Income Tax Citation and commencement 1 These Regulations may be cited as the Individual Savings Account (Amendment No. 3) Regulations 2016 and come into force on 1st November 2016. Amendment of the Individual Savings Account Regulations 1998 2 The Individual Savings Account Regulations 1998 are amended as follows. 3 In regulation 2(1)(a) (interpretation)— a for the definition of “outstanding principal balance”, substitute— “outstanding principal balance” means, in respect of a qualifying investment for an innovative finance component, the amount in respect of the investment owing to the account investor at any time; ; b at the appropriate places insert— “charity” has the meaning given in paragraph 1(1) of Schedule 6 to the Finance Act 2010 ; ; “debenture” includes any instrument creating or acknowledging indebtedness within the meaning of article 77(1) and (2) of the Regulated Activities Order 2001 but with the omission of the words “such of the following as do not fall within article 78; ; “transferable security” has the meaning given in section 102A(3) of FISMA 2000 ; . 4 In regulation 4(6)(c) and (d) (general conditions for accounts and subscriptions to accounts) after “stocks and shares component,” insert “qualifying investments for an innovative finance component”. 5 In regulation 5DDA (additional permitted subscription to an account other than a junior ISA account) — a in paragraph (3A), for “article 36H agreements”, substitute “qualifying investments for an innovative finance component”; and b in paragraph (11)(b), after sub-paragraph (iii) insert— iv those investments specified in regulation 8A(2)(ca); and . 6 In regulation 6(2) (general investment rules), in paragraph (2), omit “by an account manager”. 7 In regulation 8A (qualifying investments for an innovative finance component)— a after sub-paragraph (2)(c), insert— ca debentures where the conditions in paragraph (4) are met; ; b after paragraph (3), insert— 4 The conditions in this paragraph are— a the debenture is a transferable security issued by a company or a charity; b the investment in the debenture is facilitated by a person carrying on an activity of the kind specified in article 25 of the Regulated Activities Order 2001 through an electronic system operated by that person in an EEA State for such purpose; c that person or another, acting under an arrangement with that person or at that person’s direction, in respect of the investment, treats the account investor as its client and undertakes on behalf of the account investor to— i receive payments in respect of the debenture; ii make payments, when due, in respect of the debenture to the account investor; and iii exercise, or facilitate the exercise of, rights in respect of the debenture; d the investment in the debenture is not part of a scheme or arrangement the main purpose, or one of the main purposes, of which is the avoidance of tax; e the debenture is not made available to the account investor by reason of their or of another’s status, whether past, present or prospective, as an employee, director, partner, trustee or the holder of any office; f the account investor is not connected with the issuer of the debenture, and for this purpose “connected” has the meaning given in section 170 of ITA 2007 with the omission of the reference to “in period A” in sub-section (7); g the debenture must not be connected with any other investment held outside an account by the account investor or any other person, and for this purpose an investment is to be treated as connected with another if— i either was made with reference to the other or with a view to enabling the other to be made on particular terms; ii the terms on which either investment was made would have been significantly less favourable if the other investment had not been made; and h the investment in the debenture is made on genuine commercial terms. . 8 In regulation 31 (returns of information by account manager)— a in paragraph (3)(d)— i for “specified at regulation 8A(2)(a)”, substitute “specified in regulation 8A(2)(a) or 8A(2)(ca)”; ii for “article 36H agreements in respect of which payments are due to be made to the account manager”, substitute “qualifying investments for an innovative finance component in respect of which payments are due to be made”; b at the end of paragraph 4(d)(ii) substitute the full-stop with “, and”; and c after paragraph 4(d)(ii) insert— iii the outstanding principal balance under those investments specified in regulation 8A(2)(ca) in respect of which payments are due to be made. . Stephen Barclay David Evennett Two of the Lords Commissioners of Her Majesty’s Treasury 10th October 2016