House of Commons portcullis
House of Commons
Session 2004 - 05
Internet Publications
Other Bills before Parliament

Income Tax (Trading and Other Income) Bill


Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 2 — Interest

163

 

is made to deduct tax under section 349(2) of ICTA in the case of interest

distributions within that subsection).

(5)   

The amount of the payment treated as made to each owner is so much of the

total amount mentioned in subsection (1) as is proportionate to the owner’s

shares.

5

(6)   

This section only applies if the condition in section 468L(1A) of ICTA (the

qualifying investments test) is met throughout the distribution period.

(7)   

This section does not apply if the open-ended investment company is an

approved personal pension scheme.

(8)   

See section 375 for the interpretation of this section and section 374.

10

374     

Date when interest payments under section 373 made

(1)   

This section applies for determining the date on which payments of interest

under section 373 are treated as made.

(2)   

The date on which the payments are treated as made depends on whether a

date is specified for any distribution for the distribution period in question by

15

or in accordance with—

(a)   

the company’s instrument of incorporation and its prospectus in issue

for the time being (including any supplements), or

(b)   

in the case of an open-ended investment company which is part of an

umbrella company, such parts of those documents of the umbrella

20

company as apply to the open-ended investment company.

(3)   

If such a date is so specified, the payments are treated as made on that date.

(4)   

If no such date is so specified, the payments are treated as made on the last day

of that period.

375     

Interpretation of sections 373 and 374

25

(1)   

In sections 373 and 374 and this section—

“approved personal pension scheme” has the same meaning as in Chapter

4 of Part 14 of ICTA (see section 630(1) of that Act),

“distribution” includes investment on behalf of an owner of shares in

respect of the owner’s accumulation shares,

30

“distribution accounts” means the accounts showing how the total

amount available for distribution to owners of shares is calculated,

“distribution period” means the period by reference to which that amount

is ascertained,

“the OEIC Regulations” means the Open-ended Investment Companies

35

(Tax) Regulations 1997 (S.I. 1997/1154),

“open-ended investment company” has the same meaning as in Chapter

3 of Part 12 of ICTA (unit trust schemes etc.) (see section 468(10) and

(11) of ICTA, as inserted by regulation 10 of the OEIC Regulations),

“owner of shares” has the same meaning as in that Chapter (see section

40

468(10) and (15) of that Act, as so inserted), and

“umbrella company” has the same meaning as in section 468 of that Act

(see section 468(18), as so inserted).

 
 

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 2 — Interest

164

 

(2)   

In subsection (1) “accumulation share” means a share in respect of which

income is credited periodically to the capital part of the company’s scheme

property.

(3)   

In subsection (2) “scheme property” has the same meaning as in Chapter 3 of

Part 12 of ICTA (unit trust schemes etc.) (see section 468(10) and (13) of ICTA,

5

as inserted by regulation 10 of the OEIC Regulations).

376     

Authorised unit trust interest distributions

(1)   

This section applies if the distribution accounts of an authorised unit trust

show the total amount available for distribution to unit holders as available for

distribution as yearly interest.

10

(2)   

Subsection (1) is subject to subsections (6) and (7).

(3)   

For income tax purposes payments of yearly interest are treated as made to the

unit holders.

(4)   

Subsection (3) is subject to the qualifications in section 468L(4) of ICTA (which

modifies the obligation for a person by or through whom a payment of interest

15

is made to deduct tax under section 349(2) of ICTA in the case of interest

distributions within that subsection).

(5)   

The amount of the payment treated as made to each unit holder is so much of

the total amount mentioned in subsection (1) as is proportionate to the unit

holder’s rights.

20

(6)   

This section only applies if the condition in section 468L(1A) of ICTA (the

qualifying investments test) is met throughout the distribution period.

(7)   

This section does not apply if the authorised unit trust is an approved personal

pension scheme.

(8)   

See section 378 for the interpretation of this section and section 377.

25

377     

Date when interest payments under section 376 made

(1)   

This section applies for determining the date on which payments of interest

under section 376 are treated as made.

(2)   

The date on which the payments are treated as made depends on whether a

date is specified by or in accordance with the trust’s terms for any distribution

30

for the distribution period in question.

(3)   

If such a date is so specified, the payments are treated as made on that date.

(4)   

If no such date is so specified, the payments are treated as made on the last day

of that period.

378     

Interpretation of sections 376 and 377

35

In sections 376 and 377

“approved personal pension scheme” has the same meaning as in Chapter

4 of Part 14 of ICTA (see section 630(1) of that Act),

“distribution” includes investment on behalf of a unit holder in respect of

the holder’s accumulation units,

40

 
 

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 2 — Interest

165

 

“distribution accounts” means the accounts showing how the total

amount available for distribution to unit holders is ascertained, and

“distribution period” means the period by reference to which that amount

is ascertained.

379     

Industrial and provident society payments

5

(1)   

Any dividend, bonus or other sum payable to a shareholder in—

(a)   

a registered industrial and provident society, or

(b)   

a UK agricultural or fishing co-operative,

   

is treated as interest for income tax purposes if it is payable by reference to the

amount of the shareholder’s holding in its share capital.

10

(2)   

In subsection (1)—

“registered industrial and provident society” means a society registered

or treated as registered under the Industrial and Provident Societies

Act 1965 (c. 12) or the Industrial and Provident Societies Act (Northern

Ireland) 1969 (c. 24 (N.I.)), and

15

“UK agricultural or fishing co-operative” means a co-operative

association—

(a)   

which is established in the United Kingdom and UK resident,

and

(b)   

whose primary object is assisting its members in—

20

(i)   

carrying on agricultural or horticultural businesses on

land occupied by them in the United Kingdom, or

(ii)   

carrying on businesses consisting in the catching or taking

of fish or shellfish.

(3)   

In subsection (2) “co-operative association” means a body with a written

25

constitution from which the Secretary of State considers that it is in substance

a co-operative association.

(4)   

For the purposes of subsection (3), the Secretary of State must have regard to

the way in which the body’s constitution provides for its income to be applied

for its members’ benefit and all other relevant provisions.

30

(5)   

In Northern Ireland subsections (3) and (4) apply with the substitution for “the

Secretary of State” of “the Department of Agriculture and Rural Development”.

380     

Funding bonds

(1)   

This section applies to the issue of funding bonds to a creditor in respect of a

liability to pay interest on a debt incurred by a government, public institution,

35

other public authority or body corporate.

(2)   

The issue is treated for income tax purposes as if it were the payment of so

much of that interest as equals the market value of the bonds at their issue.

(3)   

In this section “funding bonds” includes any bonds, stocks, shares, securities or

certificates of indebtedness.

40

381     

Discounts

(1)   

All discounts, other than discounts in deeply discounted securities, are treated

as interest for the purposes of this Act.

 
 

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 3 — Dividends etc. from UK resident companies etc.

166

 

(2)   

In this section “deeply discounted securities” means securities to which

Chapter 8 of this Part applies (profits from deeply discounted securities).

Chapter 3

Dividends etc. from UK resident companies etc.

Introduction

5

382     

Contents of Chapter

(1)   

This Chapter—

(a)   

imposes a charge to income tax on dividends and other distributions of

UK resident companies (see section 383),

(b)   

treats dividends as paid in some circumstances (see sections 386 to 391),

10

and

(c)   

makes special provision where the charge is in respect of shares

awarded under an approved share incentive plan (see sections 392 to

396).

(2)   

This Chapter also makes provision about tax credits, tax being treated as paid

15

and reliefs available in respect of certain distributions which applies whether

or not the distributions are otherwise dealt with under this Chapter (see

sections 397 to 401).

(3)   

For exemptions from the charge under this Chapter, see in particular—

Chapter 3 of Part 6 (income from individual investment plans),

20

Chapter 5 of that Part (venture capital trust dividends),

section 770 (amounts applied by SIP trustees acquiring dividend shares or

retained for reinvestment), and

section 498 of ITEPA 2003 (no charge on shares ceasing to be subject to SIP

in certain circumstances).

25

(4)   

In this Chapter “dividends” does not include income treated as arising under

section 410 (stock dividends).

Charge to tax on dividends and other distributions

383     

Charge to tax on dividends and other distributions

(1)   

Income tax is charged on dividends and other distributions of a UK resident

30

company.

(2)   

For income tax purposes such dividends and other distributions are to be

treated as income.

(3)   

For the purposes of subsection (2), it does not matter that those dividends and

other distributions are capital apart from that subsection.

35

384     

Income charged

(1)   

Tax is charged under this Chapter on the amount or value of the dividends

paid and other distributions made in the tax year.

 
 

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 3 — Dividends etc. from UK resident companies etc.

167

 

(2)   

Subsection (1) is subject to—

section 393(2) and (3) (later charge where cash dividends retained in SIPs

are paid over), and

section 394(3) (distribution when dividend shares cease to be subject to

SIP).

5

(3)   

See also section 398 (under which the amount or value of the dividends or other

distributions is treated as increased if any person is entitled to a tax credit in

respect of them).

385     

Person liable

(1)   

The person liable for any tax charged under this Chapter is—

10

(a)   

the person to whom the distribution is made or is treated as made (see

Part 6 of ICTA and sections 386(3) and 389(3)), or

(b)   

the person receiving or entitled to the distribution.

(2)   

Subsection (1) is subject to—

section 393(4) (later charge where cash dividends retained in SIPs are paid

15

over), and

section 394(4) (distribution when dividend shares cease to be subject to

SIP).

Amounts treated as dividends

386     

Open-ended investment company dividend distributions

20

(1)   

This section applies if the distribution accounts of an open-ended investment

company show the total amount available for distribution to owners of shares

in the company as available for distribution as dividends.

(2)   

Subsection (1) is subject to subsection (5).

(3)   

For income tax purposes dividends are treated as paid to the owners of the

25

shares by the company.

(4)   

The amount of the dividends treated as paid to each owner is so much of the

total amount mentioned in subsection (1) as is proportionate to the owner’s

shares.

(5)   

This section does not apply if the open-ended investment company is an

30

approved personal pension scheme.

(6)   

See section 388 for the interpretation of this section and section 387.

387     

Date when dividends paid under section 386

(1)   

This section applies for determining the date on which dividends are treated as

paid under section 386.

35

(2)   

The date on which the dividends are treated as paid depends on whether a date

is specified for the distribution period in question by or in accordance with—

(a)   

the company’s instrument of incorporation and its prospectus in issue

for the time being (including any supplements), or

 
 

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 3 — Dividends etc. from UK resident companies etc.

168

 

(b)   

in the case of an open-ended investment company which is part of an

umbrella company, such parts of those documents of the umbrella

company as apply to the open-ended investment company.

(3)   

If such a date is so specified, the dividends are treated as paid on that date.

(4)   

If no such date is so specified, the dividends are treated as paid on the last day

5

of that period.

388     

Interpretation of sections 386 and 387

(1)   

In sections 386 and 387 and this section—

“approved personal pension scheme” has the same meaning as in Chapter

4 of Part 14 of ICTA (see section 630(1) of that Act),

10

“distribution” includes investment on behalf of an owner of shares in

respect of the owner’s accumulation shares,

“distribution accounts” means the accounts showing how the total

amount available for distribution to owners of shares is calculated,

“distribution period” means the period by reference to which that amount

15

is ascertained,

“the OEIC Regulations” means the Open-ended Investment Companies

(Tax) Regulations 1997 (S.I. 1997/1154),

“open-ended investment company” has the same meaning as in Chapter

3 of Part 12 of ICTA (unit trust schemes etc.) (see section 468(10) and

20

(11) of ICTA, as inserted by regulation 10 of the OEIC Regulations),

“owner of shares” has the same meaning as in that Chapter (see section

468(10) and (15) of that Act, as so inserted), and

“umbrella company” has the same meaning as in section 468 of that Act

(see section 468(18), as so inserted).

25

(2)   

In subsection (1) “accumulation share” means a share in respect of which

income is credited periodically to the capital part of the company’s scheme

property.

(3)   

In subsection (2) “scheme property” has the same meaning as in Chapter 3 of

Part 12 of ICTA (unit trust schemes etc.) (see section 468(10) and (13) of ICTA,

30

as inserted by regulation 10 of the OEIC Regulations).

389     

Authorised unit trust dividend distributions

(1)   

This section applies if the distribution accounts of an authorised unit trust

show the total amount available for distribution to unit holders as available for

distribution as dividends.

35

(2)   

Subsection (1) is subject to subsection (6).

(3)   

For income tax purposes dividends are treated as paid to the unit holders.

(4)   

The amount of the dividends treated as paid to each unit holder is so much of

the total amount mentioned in subsection (1) as is proportionate to the unit

holder’s rights.

40

(5)   

The dividends are treated as paid on the shares and by the company referred

to in section 468(1) of ICTA (which relates to the trustees of an authorised unit

trust being treated as a UK resident company in which the unit holders’ rights

are shares).

 
 

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 3 — Dividends etc. from UK resident companies etc.

169

 

(6)   

This section does not apply if the authorised unit trust is an approved personal

pension scheme.

(7)   

See section 391 for the interpretation of this section and section 390.

390     

Date when dividends paid under section 389

(1)   

This section applies for determining the date on which dividends are treated as

5

paid under section 389.

(2)   

The date on which the dividends are treated as paid depends on whether a date

is specified by or in accordance with the trust’s terms for any distribution for

the distribution period in question.

(3)   

If such a date is so specified, the dividends are treated as paid on that date.

10

(4)   

If no such date is so specified, the dividends are treated as paid on the last day

of that period.

391     

Interpretation of sections 389 and 390

In sections 389 and 390

“approved personal pension scheme” has the same meaning as in Chapter

15

4 of Part 14 of ICTA (see section 630(1) of that Act),

“distribution” includes investment on behalf of a unit holder in respect of

the holder’s accumulation units,

“distribution accounts” means the accounts showing how the total

amount available for distribution to unit holders is ascertained, and

20

“distribution period” means the period by reference to which that amount

is ascertained.

Shares in approved share incentive plans ("SIPs")

392     

SIP shares: introduction

(1)   

Sections 393 to 395 contain special rules about the charge under this Chapter in

25

respect of shares awarded to an individual under an approved share incentive

plan.

(2)   

Those sections only apply if condition A or B was met at the time the shares in

question were so awarded.

(3)   

Condition A is that—

30

(a)   

the earnings from the eligible employment were general earnings (see

section 7(3) of ITEPA 2003) to which any of the charging provisions of

Chapter 4 or 5 of Part 2 of ITEPA 2003 applied, or

(b)   

if there had been any earnings from it, they would have been such

earnings.

35

(4)   

In subsection (3)—

(a)   

“the eligible employment” means the employment resulting in the

individual meeting the employment requirement in relation to the

plan, and

 
 

 
previous section contents continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 2004
Revised 1 December 2004