Finance Act 1984

Charge to tax of offshore income gains

96Charge to income or corporation tax of offshore income gain

(1)If a disposal to which this Chapter applies gives rise, in accordance with section 93 above or Schedule 20 to this Act, to an offshore income gain, then, subject to the provisions of this section, the amount of that gain shall be treated for all the purposes of the Tax Acts as income arising at the time of the disposal to the person making the disposal and as constituting profits or gains chargeable to tax under Case VI of Schedule D for the chargeable period in which the disposal is made.

(2)Subject to subsection (3) below, sections 2 and 12 of the principal Act (persons chargeable to tax in respect of chargeable gains) and section 246(2)(b) of the Taxes Act (chargeable gains accruing to certain companies not resident in the United Kingdom) shall have effect in relation to income tax or corporation tax in respect of offshore income gains as they have effect in relation to capital gains tax or corporation tax in respect of chargeable gains.

(3)In the application of section 12 of the principal Act in accordance with subsection (2) above, paragraphs (a) and (b) of subsection (1) of that section (which define the assets on the disposal of which chargeable gains are taxable) shall have effect with the omission of the words " situated in the United Kingdom and ".

(4)In a case where section 12 of the principal Act has effect as modified by subsection (3) above, section 246 of the Taxes Act shall have effect as if, in subsection (2)(b), the words " situated in the United Kingdom " were omitted.

(5)In the case of individuals resident or ordinarily resident but not domiciled in the United Kingdom, section 14 of the principal Act (which provides for taxation on a remittance basis) shall have effect in relation to income tax chargeable by virtue of subsection (1) above on an offshore income gain as it has effect in relation to capital gains tax in respect of gains accruing to such individuals from the disposal of assets situated outside the United Kingdom.

(6)Section 360(2) of the Taxes Act (exemption for charities from tax on chargeable gains by reference to section 145 of the principal Act) shall apply in relation to income tax chargeable by virtue of subsection (1) above on an offshore income gain as it applies in relation to tax on chargeable gains.

(7)In any case where—

(a)a disposal to which this Chapter applies is a disposal of settled property, within the meaning of the principal Act, and

(b)for the purposes of the principal Act, the general administration of the trusts is ordinarily carried on outside the United Kingdom and the trustees or a majority of them for the time being are not resident or not ordinarily resident in the United Kingdom,

subsection (1) above shall not apply in relation to any offshore income gain to which the disposal gives rise.

(8)In Schedule 10 to the [1975 c. 7.] Finance Act 1975 (capital transfer tax: valuation) in paragraph 9 (value transferred on death) at the end of sub-paragraph (1) there shall be added the words “and

(e)allowance shall be made for a liability for income tax in respect of an offshore income gain, within the meaning of Chapter VII of Part II of the Finance Act 1984, arising on a disposal which is deemed to occur on the death by virtue of section 92(3) of that Act.”

97Offshore income gains accruing to persons resident or domiciled abroad

(1)Section 15 of the principal Act (chargeable gains accruing to certain non-resident companies) shall have effect in relation to offshore income gains subject to the following modifications—

(a)for any reference to a chargeable gain there shall be substituted a reference to an offshore income gain;

(b)for the reference in subsection (7) to capital gains tax there shall be substituted a reference to income tax or corporation tax ; and

(c)paragraphs (b) and (c) of subsection (5) and subsection (8) shall be omitted.

(2)Subject to subsections (3) and (4) below, sections 80 to 84 of the [1981 c. 35.] Finance Act 1981 (gains of non-resident settlements) shall have effect in relation to offshore income gains subject to the following modifications,—

(a)for any reference to chargeable gains, other than the reference in section 80(5), there shall be substituted a reference to offshore income gains ;

(b)in section 80(2) for the words " tax under section 4(1) of the [1979 c. 14.] Capital Gains Tax Act 1979" there shall be substituted the words " income tax by virtue of section 96 of the Finance Act 1984 ";

(c)in section 80(6) the reference to tax shall be construed as a reference to income tax or corporation tax ; and

(d)sections 80(8) and 83(6) shall be omitted.

(3)In subsection (5) of section 80 of the Finance Act 1981, both as originally enacted and as applied by subsection (2) above, the reference to chargeable gains shall be construed as including a reference to offshore income gains.

(4)If, in any year of assessment,—

(a)under subsection (3) of section 80 of the [1981 c. 35.] Finance Act 1981, as originally enacted, a chargeable gain falls to be attributed to a beneficiary, and

(b)under that subsection, as applied by subsection (2) above, an offshore income gain also falls to be attributed to him,

subsection (4) of that section (gains attributed in proportion to capital payments received) shall have effect as if it required offshore income gains to be attributed before chargeable gains.

(5)Subject to subsection (6) below, for the purpose of determining whether an individual ordinarily resident in the United Kingdom has a liability for income tax in respect of an offshore income gain which arises on a disposal to which this Chapter applies where the disposal is made by a person resident or domiciled outside the United Kingdom, the following enactments (which relate to the avoidance of tax by the transfer of assets abroad)—

(a)section 478 of the Taxes Act, and

(b)section 45 of the Finance Act 1981,

shall apply as if the offshore income gain arising to the person resident or domiciled outside the United Kingdom constituted income becoming payable to him and, accordingly, any reference in those enactments to income of (or payable or arising to) such a person includes a reference to the offshore income gain arising to him by reason of the disposal to which this Chapter applies.

(6)To the extent that an offshore income gain is treated, by virtue of subsection (1) or subsection (2) above, as having accrued to any person resident or ordinarily resident in the United Kingdom, that gain shall not be deemed to be the income of any individual for the purposes of—

(a)either of the enactments referred to in subsection (5) above; or

(b)any provision of Part XVI of the Taxes Act (settlements).

98Deduction of offshore income gain in determining capital gain

(1)The provisions of this section apply where a disposal to which this Chapter applies gives rise to an offshore income gain; and, if that disposal also constitutes the disposal of the interest concerned for the purposes of the principal Act, then that disposal is in the following provisions of this section referred to as " the 1979 Act disposal ".

(2)So far as relates to an offshore income gain which arises on a material disposal, within the meaning of Part I of Schedule 20 to this Act, subsections (3) and (4) below shall have effect in relation to the 1979 Act disposal in substitution for section 31(1) of the principal Act (deduction of consideration chargeable to tax on income).

(3)Subject to the following provisions of this section, in the computation under Chapter II of Part II of the principal Act of any gain accruing on the 1979 Act disposal, a sum equal to the offshore income gain shall be deducted from the sum which would otherwise constitute the amount or value of the consideration for the disposal.

(4)Where the 1979 Act disposal is of such a nature that, by virtue of section 35 of the principal Act (part disposals) an apportionment falls to be made of certain expenditure, no deduction shall be made by virtue of subsection (3) above in determining, for the purposes of the fraction in subsection (2) of that section, the amount or value of the consideration for the disposal.

(5)If the 1979 Act disposal forms part of a transfer to which section 123 of the principal Act applies (roll-over relief on transfer of business in exchange wholly or partly for shares) then, for the purposes of subsection (4) of that section (determination of the amount of the deduction from the gain on the old assets) " B " in the fraction in that subsection (the value of the whole of the consideration received by the transferor in exchange for the business) shall be taken to be what it would be if the value of the consideration other than shares so received by the transferor were reduced by a sum equal to the offshore income gain.

(6)Where the disposal to which this Chapter applies constitutes such a disposal by virtue of section 92(6) or section 93(5) above, the principal Act shall have effect as if an amount equal to the offshore income gain to which the disposal gives rise were given (by the person making the exchange concerned) as consideration for the new holding, within the meaning of section 79 of that Act (consideration given or received for new holding on a reorganisation).

(7)In any case where—

(a)a disposal to which this Chapter applies by virtue of subsection (3) of section 93 above is made otherwise than to the offshore fund concerned or the persons referred to in subsection (2)(b) of that section, and

(b)subsequently, a distribution which is referable to the asset disposed of is paid ether to the person who made the disposal or to a person connected with him, and

(c)the disposal gives rise (in accordance with Part II of Schedule 20 to this Act) to an offshore income gain,

then, for the purposes of the Tax Acts, the amount of the first distribution falling within paragraph (b) above shall be taken to be reduced or, as the case may be, extinguished by deducting therefrom an amount equal to the offshore income gain referred to in paragraph (c) above and, if that amount exceeds the amount of that first distribution, the balance shall be set against the second and, where necessary, any later distribution falling within paragraph (b) above, until the balance is exhausted.

(8)Section 533 of the Taxes Act (connected persons) applies for the purposes of subsection (7)(b) above.

99Offshore income gains of insurance companies

(1)An offshore income gain accruing to an insurance company carrying on life assurance business shall, if it accrues in respect of investments held in connection with that business, be treated for the purposes of sections 310 (rate relief: investment income reserved for policy holders) and 315 (foreign life assurance funds) of the Taxes Act as if it were income from investments held in connection with that business.

(2)Income attributable to offshore income gains shall be left out of account in computing under section 312 of the Taxes Act (general annuity business and pension business: separate charge on profits) the profits arising to an insurance company from general annuity business and, accordingly, in subsection (2)(a) of section 313 of the Taxes Act (general annuity business) after the words " development gains" there shall be inserted the words " or offshore income gains, within the meaning of Chapter VII of Part II of the Finance Act 1984 ".

(3)In section 316 of the Taxes Act (overseas life insurance companies: charge on investment income) in subsection (1A) (exclusion of income attributable to development gains) after the words " development gains " there shall be inserted the words " or offshore income gains, within the meaning of Chapter VII of Part II of the Finance Act 1984 ".

(4)Section 323 of the Taxes Act (interpretation of Chapter II of Part XII of that Act) has effect in relation to this section as if it were included in that Chapter.

100Offshore income gains of trustees

(1)Income arising in a year of assessment by virtue of section 96(1) above to trustees shall be chargeable to income tax at a rate equal to the sum of the basic rate and the additional rate for that year.

(2)In section 17 of the [1973 c. 51.] Finance Act 1973 (payments under discretionary trusts), in subsection (3) (amounts to be set against tax assessable on trustees in connection with such payments), at the end of paragraph (e) there shall be inserted the words “and

(f)the amount of any tax on income arising to the trustees by virtue of section 96(1) of the Finance Act 1984 (offshore income gains) and charged at a rate equal to the sum of the basic rate and the additional rate by virtue of section 100(1) of that Act”.

(3)Where an offshore income gain accrues in respect of a disposal of assets made by a person holding them as trustee for a person who would be absolutely entitled as against the trustee but for being an infant, the income which by virtue of section 96(1) above is treated as arising by reference to that gain shall for the purposes of Chapter II of Part XVI of the Taxes Act (settlements on children) be deemed to be paid to the infant; and in this subsection " infant", in relation to Scotland, means a pupil or minor.