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Income Tax (Trading and Other Income) Bill


Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 8 — Profits from deeply discounted securities

190

 

   

payments corresponding to a part of every payment remaining to be made

under the underlying security.

(5)   

After the balance has been struck for a dividend on any underlying security, a

payment to be made in respect of that dividend is treated for the purposes of

conditions A to C as not being a payment remaining to be made under the

5

underlying security.

445     

Strips of government securities: acquisitions and disposals

(1)   

A person who receives strips of a security (“the underlying security”) in

exchange for the underlying security is treated as having acquired each strip

by the payment of an amount equal to—equation: cross[char[A],over[char[B],char[C]]]

10

   

where—

A is the market value of the underlying security at the time of the

exchange,

B is the market value of the strip at that time, and

C is the total of the market values at that time of all the strips received in

15

the exchange.

(2)   

F or the purposes of this Chapter—

(a)   

a person who holds a strip of a security on 5th April in any tax year is

treated as having transferred the strip on that day, and

(b)   

an amount equal to its market value on that day is treated as payable

20

on the transfer.

(3)   

For the purposes of this Chapter that person is also treated as having

immediately re-acquired the strip for the same amount.

(4)   

Subsections (2) and (3) do not apply if there is any other disposal of the strip on

that day.

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(5)   

Section 439(4) (deduction of incidental expenses incurred before 27th March

2003) does not apply to transfers and reacquisitions within subsections (2) and

(3).

(6)   

For the purposes of this Chapter—

(a)   

the consolidation of a strip of a security with other such strips into a

30

single security is a disposal of the strip by the person consolidating it

(whether or not it would be apart from this subsection), and

(b)   

an amount equal to the market value of the strip at the consolidation is

treated as payable on the disposal.

(7)   

Section 438 (timing of transfers and acquisitions) does not apply to an exchange

35

within subsection (1) or a consolidation within subsection (6).

(8)   

Subsections (1) and (6) apply instead of sections 440(4) (market value on

general conversions of deeply discounted securities) and 441 (market value

acquisitions).

 
 

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 8 — Profits from deeply discounted securities

191

 

446     

Strips of government securities: relief for losses

(1)   

Relief from income tax may be claimed under this section for any loss made on

the disposal of a strip of a security.

(2)   

If such a claim is made, an amount of income for the tax year in which the

disposal occurs which is equal to that loss is not charged to income tax.

5

(3)   

For this purpose a person makes a loss on the disposal of a strip if—

(a)   

the person disposes of the strip, and

(b)   

the amount the person paid for the strip, ignoring any incidental

expenses incurred in connection with the acquisition, exceeds the

amount payable on the disposal, ignoring any incidental expenses

10

incurred in connection with the disposal.

(4)   

The loss is an amount equal to the excess.

(5)   

A claim under this section must be made on or before the first anniversary of

the normal self-assessment filing date for the tax year in which the disposal

occurs.

15

(6)   

The relief may be claimed by the person making the disposal.

(7)   

Relief for a loss on a disposal may not be claimed under this section if section

454 (listed securities held since 26th March 2003: relief for losses) applies in

respect of the disposal.

(8)   

This section is subject to—

20

(a)   

section 448 (restriction of losses on strips by reference to original

acquisition cost),

(b)   

section 449 (strips of government securities: manipulation of

acquisition, sale or redemption payments), and

(c)   

section 458(2) (strips held by non-UK resident trustees).

25

447     

Restriction of profits on strips by reference to original acquisition cost

(1)   

This section applies if—

(a)   

a person makes a profit on the disposal of a strip (apart from this

section), and

(b)   

the person’s original acquisition cost for the strip (see subsection (4))

30

exceeds the amount that falls to be brought into account as the amount

paid by the person to acquire the strip in determining the amount of the

profit.

(2)   

If the amount that falls to be brought into account as the amount payable on the

disposal in determining the amount of the profit exceeds the person’s original

35

acquisition cost for the strip, the amount of the profit is restricted to that excess.

(3)   

Otherwise the person is treated as not making a profit on the disposal.

(4)   

For the purposes of this section and section 448, a person’s original acquisition

cost for a strip is the amount that falls to be taken into account as the amount

paid by the person to acquire the strip in determining whether the person

40

makes a profit or loss on its disposal if 5th April disposals and acquisitions are

ignored.

(5)   

In subsection (4) “5th April disposals and acquisitions” means—

(a)   

disposals under section 445(2) (other than the disposal in question), and

 
 

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 8 — Profits from deeply discounted securities

192

 

(b)   

acquisitions under section 445(3).

448     

Restriction of losses on strips by reference to original acquisition cost

(1)   

This section applies if—

(a)   

a person makes a loss on the disposal of a strip (apart from this section),

and

5

(b)   

the person’s original acquisition cost for the strip exceeds the amount

that falls to be brought into account as the amount payable on the

disposal of the strip in determining the amount of the loss.

(2)   

If the amount that falls to be brought into account as the amount paid by the

person to acquire the strip in determining the amount of the loss exceeds the

10

person’s original acquisition cost for the strip, the amount of the loss is

reduced.

(3)   

The amount of the reduction is A - B where—

A is the person’s original acquisition cost for the strip, and

B is the amount that falls to be brought into account as the amount

15

payable on the disposal of the strip in determining the amount of the

loss.

(4)   

If subsection (2) does not apply, the person is treated as not making a loss on

the disposal.

(5)   

In this section any reference to making a loss on the disposal of a strip has the

20

meaning given in section 446(3) and (4).

449     

Strips of government securities: manipulation of acquisition, transfer or

redemption payments

(1)   

This section applies if—

(a)   

as a result of a scheme or arrangement an amount referred to in

25

subsection (2)(a), (b) or (c) differs from the market value of a strip in a

way specified in that subsection, and

(b)   

the obtaining of a tax advantage by any person is the main benefit, or

one of the main benefits, that might have been expected to accrue from,

or from any provision of, the scheme or arrangement.

30

(2)   

The ways are that—

(a)   

the amount paid by a person in respect of the acquisition of the strip is

or was more than the market value at the time of the acquisition,

(b)   

the amount payable to a person on transferring the strip is less than the

market value at the time of the transfer, or

35

(c)   

on redemption of the strip the amount payable to a person, as the

person holding the strip, is less than the market value on the day before

redemption.

(3)   

In a case within subsection (2)(a), for the purposes of sections 439(1) and 446(3)

on transferring the strip the person is treated as if the person had paid to

40

acquire the strip an amount equal to the market value of the strip at the time of

the acquisition.

(4)   

In a case within subsection (2)(b), for those purposes the person is treated as if

the amount payable to the person on the transfer were an amount equal to the

market value of the strip at the time of the transfer.

45

 
 

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 8 — Profits from deeply discounted securities

193

 

(5)   

In a case within subsection (2)(c), for those purposes the person is treated as if

the amount payable to the person on redemption were an amount equal to the

market value of the strip on the day before redemption.

(6)   

For the purposes of this section, no account is to be taken of any incidental

expenses incurred in connection with any disposal or acquisition of a strip.

5

450     

Market value of strips etc.

(1)   

This section and section 451 (market value of strips etc. quoted in foreign stock

exchange lists) deal with—

(a)   

determining the market value at any time of a strip for the purposes of

this Chapter, and

10

(b)   

determining the market value at any time of a security exchanged for

strips of that security for the purposes of section 445(1).

(2)   

The market value on any day on which the Stock Exchange is open of any strip

or security quoted in The Stock Exchange Daily Official List is—

(a)   

the lower of the two figures shown in that List for the strip or security

15

for that day, plus

(b)   

one-quarter of the difference between those two figures.

(3)   

The market value on any day on which the Stock Exchange is closed of any

such strip or security is the lower of—

(a)   

its market value on the latest previous day on which the Stock

20

Exchange is open, and

(b)   

its market value on the earliest subsequent day on which the Stock

Exchange is open.

(4)   

The Treasury may by regulations make provision as to the manner of

determining, for any of the purposes mentioned in subsection (1), the market

25

value at any time of—

(a)   

any strip, or

(b)   

any security exchanged for strips of that security.

(5)   

The regulations may amend or modify—

(a)   

subsection (2) or (3), or

30

(b)   

any provision of section 451.

(6)   

The regulations may—

(a)   

make different provision for different cases, and

(b)   

contain such incidental, supplemental, consequential and transitional

provision and savings as the Treasury consider appropriate.

35

451     

Market value of strips etc. quoted in foreign stock exchange lists

(1)   

This section applies if the strip or security referred to in section 450(1)—

(a)   

is a security, or a strip of a security, issued by or on behalf of the

government of a territory outside the United Kingdom, and

(b)   

is not quoted in The Stock Exchange Daily Official List, but

40

(c)   

is quoted in a foreign stock exchange list.

(2)   

The market value on any day on which the foreign stock exchange to which

that list relates is open is—

 
 

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 8 — Profits from deeply discounted securities

194

 

(a)   

the lower of the two figures shown in that list for the strip or security

for that day, plus

(b)   

one-quarter of the difference between those two figures.

(3)   

The market value on any day on which the foreign stock exchange to which

that list relates is closed is the lower of—

5

(a)   

its market value on the latest previous day on which that exchange is

open, and

(b)   

its market value on the earliest subsequent day on which that exchange

is open.

(4)   

But subsections (2) and (3) have effect subject to any modifications that are

10

necessary because of the form of quotation adopted in the exchange in

question.

(5)   

In particular, if a single figure only is published, that figure is to be taken as the

market value.

(6)   

If a strip or security is quoted in more than one foreign stock exchange list—

15

(a)   

any such list published for a foreign stock exchange in the territory of

the issuing government is to be used for the purposes of this section in

preference to any other such list, and

(b)   

any such list published for a foreign stock exchange which is regarded

as the major exchange in that territory for strips or securities is to be

20

used for those purposes in preference to any other such list.

(7)   

In this section—

“foreign stock exchange” means a recognised stock exchange in a territory

outside the United Kingdom on which strips are traded,

“foreign stock exchange list” means any publication which performs in

25

the case of a foreign stock exchange a function equivalent, or broadly

similar, to that performed by The Stock Exchange Daily Official List in

relation to strips, and

“issuing government” means the government which issued the security

mentioned in subsection (1)(a).

30

452     

Power to modify this Chapter for strips

(1)   

The Treasury may by regulations provide that this Chapter is to apply to a strip

with such modifications as they consider appropriate.

(2)   

This section is without prejudice to the general power to make regulations

under section 202 of FA 1996 (gilt stripping).

35

Special rules for listed securities held since 26th March 2003

453     

Application of sections 454 to 456

(1)   

In the case of a disposal of a deeply discounted security that meets conditions

A and B, the rules in sections 454 to 456 apply for—

(a)   

providing for relief for losses on the disposal, and

40

(b)   

calculating the amount of profits chargeable under this Chapter on the

disposal or the losses for which such relief may be given.

 
 

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 8 — Profits from deeply discounted securities

195

 

(2)   

Condition A is that the person making the disposal has held the security

continuously since a time before 27th March 2003.

(3)   

Condition B is that the security was listed on a recognised stock exchange at

any time before 27th March 2003.

454     

Listed securities held since 26th March 2003: relief for losses

5

(1)   

A person may claim relief from income tax under this section for a loss the

person has made on disposing of deeply discounted securities.

(2)   

For this purpose a person makes such a loss only if A exceeds B, where—

A is the amount the person paid for the securities, excluding any

incidental expenses incurred in connection with the acquisition, and

10

B is the amount payable on the disposal, excluding any incidental

expenses incurred in connection with the disposal.

(3)   

For the calculation of the amount of the loss, see section 455(2) to (4) (under

which those expenses are taken into account).

(4)   

If a claim under this section is made by a person other than a trustee, an

15

amount of income for the tax year in which the disposal occurs which is equal

to that loss is not charged to income tax.

(5)   

If such a claim is made by a trustee, the amount of profits arising in the tax year

in which the disposal occurs that is charged under this Chapter is reduced by

the amount of the loss.

20

(6)   

A claim under this section must be made on or before the first anniversary of

the normal self-assessment filing date for the tax year in which the disposal

occurs.

(7)   

This section is subject to section 458(2) (securities held by non-UK resident

trustees).

25

455     

Listed securities held since 26th March 2003: calculating the profit or loss on

disposals

(1)   

A person’s profit on a disposal, as calculated under section 439, is reduced by

any incidental expenses incurred by that person in connection with the

disposal or the acquisition of the security that have not been deducted under

30

section 439(4).

(2)   

A person’s loss on a disposal for the purposes of section 454 (relief for losses)

is the amount by which the deductible costs exceed the amount payable on the

disposal.

(3)   

In this section the “deductible costs” means—

35

(a)   

the amount paid by the person to acquire the security, and

(b)   

the incidental expenses incurred by that person in connection with the

disposal or the acquisition.

(4)   

Where a person re-acquires a security, any previous acquisition of it is ignored

in determining the person’s incidental expenses within subsection (1) or

40

deductible costs on a subsequent disposal.

 
 

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 8 — Profits from deeply discounted securities

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(5)   

For the purposes of this section, no incidental expenses are treated as incurred

in connection with transfers and reacquisitions within section 445(2) and (3)

(transfer and immediate reacquisition of strips on 5th April).

456     

Securities issued to connected persons etc. at excessive price: subsequent

transfers to connected persons

5

(1)   

No loss is taken to occur for the purposes of section 454 on a transfer of a deeply

discounted security to a person connected with the transferor if conditions A

and B and either condition C or conditions D and E are met.

(2)   

Condition A is that the transferor acquired the security on its issue.

(3)   

Condition B is that the amount paid by the transferor to acquire the security

10

exceeded the market value of the security at the time of its issue.

(4)   

Condition C is that at that time the transferor was connected with the issuer.

(5)   

Condition D is that at that time the issuer was a close company.

(6)   

Condition E is that at that time the transferor controlled that company with

other persons to whom securities of the same kind were also issued.

15

(7)   

Section 414 of ICTA (close companies) has effect for the purposes of this section

with the omission of subsection (1)(a) (which excludes non-UK resident

companies).

(8)   

In this section “control” has the meaning given by section 416 of ICTA.

Trustees

20

457     

Trustees

(1)   

This section applies if profits are taken to arise on a disposal of a deeply

discounted security by trustees.

(2)   

For the purposes of Chapter 5 of Part 5 (settlements: amounts treated as income

of settlor), the profits are to be taken to be income arising under the settlement

25

from the security.

(3)   

For the purposes of Chapter 1C of Part 15 of ICTA (settlements: liability of

trustees), the profits are to be taken to be income arising to the trustees.

(4)   

Income tax that is charged on the trustees is to be charged at the rate applicable

to trusts for the tax year in which the disposal occurs.

30

(5)   

If the trustees are trustees of a scheme to which section 469 of ICTA applies

(unauthorised unit trusts), subsections (2) to (4) do not apply to any profits

treated as income in the scheme’s accounts.

458     

Non-UK resident trustees

(1)   

Tax is not charged under this Chapter if the disposal is made by the trustees of

35

a settlement and they are non-UK resident.

(2)   

The following provisions do not apply if the disposal falls within subsection

(1)—

section 446 (strips of government securities: relief for losses), and

 
 

 
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