Part 4.Anti-avoidance
Introduction
166.Paragraph 109 gives an overview of the content of this Part. This Part amends existing rules which apply to income and gains arising during a period of temporary non-residence and introduces new charges for certain income and gains not presently covered by such rules. In addition to the provisions amended or introduced by this Part there are two similar charges in secondary legislation (SI 2006/1958 (pension schemes, taxable property) and SI 2009/3001 (offshore funds)). Those provisions are brought into line with the rules in this Part by SI 2013/1810.
Meaning of temporarily non-resident
167.Paragraph 110 specifies that an individual is regarded as “temporarily non-resident” if he or she has sole UK residence for a residence period and, immediately following that period (referred to as period A), one or more residence periods occur for which the individual does not have sole UK residence. “Sole UK residence” is defined in paragraph 112 and “residence period” is defined in paragraph 111. In addition, in 4 or more tax years out of the 7 tax years immediately preceding the year of departure (a term defined in paragraph 114), the individual must have had either sole UK residence or the year must have been a split year that included a residence period for which the individual had sole UK residence. Finally, the temporary period of non-residence (see paragraph 113) must be 5 years or less.
168.The provisions in this Part apply if the period of temporary non-residence is 5 years or less. This is a change from the former temporary non-residence provisions which applied if there are fewer than 5 tax years (‘intervening years’) between the year of departure and the year of return.
Residence periods
169.Paragraph 111 defines a “residence period” as a tax year that is not split, or the overseas part or the UK part of a split year.
Sole UK residence
170.Paragraph 112 defines “sole UK residence” for a residence period as the individual being UK resident for an entire tax year and not Treaty non-resident, or the UK part of a split year and not Treaty non-resident in that part. “Treaty non-resident” is defined in sub-paragraph (3) of paragraph 112.
Temporary period of non-residence
171.Paragraph 113 defines “the temporary period of non-residence” as the period between the end of period A and the start of the next residence period after period A for which the individual has sole UK residence.
Year of departure
172.Paragraph 114 defines “the year of departure” as the tax year consisting of or including period A. It should be noted that this year may be earlier than the year in which the individual actually leaves the UK.
Period of return
173.Paragraph 115 defines “the period of return” as the first residence period after period A for which the individual has sole UK residence.
Consequential amendments: income tax
174.Paragraph 116 substitutes a new section 576A of ITEPA. Both the existing and new sections 576A provide that a withdrawal from a flexible drawdown pension fund under a relevant non-UK scheme during a period of temporary non-residence is to be treated as pension income when the individual returns to the UK. The new section 576A ensures the existing provision is made consistent with the other provisions in Part 4 of this Schedule.
175.Subsection (1) of new section 576A provides that the section applies to persons who are “temporarily non-resident” (as defined in paragraph 110).
176.Subsection (2) of new section 576A provides that relevant withdrawals are to be treated as pension income arising in the period of return (as defined in paragraph 115) for the purposes of section 575 of ITEPA. Section 575 provides that the amount of pension arising when a pension is paid by or on behalf of a person outside the UK to a person who is resident in the UK is taxable pension income.
177.Subsections (3) and (4) of new section 576A define a “relevant withdrawal” for the purpose of subsection (2).
178.Subsection (3)(a) of new section 576A provides that a relevant withdrawal must be paid during a period of temporary non-residence.
179.Subsection (3)(b) of new section 576A provides that a relevant withdrawal is a withdrawal that is either not chargeable to tax under Part 9 of ITEPA or, if it is so chargeable to tax, it would not be if the chargeable person made a claim under a double taxation agreement.
180.Subsection (4) of new section 576A provides that a relevant withdrawal is a withdrawal that is paid under a flexible drawdown arrangement relating to the person under a relevant non-UK scheme and would be an authorised pension or pension death benefit if the scheme paying it were a registered pension scheme. “Relevant non-UK scheme” is defined in paragraph 1 of Schedule 34 to FA 2004. The pension rules and the pension death benefit rules in relation to registered pension schemes are defined in sections 165 and 167 of FA 2004.
181.Subsection (5) of new section 576A provides that when an individual is chargeable to tax on the remittance basis for the year of return and both made a relevant withdrawal and remitted it to the UK during the period of temporary non-residence, the amount remitted is to be treated as having been remitted to the UK in the period of return.
182.Subsection (6) of new section 576A provides that the section does not apply unless the withdrawal from a flexible drawdown pension fund is referable to either the individual’s UK tax-relieved fund or their relevant transfer fund. A member’s UK tax-relieved fund is created by the accumulation of pension rights supported by UK tax relief. A member’s relevant transfer fund is created by the transfer to the relevant non-UK scheme from a registered pension scheme or from another relevant non-UK scheme.
183.Subsection (7) of new section 576A provides that no double taxation relief arrangement is to be read as preventing a charge to tax under section 575 of ITEPA from arising by virtue of section 576A.
184.Subsections (8) to (10) of new section 576A provide statutory cross-references for terms used in the section but defined in legislation elsewhere.
185.Paragraph 117 substitutes a new section 579CA of ITEPA. Both the existing and the new sections 579CA provide that a withdrawal from a flexible drawdown pension fund under a registered pension scheme during a period of temporary non-residence is to be treated as pension income when the individual returns to the UK. The new section 579CA ensures the existing provision is made consistent with the other provisions in Part 4 of this Schedule.
186.Subsection (1) of new section 579CA provides that the section applies to persons who are “temporarily non-resident” (as defined in paragraph 110).
187.Subsection (2) of new section 579CA provides that relevant withdrawals are to be treated as pension income arising in the period of return (as defined in paragraph 115) for the purposes of section 579B of ITEPA. Section 579B provides that the amount of pension accruing when a pension is paid under a registered pension scheme is taxable pension income.
188.Subsection (3)(a) of new section 579CA provides that a withdrawal is not a relevant withdrawal unless it is paid during a period of temporary non-residence (as defined in paragraph 113).
189.Subsection (3)(b) of new section 579CA provides that a withdrawal is not a relevant withdrawal unless it is either not chargeable to tax under Part 9 of ITEPA or, if it is so chargeable to tax, it would not be if the chargeable person made a claim under a double taxation agreement.
190.Subsection (4) of new section 579CA provides that a withdrawal is not a relevant withdrawal unless it is paid under a flexible drawdown arrangement relating to the person under a registered pension scheme and is an authorised pension or pension death benefit. The pension rules and the pension death benefit rules in relation to registered pension schemes are defined in sections 165 and 167 of FA 2004.
191.Subsection (5) of new section 579CA provides that no double taxation relief arrangement is to be read as preventing a charge to tax under section 579B of ITEPA from arising by virtue of section 579CA.
192.Subsections (6) and (7) of new section 579CA provide statutory cross-references for terms used in the section but defined in legislation elsewhere.
193.Paragraph 118 substitutes a new section 832A of ITTOIA which applies to individuals who are temporarily non-resident and taxed on the remittance basis. It provides that where such individuals remit relevant foreign income to the UK during the period of non-residence, they will be treated as having remitted that relevant foreign income to the UK in the period of return.
194.Subsection (4) of new section 832A provides that any apportionment which is required to determine the amount of relevant foreign income which relates to the UK part of a tax year must be done on a just and reasonable basis.
195.Subsection (5) of new section 832A provides that nothing in any double taxation arrangements is to be read as preventing relevant foreign income which is treated by this section as remitted to the UK in the period of return from being chargeable to UK tax.
196.Subsection (7) of new section 832A provides that the term “double taxation arrangements” means arrangements which have effect under section 2(1) of TIOPA.
Consequential amendments: capital gains tax
197.Paragraph 119 replaces existing section 10A of TCGA with new sections 10A and 10AA. The new section 10A replaces the concepts of intervening year, year of departure and year of return in the existing section with temporary period of non-residence (defined in paragraph 113), year of departure (defined in paragraph 114) and period of return (defined in paragraph 115).
198.The amendment to section 2 of TCGA in paragraph 93 means that gains arising in the overseas part of a split year will not be charged under that section but will instead be charged under new section 10A of TCGA if the individual meets the temporary non-resident conditions set out in this Part.
199.Subsection (1) of new section 10A restricts the scope of the section so that it only applies if an individual is temporarily non-resident (as defined in paragraph 110).
200.Subsection (2) of new section 10A provides that the individual’s gains or losses within subsection (3) are chargeable to capital gains tax as if they were chargeable gains or losses accruing to the individual in the period of return.
201.Subsections (3) to (5) of new section 10A replace the existing subsections (2), (5) and (9B) and take into account split years. The more general carve-out in subsection (5) enables the structure of the legislation to be simplified and also corrects a defect in the current legislation which prevents a charge in certain cases of treaty non-residence.
202.Subsection (6) of new section 10A provides that subsection (2) is subject to sections 10AA and 86A of TCGA.
203.Subsections (7) and (8) of new section 10A replicates the effect of the existing rules in subsection (6) that limit the losses available in accordance with section 13 of TCGA.
204.Subsection (9) of new section 10A replicates the effect of the existing subsection (9ZA).
205.Subsection (10) of new section 10A provides that the terms temporarily non-resident, temporary period of non-residence and the period of return are as defined in Part 4 of this Schedule.
206.Subsection (11) of new section 10A provides the meanings of foreign chargeable gains, remitted to the United Kingdom and year of return.
207.New section 10AA of TCGA contains provisions supplementary to new section 10A of TCGA.
208.Subsection (1) of new section 10AA replicates the effect of the existing section 10A paragraphs (3)(a), (b), (c) and (d).
209.Subsection (2) of new section 10AA defines the term “relevant disposal” for the purposes of section 10AA.
210.Subsection (3) of new section 10AA replicates the effect of subsection (4) of the existing section 10A.
211.Subsection (4) of new section 10AA replicates the effect of subsection (9C) of the existing section 10A.
212.Subsection (5) of new section 10AA replicates the effect of subsection (7) of the existing section 10A.
213.Paragraph 120 substitutes a new section 86A of TCGA to make it compatible with new section 10A of TCGA and to correct for consequential amendments that were missed in FA 2008. New section 86A ensures that gains that are taxed under section 86 of TCGA in a period of return because section 10A applies do not include gains that have already been charged to tax under section 87 of TCGA. This may happen if non-UK resident trustees make capital payments to beneficiaries that section 87A of TCGA matches to trustees’ gains that accrued in a period of temporary non-residence for the settlor.
214.Subsection (1) of new section 86A gives the conditions for the section to apply.
215.Subsection (2) of new section 86A gives the definition of “matched capital payment”.
216.Subsection (3) of new section 86A provides for the amount charged on the returning settlor under section 86 of TCGA to be reduced if new section 86A applies.
217.Subsection (4) of new section 86A sets out the amount of the reduction.
218.Subsection (5) of new section 86A sets out the amount by which the trustees’ gains available to be matched under section 87 of TCGA are reduced if those gains have been taxed under section 86 of TCGA as modified by new section 86A.
219.Subsections (6) and (7) of new section 86A also deal with the reduction of the trustees’ gains. The rules ensure that the reduction cannot take the gains below zero. It will apply if capital payments have been made to which the reduction in new section 86A does not apply because they are not charged to tax.
220.Subsection (8) of new section 86A provides various definitions.
221.Paragraph 121 amends section 96 of TCGA. The changes are consequential to the changes made to section 10A of TCGA.
222.Paragraph 122 amends section 279B of TCGA. The changes are consequential to the changes made to section 10A of TCGA.
223.Paragraph 123 amends Schedule 4C to TCGA. The changes are consequential to the changes made to section 10A of TCGA.
224.The remaining provisions in this Part insert new rules into ITEPA, ITTOIA and ITA concerning the taxation of certain income and gains arising in a temporary period of non-residence.
New special rule: lump sum payments under pension schemes etc
225.Paragraph 124 introduces paragraphs 125 to 130 which amend ITEPA in connection with lump sums paid under pension schemes that are not registered pension schemes.
226.Paragraph 125 amends ITEPA to insert a new section 394A. New section 394A applies to certain lump sums paid under employer-financed retirement benefit schemes (‘EFRBS’).
227.Subsection (1) of new section 394A provides that the section applies to individuals who are temporarily non-resident (as defined in paragraph 110).
228.Subsection (2) of new section 394A provides that the benefits described in subsection (3) are to be treated as if they were received in the period of return (as defined in paragraph 115).
229.Subsections (3)(a) to (c) of new section 394A provide that the section applies to relevant benefits provided in the form of a lump sum, when received by an individual during a temporary period of non-residence (as defined in paragraph 113).
230.Subsection (3)(d) of new section 394A provides that the section applies when the lump sum in question is not subject to tax under section 394 but would be subject to tax if the existence of double tax relief arrangements were disregarded.
231.Subsection (4) of new section 394A provides that there will be regarded as being no charge to tax for the purpose of section 394(3)(d)(i) where the person could make a claim to double taxation relief but has not yet done so.
232.Subsection (5) of new section 394A provides that subsection (2) does not affect the operation of section 394(1A).
233.Subsection (6) of new section 394A provides that no double taxation relief arrangement is to be read as preventing the value of the benefit from counting as employment income by virtue of section 394 as a result of section 394A applying.
234.Subsections (7) and (8) of new section 394A provide statutory cross-references for terms used in the section but defined in legislation elsewhere.
235.Paragraph 126 amends ITEPA to insert a new section 554Z4A. New section 554Z4A applies to certain relevant steps taken by relevant third persons providing employment income.
236.Subsection (1) of new section 554Z4A provides that the section applies to individuals who are temporarily non-resident (as defined in paragraph 110).
237.Subsection (2) of new section 554Z4A provides that the relevant steps described in subsection (3) are to be treated as if they were taken in the period of return.
238.Subsection (3)(a) to (c) of new section 554Z4A provide that the section applies to relevant steps comprising payment of a lump sum relevant benefit by a relevant third person under a relevant arrangement, when the step is taken during a temporary period of non-residence (as defined in paragraph 113). The term “relevant benefit” is defined in section 393B of ITEPA. The terms “relevant arrangement” and “relevant third person” are defined in section 554A of ITEPA.
239.Subsection (3)(d) of new section 554Z4A provides that the section applies when the step does not give rise to a charge to tax by virtue of section 554Z2 of ITEPA but such a charge would arise if the existence of double tax relief arrangements were disregarded.
240.Subsection (4) of new section 554Z4A provides that there will be regarded as being no charge to tax for the purpose of section 554Z4A(3)(d)(i) where the person could make a claim to double taxation relief but has not yet done so.
241.Subsection (5) of new section 554Z4A provides that no double taxation relief arrangement is to be read as preventing the value of the relevant step from counting as employment income by virtue of section 554Z2 of ITEPA.
242.Subsections (6) and (7) of new section 554Z4A provide statutory cross-references for terms used in the section but defined in legislation elsewhere.
243.Paragraph 127 amends ITEPA to insert a new section 554Z11A. New section 554Z11A applies to certain amounts remitted to the UK.
244.Subsection (1) of new section 554Z11A provides that the section applies to individuals who are temporarily non-resident (as defined in paragraph 110).
245.Subsection (2) of new section 554Z11A provides that the amounts described in subsection (3) are to be treated as if they were remitted to the UK in the period of return.
246.Subsections (3)(a) to (c) of new section 554Z11A provide that the section applies if all or part of a lump sum relevant benefit provided to a relevant person by a relevant third person under a relevant arrangement is remitted to the UK during a temporary period of non-residence (as defined in paragraph 113). The term “relevant benefit” is defined in section 393B of ITEPA. The terms “relevant arrangement” and “relevant third person” are defined in section 554A of ITEPA. The definition of a “relevant person” is in section 554C of ITEPA.
247.Subsection (3)(d) of new section 554Z11A provides that the section applies when the amount remitted does not give rise to a charge to tax by virtue of section 554Z9 or section 554Z10 of ITEPA but such a charge would arise if the existence of double tax relief arrangements were disregarded.
248.Subsection (4) of new section 554Z11A provides that there will be regarded as being no charge to tax for the purpose of section 554Z11A(3)(d)(i) where the person could make a claim to double taxation relief but has not yet done so.
249.Subsection (5) of new section 554Z11A provides that no double taxation relief arrangement is to be read as preventing the value of the relevant step from giving rise to tax by virtue of Chapter 2 of Part 7A of ITEPA.
250.Subsections (6) and (7) of new section 554Z11A provide statutory cross-references for terms used in the section but defined in legislation elsewhere.
251.Paragraph 128 amends section 554Z12 of ITEPA in connection with relevant steps within new sections 554Z4A and 554Z11A when the steps are taken after A has died during a period for which the relevant person was temporarily non-resident. The amendments provide that the relevant step in question is treated as taken in the relevant person’s period of return unless the relevant person’s temporary period of non-residence started before A died.
252.Paragraph 129 inserts a new section 572A into ITEPA. New section 572A applies to certain lump sums paid by UK pension schemes.
253.Subsection (1) of new section 572A provides that the section applies to individuals who are temporarily non-resident.
254.Subsection (2) of new section 572A provides that any pension within subsection (3) is to be treated as if it accrued in the period of return.
255.Subsection (3) of new section 572A prescribes the conditions that need to be satisfied in order for the section to apply. The conditions are that
section 569 of ITEPA applies to the lump sum;
the pension is paid in the form of a lump sum;
the lump sum accrued during a period in which the individual was temporarily non-resident;
the lump sum is not chargeable to tax as a United Kingdom pension under Chapter 3 of Part 9 of ITEPA but it would be so chargeable if there were no double tax arrangements under which the individual could claim an exemption from UK tax in respect of the lump sum.
256.Subsection (4) of new section 572A provides that there will be regarded as being no charge to tax for the purpose of subsection (3)(d)(i) where the person could make a claim to double taxation relief but has not yet done so.
257.Subsection (5) of new section 572A provides that no double taxation relief arrangements are to be read as preventing the pension to which the section applies from giving rise to tax in the period of return.
258.Subsections (6) and (7) of new section 572A provide statutory cross-references for terms used in the section but defined in legislation elsewhere.
259.Paragraph 130 amends section 683 of ITEPA (PAYE income) in connection with amounts that are treated as employment income or pension income for a period of return by virtue of new sections 394A, 554Z4A, 572A or 579CA of ITEPA. The amendments provide that there is no requirement to operate PAYE in respect of any employment income or pension income which is chargeable to tax by virtue of one of those sections.
New special rule: distributions to participators in close companies etc
260.Paragraph 131 introduces paragraphs 132 to 136 which amend Part 4 of ITTOIA. They provide new charges on UK and foreign dividends and other distributions received (including loans being released) during a temporary period of non-residence.
261.Paragraph 132 inserts new section 368A in Chapter 1 of Part 4 of ITTOIA. It explains that the meaning of certain terms used in the temporary non-residence provisions is given by Part 4 of this Schedule. It also contains a general rule providing that no double taxation relief arrangement is to be read as preventing a charge to income tax arising by virtue of the temporary non-residence provisions.
262.Paragraph 133 inserts new section 401C in Chapter 3 of Part 4 of ITTOIA. This provision charges relevant UK distributions that arose during a temporary period of non-residence in relation to a year for which the individual was resident, but the UK charge was limited by the terms of a double taxation treaty. If the UK distribution arose in a year for which the individual was non-resident, new section 812A applies instead (see paragraph 138).
263.Subsection (1) of new section 401C provides the conditions for the section to apply. Where there is a double taxation treaty in place between the UK and the territory in which the individual is temporarily non-resident the tax charge when the relevant distribution is made will have been eliminated or restricted to 10% or 15% of the distribution (including the one-ninth tax credit if applicable).
264.Subsections (2) to (4) of new section 401C provide that the amount of the Chapter 4 charge is added to total income in the year of return with a credit for the tax on the distribution itself so as to avoid double taxation.
265.Subsection (5) of new section 401C explains the taxation treatment if the distribution is made in the treaty non-resident part of the year of return.
266.Subsection (6) of new section 401C defines ‘relevant distribution’. The company making the distribution must be a close company and the individual must have been a material participator or an associate of a material participator in the company.
267.Subsection (7) of new section 401C provides that new section 401C does not apply to cash dividends that are paid in respect of post-departure trade profits.
268.Subsection (8) of new section 401C defines the term ‘post-departure trade profits’ for the purposes of subsection (7) as those arising to the company in an accounting period which begins after the start of the temporary period of non-residence and, where such profits arise in an accounting period straddling the start of that temporary period, so much of those profits which can be attributed, on a just and reasonable basis, to the time after the start of that temporary period.
269.Subsection (9) of new section 401C provides that the extent to which a dividend is paid in respect of post-departure trade profits should be determined on a just and reasonable basis.
270.Subsection (10) of new section 401C provides that the amount of tax to be allowed against the charge under this provision is so much as the tax paid for the year in which the distribution was made as is just and reasonable to attribute to the distribution.
271.Subsection (11) of new section 401C provides in applying section 393 (special rule for cash dividends on shares in an approved share incentive plan) a reference to a distribution being made is to a cash dividend being paid over.
272.Subsection (12) of new section 401C defines terms used in this section.
273.Paragraph 134 inserts new section 408A in Chapter 4 of Part 4 of ITTOIA (which deals with foreign dividends).
274.Subsection (1) of new section 408A provides that this section applies to an individual who is temporarily non-resident.
275.Subsection (2) of new section 408A provides that dividends are to be treated for the purpose of Chapter 4 as if the individual received or became entitled to them in the period of return.
276.Subsection (3) of new section 408A sets out the conditions that must apply for a dividend to fall within subsection (2). These conditions are that:
the individual receives or becomes entitled to the dividend in the temporary period of non-residence by virtue of being either a material participator in the company or an associate of such a participator at a relevant time;
the dividend is from a company which would be a close company if it were UK resident; and,
in the absence of this section, the individual would not be liable for tax under Chapter 4 in respect of the dividend but would have been so liable if they had received or become entitled to it in the period of return.
277.Subsection (4) of new section 408A defines the terms ‘associate’, ‘participator’, ‘material participator’ and ‘relevant time’ for the purposes of subsection (3) and provides that the subsection also applies where double taxation relief is available for the tax liability in question, even if no claim for such relief is actually made.
278.Subsection (5) of new section 408A provides that, where an individual is taxed on the remittance basis for the year of return, any dividend within subsection (3) which is remitted to the UK in the temporary period of non-residence will be treated as remitted to the UK in the period of return.
279.Subsection (6) of new section 408A provides that new section 408A does not apply to dividends within subsection (3) which are paid in respect of post-departure trade profits.
280.Subsection (7) of new section 408A defines the term ‘post-departure trade profits’ for the purposes of subsection (6) as those arising to the company in an accounting period which begins after the start of the temporary period of non-residence and, where such profits arise in an accounting period straddling the start of that temporary period, so much of those profits which can be attributed, on a just and reasonable basis, to the time after the start of that temporary period.
281.Subsection (8) of new section 408A provides that the extent to which a dividend is paid in respect of post-departure trade profits should be determined on a just and reasonable basis.
282.Subsection (9) of new section 408A provides that, where section 406 or 407 of ITTOIA applies to the dividend, references in this section to a dividend being received by the individual are to a cash dividend being paid to the individual or to a dividend treated as paid to the individual
283.Subsection (10) of new section 408A defines terms used in this section.
284.Paragraph 135 inserts new section 413A in Chapter 5 of Part 4 of ITTOIA. The section applies to stock dividends from UK companies in the same way that new section 401C applies to other distributions from UK companies. Accordingly, the commentary in paragraphs 262 to 272 above applies with appropriate modifications.
285.Paragraph 136 inserts new section 420A in Chapter 6 of Part 4 of ITTOIA. This provision applies to loans released in a period of temporary non-residence.
286.Subsection (1) of new section 420A provides that this section applies where an individual is temporarily non-resident.
287.Subsection (2) of new section 420A provides that debts within subsection (3) are treated as if they had been released or written off in the period of return.
288.Subsection (3) of new section 420A provides that a debt is within this subsection if:
the debt is all or part of a debt in respect of a loan or advance made by a company to the individual;
the debt is released or written off in the temporary period of non-residence; and,
in the absence of this section, the individual would not be liable for tax under Chapter 6 of Part 4 of ITTOIA in respect of the release or write-off of the debt, but would have been liable if the debt had been released or written off in the period of return.
289.Subsection (4) of new section 420A provides that subsection (3) applies where double taxation relief is available for the tax liability in question, even if no claim for such relief is actually made.
290.Paragraph 137 inserts new section 689A in Chapter 8 of Part 5 of ITTOIA 2005 dealing with distributions not charged by other provisions of ITTOIA.
291.Subsection (1) of new section 689A provides that new section 689A applies if an individual is temporarily non-resident.
292.Subsection (2) of new section 689A provides that distributions within subsection (3) are to be treated for the purpose of Chapter 8 of Part 5 of ITTOIA as if the individual received or became entitled to them in the period of return.
293.Subsection (3) of new section 689A defines the conditions in which distributions are to be treated under the rule provided by subsection (2). These conditions are that:
the individual receives or becomes entitled to the distribution in the temporary period of non-residence by virtue of being either a material participator in the company or an associate of such a participator at a relevant time;
the distribution is from a close company or from a company which would be a close company if it were UK resident; and
in the absence of this section, the individual would not be liable for tax under Chapter 8 of Part 5 of ITTOIA in respect of the distribution but would have been so liable if they had received or become entitled to it in the period of return.
294.Subsection (4) of new section 689A defines the terms ‘associate’, ‘participator’, ‘material participator’ and ‘relevant time’ for the purposes of subsection (3) and provides that the subsection also applies where double taxation relief is available for the tax liability in question, even if no claim for such relief is actually made.
295.Subsection (5) of new section 689A provides that, where an individual is taxed on the remittance basis for the year of return, any distribution within subsection (3) which is relevant foreign income and is remitted to the UK in the temporary period of non-residence will be treated as remitted to the UK in the period of return.
296.Subsection (6) of new section 689A defines the term ‘remitted to the UK’ for the purposes of this section.
297.Paragraph 138 inserts new section 812A in Chapter 1 of Part 14 of ITA.
298.Subsection (1) of new section 812A provides that new section 812A applies where:
an individual is temporarily non-resident;
the individual’s income tax liability is limited under section 811 of ITA;
the non-resident year falls within the temporary period of non-residence; and
the individual’s income for that tax year includes relevant investment income.
299.Subsection (2) of new section 812A provides that the total income, as defined by Step 1 in section 23 of ITA, on which the individual is taxed for the year of return, is to be increased by an amount which is equal to the amount of the relevant investment income (“amount X”).
300.Subsection (3) of new section 812A provides that a credit is to be allowed for the notional UK tax on relevant investment income against the individual’s income tax liability for the year of return to the extent that the relevant investment income does not exceed amount X.
301.Subsection (4) of new section 812A provides that ‘relevant investment income’ is income where:
the income is chargeable under either Chapter 3 or Chapter 5 of Part 4 of ITTOIA;
the distributing company is a close company;
the income either arises or is treated as arising to the individual because they were a material participator in the company or an associate of such a participator at a relevant time.
302.Subsection (5) of new section 812A provides that income within subsection (4) in the form of a cash or stock dividend is not relevant investment income to the extent that the dividend is paid, or the share capital is issued, in respect of post-departure trade profits.
303.Subsection (6) of new section 812A defines the terms ‘post-departure trade profits’ for the purposes of subsection (5) as those arising to the distributing company in an accounting period which begins after the start of the temporary period of non-residence and, where such profits arise in an accounting period straddling the start of that temporary period, so much of those profits which can be attributed, on a just and reasonable basis, to the time after the start of that temporary period.
304.Subsection (7) of new section 812A defines the term ‘notional UK tax’ on relevant investment income for the purpose of subsection (3) as the total income included within amount A in section 811 of ITA less any credit for foreign tax paid in respect of that income under Chapter 2 of Part 2 of TIOPA for the non-resident year.
305.Subsection (8) of new section 812A provides that the extent to which a dividend is paid, or share capital is issued, in respect of post-departure trade profits, and the extent to which a sum included within amount A is a sum in respect of relevant investment income should both be determined on a just and reasonable basis.
306.Subsection (9) of new section 812A provides that double taxation arrangements are not to be read as preventing the individual from being chargeable to income tax under this section.
307.Subsection (10) of new section 812A provides that the meaning of the terms ‘temporarily non-resident’, ‘the temporary period of non-residence’, ‘the year of departure’ and ‘the period of return’ is as defined in Part 4 of this Schedule.
308.Subsection (11) of new section 812A defines the terms ‘associate’, ‘participator’, ‘material participator’, ‘relevant time’ and ‘year of return’ for the purposes of this section.
New special rule: chargeable event gains
309.Paragraph 139 provides for Chapter 9 of Part 4 of ITTOIA to be amended. This provides a new charge on chargeable event gains arising in a temporary period of non-residence and makes related amendments.
310.Paragraph 140 inserts new section 465B in ITTOIA.
311.Subsection (1) of new section 465B provides that the section applies if an individual is temporarily non-resident (as defined in paragraph 110).
312.Subsection (2) of new section 465B provides a charge for the year of return following a temporary period of non-residence if the conditions in subsection (3) are met.
313.Subsection (3) and (4) of new section 465B state the conditions to be met for a gain to be charged under this section. It is necessary that the gain would have been chargeable had the individual been resident in the year in which the gain arose, and assuming that year was not a split year for that individual.
314.Subsections (5) and (6) of new section 465B provide that the amount chargeable in the year of return is the amount that would have been chargeable applying the assumptions in subsection (4).
315.Subsection (7) of new section 465B contains a rule determining the date an insurance or contract is made for the purposes of subsection (3)(b).
316.Subsection (8) of new section 465B provides that in certain circumstances a gain is not chargeable under this section.
317.Subsection (9) of new section 465B provides that nothing in any double taxation arrangements is to be read as preventing the charge under this section.
318.Subsections (10) and (11) of new section 465B provide statutory cross-references for terms used in the section but defined in legislation elsewhere.
319.Paragraph 141 inserts new subsection (7) into section 468 of ITTOIA ensuring no double charge arises under sections 465B and 468.
320.Paragraph 142 inserts new subsection (4A) into section 514 of ITTOIA and provides that the special rule in subsection (4) charging the gain for the tax year in which the insurance year ends takes precedence over the timing rule in section 465B.
321.Paragraph 143 makes a consequential amendment to section 541 of ITTOIA.
322.Paragraph 144 makes a consequential amendment to section 552 of ICTA.
