Commentary on Sections Section 3: Conferral of British citizenship on British overseas territories citizens
13.Subsection (1) sets out the basic rule that anyone who is a British overseas territories citizen (BOTC) (as renamed) immediately before commencement is to become a British citizen on commencement.  The commencement date is to be appointed by the Secretary of State by order made by statutory instrument: see section 8(2).
14.Subsection (2) sets out the only exception to the basic rule.  Subsection (1) is not to apply to a person who is a BOTC by virtue only of a connection with the Sovereign Base Areas in Cyprus.  So, for example, a person who is a BOTC solely because of birth in the Sovereign Base Areas is excluded from acquiring British citizenship under subsection (1).  But such a person would not be excluded if, having been born in the Sovereign Base Areas on or after 1 January 1983, he was also a BOTC by virtue of a parental connection with, say, Anguilla or Bermuda.
15.Subsection (3) defines which of the persons who become British citizens under subsection (1) are to be treated as “British citizens by descent” for the purposes of the 1981 Act.  A person becoming a British citizen under subsection (1) is a British citizen by descent if­-
In other words, if you are a BOTC by descent at commencement you will be a British citizen by descent, unless you are also a British citizen otherwise than by descent at commencement.
It is necessary to define those persons who are to be British citizens by descent, because under the 1981 Act British citizenship can in general only be passed by descent to one generation; in other words British citizens by descent cannot normally pass their citizenship on to their children automatically.