Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
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Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 11 — Trade profits: other specific trades
70

150
Conversion etc. of securities held as circulating capital
(1)
This section applies for the purpose of calculating the profits of a trade if—
(a)
a transaction falling within subsection (2) occurs in relation to securities
(“the original holding”), and
(b)
a profit on the sale of the securities would be brought into account in
5
calculating the profits of the trade.
(2)
A transaction falls within this subsection if—
(a)
it results in a new holding being treated as the same as the original
holding as a result of sections 126 to 136 of TCGA 1992 (CGT roll-over
relief in cases of conversion etc.), or
10
(b)
it is treated, as a result of section 134 of TCGA 1992 (compensation
stock), as an exchange for a new holding which does not involve a
disposal of the original holding,

and it does not fall within section 151(1) or 152(1) below (exchanges of gilts for
gilt strips and consolidation of gilt strips).
15
(3)
This section does not apply to securities in respect of which unrealised profits
or losses, calculated by reference to the fair value of the securities at the end of
the period of account, are taken into account in the period of account in which
the transaction occurs.
(4)
The transaction is treated as not involving a disposal of the original holding
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and the new holding is treated as the same asset as the original holding.
(5)
But if, under the transaction, the person carrying on the trade—
(a)
receives consideration in addition to the new holding, or
(b)
becomes entitled to receive such consideration,

subsection (4) applies as if the references to the original holding were to the
25
proportion of the original holding given by the following fraction.
(6)
The fraction is—

where—
NH is the market value of the new holding at the time of the transaction,
and
30
C is the market value of the consideration at the time of the transaction or
(if the consideration is cash) the amount of the consideration.
(7)
In determining whether subsection (2)(a) applies as a result of section 135 or
136 of TCGA 1992, the reference to capital gains tax in section 137(1) of TCGA
1992 is to be read as a reference to income tax.
35
(8)
In this section “securities” includes—
(a)
shares,
(b)
loan stocks or similar securities (whether secured or unsecured) of a
government, a local or other public authority (in the United Kingdom
or elsewhere) or a company,
40
(c)
rights of unit holders in unit trust schemes to which TCGA 1992 applies
as a result of section 99 of TCGA 1992,

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 11 — Trade profits: other specific trades
71

(d)
in the case of a company with no share capital, interests in the company
possessed by members of the company,
(e)
quoted options to subscribe for shares which are treated as shares as a
result of section 147 of TCGA 1992, and
(f)
earn-out rights which are assumed to be securities as a result of section
5
138A(3) of TCGA 1992.
151
Exchanges of gilts for gilt strips
(1)
This section applies for the purpose of calculating the profits of a trade if—
(a)
the person carrying it on (“the trader”) exchanges a gilt-edged security
for strips of the security, and
10
(b)
a profit on the sale of the security would be brought into account in
calculating the profits of the trade.
(2)
The security is treated as having been redeemed at the time of the exchange by
the payment to the trader of its market value.
(3)
The trader is treated as having acquired each strip for the proportion of the
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market value of the security given by the following fraction.
(4)
The fraction is—

where—
SV is the market value of one strip, and
TV is the total of the market values of all the strips received in exchange
20
for the security.
(5)
In this section references to market value are to market value at the time of the
exchange.
(6)
This section applies to professions and vocations as it applies to trades.
(7)
See also—
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section 153 (meaning of “gilt-edged security” and “strip”), and
section 154 (regulations for determining market value of securities or
strips).
152
Consolidation of gilt strips
(1)
This section applies for the purpose of calculating the profits of a trade if—
30
(a)
strips of a gilt-edged security are consolidated into a single security by
being exchanged by the person carrying on the trade (“the trader”) for
the single security, and
(b)
a profit on the sale of any of the strips would be brought into account
in calculating the profits of the trade.
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(2)
Each strip is treated as having been redeemed at the time of the exchange by
payment to the trader of its market value.
(3)
The trader is treated as having acquired the gilt-edged security for an amount
equal to the total of the market values of the strips given in exchange.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 11 — Trade profits: other specific trades
72

(4)
In this section references to market value are to market value at the time of the
exchange.
(5)
This section applies to professions and vocations as it applies to trades.
(6)
See also—
section 153 (meaning of “gilt-edged security” and “strip”), and
5
section 154 (regulations for determining market value of securities or
strips).
153
Meaning of “gilt-edged security” and “strip”
(1)
In this Act “gilt-edged security” means a security which—
(a)
is a gilt-edged security for the purposes of TCGA 1992 (see Schedule 9
10
to that Act), or
(b)
will be such a security on the making of an order under paragraph 1 of
Schedule 9 to TCGA 1992, if the making of the order is anticipated in
the prospectus under which the security is issued.
(2)
For the purposes of sections 151 and 152 “strip”, in relation to a gilt-edged
15
security, means a security issued under the National Loans Act 1968 (c. 13)
which meets conditions A to C.
(3)
Condition A is that the security is issued for the purpose of representing the
right to or of securing—
(a)
a payment corresponding to a payment of interest or principal
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remaining to be made under the gilt-edged security, or
(b)
two or more payments each corresponding to a payment to be so made.
(4)
Condition B is that the security is issued in conjunction with the issue of one or
more other securities which, together with that security—
(a)
represent the right to, or
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(b)
secure,

payments corresponding to every payment remaining to be made under the
gilt-edged security.
(5)
Condition C is that the security is not itself a security which—
(a)
represents the right to, or
30
(b)
secures,

payments corresponding to a part of every payment remaining to be made
under the gilt-edged security.
154
Regulations for determining market value of securities or strips
(1)
The Treasury may by regulations make provision for the purposes of sections
35
151 and 152 as to the manner of determining the market value at any time of a
gilt-edged security (including any strip).
(2)
The regulations may—
(a)
make different provision for different cases, and
(b)
contain such incidental, supplemental, consequential and transitional
40
provision as the Treasury consider appropriate.
(3)
The power in this section does not affect the power under section 202(5) of FA
1996 (gilt stripping).

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 11 — Trade profits: other specific trades
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Persons authorised for purposes of FISMA 2000
155
Levies and repayments under FISMA 2000
(1)
This section applies for the purpose of calculating the profits of a trade carried
on by a person who—
(a)
is authorised for the purposes of FISMA 2000 (see section 31(1) of that
5
Act), but
(b)
is not an investment company (within the meaning of section 130 of
ICTA).
(2)
A deduction is allowed for any sum spent by the person in paying a levy, so far
as it is not otherwise allowable.
10
(3)
A payment made to the person as a result of a repayment provision is brought
into account as a receipt.
(4)
For the purposes of this section “levy” means—
(a)
a payment required under rules made under section 136(2) of FISMA
2000,
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(b)
a levy imposed under the Financial Services Compensation Scheme,
(c)
a payment required under rules made under section 234 of FISMA
2000,
(d)
a payment required under the rules referred to in paragraph 14(1) of
Schedule 17 to FISMA 2000 (“scheme rules”) in accordance with
20
paragraph 15(1) of that Schedule, or
(e)
a payment required in accordance with the standard terms fixed under
paragraph 18 of that Schedule (other than an award which is not an
award of costs under rules made under section 230 of FISMA 2000 or
under provision relating to costs contained in those standard terms).
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(5)
For the purposes of this section “repayment provision” means—
(a)
any provision made by virtue of section 136(7) or 214(1)(e) of FISMA
2000, or
(b)
any provision made by scheme rules for fees to be refunded in specified
circumstances.
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Dealers in land etc.
156
Purchase or sale of woodlands
(1)
This section applies for the purpose of calculating the profits of a trade of
dealing in land.
(2)
If the person carrying on the trade buys woodlands in the United Kingdom in
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the course of the trade, the part of the cost of the woodlands which is
attributable to trees or saleable underwood growing on the land is ignored.
(3)
If—
(a)
the woodlands are subsequently sold in the course of the trade, and
(b)
any of the trees or underwood are still growing on the land at the time
40
of the sale,

the part of the price that is equal to the amount ignored under subsection (2)
for the trees or underwood is ignored.