

(f) property or income provided in pursuance of a liability incurred by any person before 6 April 2017, and

(g) where the settlement's expenses relating to taxation and administration for a tax year exceed its income for that year, property or income provided towards meeting that excess if the value of any such property and income is not greater than the amount of—

(i) the excess, or

(ii) if greater, the amount by which such expenses exceed the amount of such expenses which may be paid out of the settlement's income.

(3) Where—

(a) a loan is made to the trustees of the settlement by the settlor or the trustees of a settlement connected with the settlor, and

(b) the loan is on arm's length terms, but

(c) a relevant event occurs,

the principal of the loan is to be regarded as having been provided to the trustees at the time of that event (despite subsection (2)).

(4) In subsection (3) “relevant event” means—

(a) capitalisation of interest payable under the loan,

(b) any other failure to pay interest in accordance with the terms of the loan, or

(c) variation of the terms of the loan such that they cease to be arm's length terms.

(5) Subsection (6) applies (subject to subsection (7)) where—

(a) the settlor becomes deemed domiciled in the United Kingdom on or after 6 April 2017,

(b) before the date on which the settlor becomes deemed domiciled in the United Kingdom ( “ the deemed domicile date ”), a loan has been made to the trustees of the settlement by—

(i) the settlor, or

(ii) the trustees of a settlement connected with the settlor,

(c) the loan is not entered into on arm's length terms, and

(d) any amount that is outstanding under the loan on the deemed domicile date (“the outstanding amount”) is payable or repayable on demand on or after that date.

(6) Where this subsection applies, the outstanding amount is to be regarded as property directly provided on the deemed domicile date by the lender for the purposes of the settlement (despite subsection (2)).

(7) But if the deemed domicile date is 6 April 2017, subsection (6) does not apply if—

(a) the principal of the loan is repaid, and all interest payable under the loan is paid, before 6 April 2018, or

(b) the loan becomes a loan on arm's length terms before 6 April 2018 and—

(i) before that date interest is paid to the lender in respect of the period beginning with 6 April 2017 and ending with 5 April 2018 as if those arm's length terms had been terms of the loan in relation to that period, and

(ii) interest continues to be payable from 6 April 2018 in accordance with those terms.

(8) For the purposes of this section, a loan is on “arm's length terms”—

(a) in the case of a loan made to the trustees of a settlement, only if interest at the official rate or more is payable at least annually under the loan;

(b) in the case of a loan made by the trustees of a settlement, only if any interest payable under the loan is payable at no more than the official rate.

(9) For the purposes of this section—

• a settlement is “connected” with a person if the person is the settlor or a beneficiary of it;

• “deemed domiciled” has the same meaning as in section 721A;

• “official rate”, in relation to interest, means the rate of interest applicable from time to time under section 178 of FA 1989 for the purposes of Chapter 7 of Part 3 of ITEPA 2003.”

30 U.K. In section 726 (individuals to whom remittance basis applies), after subsection (5) insert—

“(6) In addition, where the tax year in which any foreign deemed income arises is earlier than the tax year 2017-18, section 832 of ITTOIA 2005 does not apply to the foreign deemed income so far as it—

(a) is remitted to the United Kingdom in the tax year 2017-18 or a later tax year, and

(b) is transitionally protected income.

(7) In subsection (6)—

• “remitted to the United Kingdom” is to be read in accordance with Chapter A1 of Part 14, and

• “transitionally protected income” means any foreign deemed income where the income mentioned in section 721(2)—

  (a)

  arises in a tax year earlier than the tax year 2017-18,

  (b)

  would be protected foreign-source income as defined by section 721A if section 721A—

  (i)

  had effect for tax years earlier than the tax year 2017-18, and

  (ii)

  so had effect with the omission of its subsections (3)(e), (4)(g), (5) and (6), and

  (c)

  has not prior to 6 April 2017 been distributed by the trustees of the settlement concerned.”

31 U.K. In section 728 (income of a person abroad that is treated as arising to a UK resident individual), for subsection (1A) (amount treated as arising) substitute—

“(1A) The amount of the income treated as arising under subsection (1) is (subject to subsection (2)) given by the following rules—

• Rule 1 The amount is equal to the amount of the income of the person abroad if the individual—

  (a)

  is domiciled in the United Kingdom at any time in the tax year, or

  (b)

  is at any time in the tax year regarded for the purposes of section 718(1)(b) as domiciled in the United Kingdom as a result of section 835BA having effect because of Condition A in that section being met.

• Rule 2 In any other case, the amount is equal to so much of the income of the person abroad as is not protected foreign-source income (see section 729A).

(1B) In a case in which rule 2 of subsection (1A) applies, so much of the income of the person abroad as is protected foreign-source income for the purposes of that rule counts as “protected income” for the purposes of section 733A(1)(b)(i).”

32 U.K. After section 729 insert—

“729A Meaning of “protected foreign-source income” in section 728

(1) This section has effect for the purposes of rule 2 of section 728(1A) (cases where the individual is not UK domiciled and is not deemed domiciled by virtue of Condition A in section 835BA).

(2) The income of the person abroad is “protected foreign-source income” so far as it is within subsection (3) or (4).

(3) Income is within this subsection if—

(a) it would be relevant foreign income if it were the individual's,

(b) the person abroad is the trustees of a settlement,

(c) the trustees are non-UK resident for the tax year,

(d) when the settlement is created, the individual is—

(i) not domiciled in the United Kingdom, and

(ii) if the settlement is created on or after 6 April 2017, not deemed domiciled in the United Kingdom, and

(e) no property or income is provided directly or indirectly for the purposes of the settlement by the individual, or by the trustees of any other settlement of which the individual is a beneficiary or settlor, at a time in the period—

(i) beginning with the start of 6 April 2017 or, if later, the creation of the settlement, and

(ii) ending with the end of the tax year,

when the individual is domiciled or deemed domiciled in the United Kingdom.

(4) Income is within this subsection if—

(a) it would be relevant foreign income if it were the individual's,

(b) the person abroad is a company,

(c) the trustees of a settlement—

(i) are participators in the person abroad, or

(ii) are participators in the first in a chain of two or more companies where the last company in the chain is the person abroad and where each company in the chain (except the last) is a participator in the next company in the chain,

(d) the condition in paragraph (c) is met as a result of a relevant transaction (whether or not it is also met otherwise than as a result of a relevant transaction),

(e) the income has become the income of the person abroad as a result of that relevant transaction,

(f) the trustees are not UK resident for the tax year,

(g) when the settlement is created, the individual is—

(i) not domiciled in the United Kingdom, and

(ii) if the settlement is created on or after 6 April 2017, not deemed domiciled in the United Kingdom, and

(h) no property or income is provided directly or indirectly for the purposes of the settlement by the individual, or by the trustees of any other settlement of which the individual is a beneficiary or settlor, at a time in the period—

(i) beginning with start of 6 April 2017 or, if later, the creation of the settlement, and

(ii) ending with the end of the tax year,

when the individual is domiciled or deemed domiciled in the United Kingdom.

(5) For the purposes of subsections (3)(e) and (4)(h), the addition of value to property comprised in the settlement is to be treated as the direct provision of property for the purposes of the settlement.

(6) Section 721B (tainting) applies for the purposes of subsections (3)(e) and (4)(h) as it applies for the purposes of section 721A(3)(e) and (4)(g).

(7) In this section—

• “participator”, in relation to a company, has the meaning given by section 454 of CTA 2010, and

• “deemed domiciled” means regarded for the purposes of section 718(1)(b) as domiciled in the United Kingdom as a result of section 835BA of ITA 2007 having effect.”

33 U.K. In section 730 (individuals to whom remittance basis applies), after subsection (5) insert—

“(6) In addition, where the tax year in which any foreign deemed income arises is earlier than the tax year 2017-18, section 832 of ITTOIA 2005 does not apply to the foreign deemed income so far as it—

(a) is remitted to the United Kingdom in the tax year 2017-18 or a later tax year, and

(b) is transitionally protected income.

(7) In subsection (6)—

• “remitted to the United Kingdom” is to be read in accordance with Chapter A1 of Part 14, and

• “transitionally protected income” means any foreign deemed income where the income mentioned in section 728(1)(a)—

  (a)

  arises in a tax year earlier than the tax year 2017-18,

  (b)

  would be protected foreign-source income as defined by section 729A if section 729A—

  (i)

  had effect for tax years earlier than the tax year 2017-18, and

  (ii)

  so had effect with the omission of its subsections (3)(e), (4)(h), (5) and (6), and

  (c)

  has not prior to 6 April 2017 been distributed by the trustees of the settlement concerned.”

34 (1) Section 731 (charge to tax on income treated as arising under section 732) is amended as follows. U.K.

(2) In subsection (1), for “non-transferors” substitute “ individuals ”.

(3) After subsection (1) insert—

“(1A) But where the individual is non-UK resident for the tax year in which a benefit is received, there is a charge to tax under this section on any matched deemed income—

(a) only so far as that matched deemed income would under section 735A (if it applied also for this purpose) be matched with an amount of relevant income that is protected income for the purposes of section 733A(1)(b)(i) (see sections 721(3BA) and 728(1B)), and

(b) only if—

(i) the individual is the settlor of the settlement concerned, or

(ii) the benefit is received by the individual at a time when the individual is a close member of the family of the settlor of that settlement.

(1B) For the purposes of subsection (1A)—

(a) “matched deemed income” means income which—

(i) is treated by section 732 as arising to the individual, and

(ii) would, if section 735A applied also for this purpose, be matched under that section with the benefit, and

(b) a person is a close member of the family of the settlor of a settlement if the person is—

(i) the settlor's spouse or civil partner, or

(ii) a child of the settlor, or of a person within sub-paragraph (i), if the child has not reached the age of 18;

and section 733A(7) (persons living together) applies also for the purposes of paragraph (b).”

(4) In subsection (3) (person liable for tax is person to whom income is treated as arising), at the end insert “, but this is subject to section 733A.

35 (1) Section 732 (when income is treated as arising for the purposes of the charge under section 731) is amended in accordance with sub-paragraphs (2) to (4). U.K.

(2) In subsection (1) (cases in which tax can be charged under section 731)—

(a) in paragraph (b), for “who is UK resident for a tax year receives a benefit in that tax year” substitute “ receives a benefit in a tax year ”, and

(b) for paragraph (d) substitute—

“(d) where there is a time in the year when the individual is relevantly domiciled, the individual is not liable to income tax under section 720 or 727 by reference to the transfer, and”.

(3) After subsection (3) insert—

“(4) For the purposes of subsection (1)(d), the individual is “relevantly domiciled” at any time if at that time—

(a) the individual is domiciled in the United Kingdom, or

(b) the individual is regarded for the purposes of section 718(1)(b) as domiciled in the United Kingdom as a result of section 835BA having effect because of Condition A in that section being met.”

(4) In the heading, for “Non-transferors” substitute “ Individuals ”.

(5) In section 733(1) (income charged under section 731), in the first sentence of Step 2, at the end insert “except that, where any of that income is matched deemed income for the purposes of section 731(1A), that matched deemed income is to be deducted only so far as it is matched deemed income on which tax has been charged under section 731 for an earlier tax year.

36 U.K. After section 733 insert—

“733A Settlor liable for section 731 charge on closely-related beneficiary

(1) Subsections (2) and (3) apply if—

(a) an amount of income is treated as arising to an individual under section 732 for a tax year,

(b) under section 735A (if it applied also for this purpose) that amount would be matched—

(i) with an amount of relevant income that is protected income for the purposes of this sub-paragraph (see sections 721(3BA) and 728(1B)), and

(ii) with a benefit received by the individual at a time when the individual was a close member (see subsection (7)) of the family of the settlor of the settlement concerned,

(c) there is no time in the year when the trustees of the settlement are resident in the United Kingdom,

(d) there is a time in the year when the settlor is resident in the United Kingdom,

(e) there is no time in the year when the settlor is domiciled in the United Kingdom, and

(f) there is no time in the year when the settlor is regarded for the purposes of section 718(1)(b) as domiciled in the United Kingdom as a result of section 835BA having effect because of Condition A in that section being met.

(2) If—

(a) the individual is not resident in the United Kingdom at any time in the year, or

(b) section 809B, 809D or 809E (remittance basis) applies to the individual for the year and none of the amount mentioned in subsection (1)(a) of this section is remitted to the United Kingdom in the year,

the settlor is liable for the tax charged under section 731 on that amount as if that amount were income arising to the settlor in the year (and the individual is not liable in any later year for income tax on that amount).

(3) If—

(a) section 809B, 809D or 809E (remittance basis) applies to the individual for the year, and

(b) part only of the amount mentioned in subsection (1)(a) of this section is remitted to the United Kingdom in the year,

the settlor is liable for the tax charged under section 731 on the remainder of that amount as if that remainder were income arising to the settlor in the year (and the individual is not liable in any later year for income tax on that remainder).

(4) The amount mentioned in subsection (1)(a) may be the whole, or part only, of the amount treated as arising to the individual under section 732 for the year in the case of the relevant transfer and its associated operations.

(5) Where any tax for which the settlor is liable as a result of subsection (2) or (3) is paid, the settlor is entitled to recover the amount of the tax from the individual.

(6) For the purpose of recovering that amount, the settlor is entitled to require an officer of Revenue and Customs to give the settlor a certificate specifying—

(a) the amount of the income concerned, and

(b) the amount of tax paid,

and any such certificate is conclusive evidence of the facts stated in it.

(7) For the purposes of subsection (1)(b)(ii), a person is a close member of the family of the settlor if the person is—

(a) the settlor's spouse or civil partner, or

(b) a child of the settlor, or of a person within paragraph (a), if the child has not reached the age of 18.

(8) For the purposes of subsection (7)—

(a) two people living together as if they were spouses of each other are treated as if they were spouses of each other, and

(b) two people of the same sex living together as if they were civil partners of each other are treated as if they were civil partners of each other.

(9) Sections 809L to 809Z6 (remittance basis: rules about when income is remitted, including rule treating pre-arising remittances of deemed income as made when the income arises) apply for the purposes of this section.”

37 U.K. In section 735A(6) (matching of income on which individual charged under section 731), after “individual” insert “ , or as a result of section 733A another person, ”.

38 U.K. After section 735A insert—

“735B Settlor liable under section 733A and remittance basis applies

(1) This section applies in relation to income if—

(a) the income is treated by section 732 as arising to an individual (“the beneficiary”) for a tax year,

(b) another individual (“the settlor”) is under section 733A(2) or (3) liable for tax on the income, and

(c) section 809B, 809D or 809E (remittance basis) applies to the settlor for that year.

(2) The income (“the transferred-liability deemed income”) is treated as relevant foreign income of the settlor.

(3) If, for the purposes of section 735 as it applies in relation to the beneficiary, any benefit or relevant income relates to any part of the transferred-liability deemed income then, for the purposes of Chapter A1 of Part 14 as it applies in relation to the settlor, that benefit or relevant income is to be treated as deriving from that part of the transferred-liability deemed income.

(4) In the application of section 832 of ITTOIA 2005 in relation to the income, subsection (2) of that section has effect with the omission of its paragraph (b).”