Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
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Other Bills before Parliament

Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 4 — SAYE interest
307

(4)
A documents notice must specify the period for compliance with it.
(5)
In this section “information request” means a request to give the Board
information about a plan or investments held or formerly held under it.
(6)
The regulations must specify—
(a)
the kind of information to which an information request may relate,
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and
(b)
the period from the making of the request for compliance with it.
701
General and supplementary powers
(1)
Investment plan regulations may make provision generally for the purpose
of—
10
(a)
the establishment and administration of plans, and
(b)
the administration of income tax in relation to them.
(2)
They may adapt or modify the effect of any enactment relating to income tax
for the purpose of securing that investors are entitled to exemption from
income tax in respect of investments.
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(3)
They may specify how exemption from tax is to be claimed by, and granted to,
investors or plan managers on behalf of investors.
Chapter 4
SAYE interest
702
Interest under certified SAYE savings arrangements
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(1)
No liability to income tax arises in respect of interest payable under a certified
SAYE savings arrangement.
(2)
In this section “certified SAYE savings arrangement” has the meaning given in
section 703(1).
(3)
Subsection (1) is subject to—
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(a)
section 707(1) (which requires the providers of certain arrangements to
be authorised), and
(b)
paragraph 7 of Schedule 12 to FA 1988 (application of exemption on
change of status of building society).
(4)
In this Chapter “interest” includes any bonus.
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703
Meaning of “certified SAYE savings arrangement”
(1)
In this Chapter “certified SAYE savings arrangement” means a linked savings
arrangement which is certified under section 705.
(2)
In this Chapter “linked savings arrangement” means an arrangement—
(a)
which is of a kind specified in section 704(1), and
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(b)
under which an individual who is eligible to participate in an approved
SAYE option scheme enters into a contract to make periodical
contributions for a specified period for the purpose of being able to
participate in that scheme.

Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 4 — SAYE interest
308

(3)
In subsection (2)—
“to participate” means to obtain and exercise rights under the scheme, and
“SAYE option scheme” has the meaning given by section 516(4) of ITEPA
2003, and such a scheme is “approved” if it is approved under Schedule
3 to ITEPA 2003.
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704
Types of arrangements and providers
(1)
A linked savings arrangement may be—
(a)
a national savings arrangement, or
(b)
an institutional arrangement.
(2)
In this Chapter “national savings arrangement” means an arrangement
10
which—
(a)
provides for contributions to be paid to raise money under section 12 of
the National Loans Act 1968 (c. 13) (power of Treasury to borrow),
(b)
is governed by regulations made under section 11 of the National Debt
Act 1972 (c. 65) (power of Treasury to make regulations as to raising of
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money under auspices of Director of Savings), and
(c)
provides for the repayment of those contributions, together with
interest, in accordance with those regulations.
(3)
In this Chapter “institutional arrangement” means—
(a)
a bank arrangement,
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(b)
a building society arrangement, or
(c)
a European authorised institution arrangement.
(4)
In this Chapter—
(a)
“bank arrangement” means an arrangement which provides for
contributions to be paid to a person within section 840A(1)(b) of ICTA
25
(banks), and
(b)
“provider”, in relation to such an arrangement, means that person.
(5)
In this Chapter—
(a)
“building society arrangement” means an arrangement which provides
for contributions to be paid by way of investment in shares in a
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building society, and
(b)
“provider”, in relation to such an arrangement, means that society.
(6)
In this Chapter—
“European authorised institution” means an EEA firm of the kind
mentioned in paragraph 5(b) of Schedule 3 to FISMA 2000 which has
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permission under paragraph 15 of that Schedule (as a result of
qualifying for authorisation under paragraph 12 of that Schedule) to
accept deposits,
“European authorised institution arrangement” means an arrangement
which provides for contributions to be paid to such a firm, and
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“provider”, in relation to such an arrangement, means that firm.
705
Certification of arrangements
(1)
A linked savings arrangement is certified under this section if it is certified by
the Treasury—

Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 4 — SAYE interest
309

(a)
as a linked savings arrangement, and
(b)
in the case of an institutional arrangement, as meeting such
requirements as the Treasury may specify for the purposes of this
Chapter.
(2)
The requirements which may be specified under subsection (1)(b) are such
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requirements as the Treasury consider appropriate.
(3)
They may, in particular, relate to—
(a)
the descriptions of individuals who may enter into contracts under an
arrangement,
(b)
the contributions to be paid by them, and
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(c)
the sums to be paid or repaid to them.
(4)
Different requirements may be specified for—
(a)
bank arrangements,
(b)
building society arrangements, and
(c)
European authorised institution arrangements.
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706
Withdrawal and variation of certifications and connected requirements
(1)
The Treasury may—
(a)
withdraw the requirements specified under section 705(1)(b) for any
description of arrangements and any certification made by reference to
those requirements, or
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(b)
vary those requirements and withdraw any certification made by
reference to them.
(2)
The withdrawal, or variation and withdrawal, is only effective if the
Treasury—
(a)
specify the date on which it is to take effect, and
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(b)
give notice of it by post at least 28 days before that date to the provider
authorised under section 707 to enter into contracts under the
arrangement concerned.
(3)
The withdrawal, or variation and withdrawal, does not affect the operation of
the arrangement concerned before that date or contracts made under that
30
arrangement before it.
707
Authorisation of providers
(1)
In the case of an institutional arrangement, section 702(1) (exemption of
interest payable under certified SAYE savings arrangements) only applies if, at
the time the contract under the arrangement is made, the provider is
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authorised by the Treasury to enter into contracts under it.
(2)
If the authorisation is conditional, the conditions must be met at that time.
(3)
Authorisation may be given for arrangements generally or a particular
arrangement.
(4)
More than one authorisation may be given to the same provider.
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Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 5 — Venture capital trust dividends
310

708
Withdrawal and variation of authorisations
(1)
The Treasury may withdraw the authorisation of a provider or vary it by
imposing, varying or removing conditions.
(2)
The withdrawal or variation is only effective if the Treasury—
(a)
specify the date on which it is to take effect, and
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(b)
except in the case of a variation removing all conditions, give notice of
it by post to the provider at least 28 days before that date.
(3)
The withdrawal or variation does not affect contracts made before that date.
(4)
The fact that a provider has had its authorisation withdrawn or varied does not
affect the later exercise by the Treasury of its powers under section 707 or this
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section as respects the provider.
Chapter 5
Venture capital trust dividends
709
Venture capital trust dividends
(1)
No liability to income tax arises in respect of a venture capital trust dividend
15
if—
(a)
conditions A and B are met, and
(b)
where the dividend is paid in respect of shares acquired after 8th March
1999, condition C is met.
(2)
In subsection (1) a “venture capital trust dividend” means a dividend paid in
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respect of ordinary shares in a company which—
(a)
is a venture capital trust—
(i)
at the end of the accounting period in which the profits or gains
in respect of which it is paid arose or accrued, and
(ii)
when the dividend is paid, and
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(b)
was such a trust when the person to whom it is paid acquired the
shares.
(3)
Condition A is that the person beneficially entitled to the dividend—
(a)
is an individual of at least 18 years, and
(b)
is beneficially entitled to it as the holder of the shares or as the person
30
for whom, or for whose benefit, they are held by a nominee.
(4)
Condition B is that—
(a)
in the tax year in which the shares were acquired the market value of
all the shares acquired by the individual or any nominee of the
individual in companies which were venture capital trusts at the time
35
of acquisition did not exceed £200,000, or
(b)
in that year that market value exceeded £200,000, but the shares are
treated under section 710 as having been acquired within that limit.
(5)
For the purposes of subsection (4), the market value of a share is determined as
at the time of its acquisition.
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Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 5 — Venture capital trust dividends
311

(6)
Condition C is that the shares were acquired for genuine commercial reasons
and not as part of a scheme or arrangement the main purpose of which, or one
of the main purposes of which, was the avoidance of tax.
(7)
Shares that were not so acquired are ignored for the purposes of subsection (4)
and section 710 (whether or not they were acquired after 8th March 1999).
5
(8)
In this section and in sections 710 and 711—
“market value” has the same meaning as in TCGA 1992 (see sections 272
and 273),
“nominee”, in relation to an individual, includes the trustees of a bare
trust of which the individual is the only beneficiary, and
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“ordinary shares” means shares forming part of the company’s ordinary
share capital.
710
Treatment of shares where annual acquisition limit exceeded
(1)
This section sets out the rules for determining which shares whose market
value is relevant for the limit in section 709(4) are treated as shares acquired
15
within that limit (“exempt shares”) where that limit is exceeded in a tax year.
(2)
Shares are treated as exempt shares so far as their acquisition does not cause
the limit to be exceeded at the time they are acquired.
(3)
Subsection (2) is subject to subsection (4).
(4)
If shares of different descriptions acquired on the same day cause the limit to
20
be exceeded on that day, shares of each description are treated as exempt
shares so far as their market value does not exceed the appropriate proportion
of the available value.
(5)
In subsection (4)—
“the appropriate proportion”, in relation to shares of a particular
25
description, means the proportion which their market value bears to
the market value of all the shares acquired on that day, and
“available value” means the maximum value of shares which could be
acquired on that day without exceeding the limit.
711
Identification of shares after disposals
30
(1)
In determining whether a disposal relates to shares in a company which were
acquired when it was a venture capital trust or others, it is assumed that the
others are disposed of first.
(2)
In determining whether a disposal of shares in a company which were
acquired when it was a venture capital trust relates to shares which meet the
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condition in section 709(4) (annual acquisition limit) or others (“excess
shares”), assumptions A and B are to be made.
(3)
Assumption A is that shares acquired on an earlier day are disposed of before
those acquired on a later day.
(4)
Assumption B is that where the shares were acquired on the same day, excess
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shares are disposed of first.

Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 6 — Income from FOTRA securities
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(5)
For the purposes of this section, acquisitions and disposals by an individual’s
nominee are treated as made by the individual, and acquisitions and disposals
between them are ignored.
712
Identification of shares after reorganisations etc.
(1)
This section applies if shares (“the new shares”) are treated under Chapter 2 of
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Part 4 of TCGA 1992 (reorganisations etc.) as the same assets as other shares
(“the old shares”).
(2)
If all the old shares met—
(a)
the condition in section 709(4) (annual acquisition limit), and
(b)
if it applied to the old shares, the condition in section 709(6) (acquisition
10
for genuine commercial reasons),

the new shares are treated as doing so.
(3)
If only some of the old shares met those conditions, the corresponding
proportion of the new shares are treated as meeting them and the remainder
are treated as not doing so.
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(4)
In the tax year in which the new shares are acquired the value of the new shares
is ignored in determining whether other shares acquired in the same tax year
meet the condition in section 709(4).
Chapter 6
Income from FOTRA securities
20
713
Introduction: securities free of tax to residents abroad (“FOTRA securities”)
(1)
This Chapter provides for exemptions from income tax in respect of FOTRA
securities.
(2)
In this Chapter “FOTRA security” means—
(a)
a security issued with a condition about exemption from taxation
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authorised by section 22 of F(No.2)A 1931,
(b)
a gilt-edged security which was issued before 6th April 1998 and
without any such condition (other than 3½% War Loan 1952 Or After),
or
(c)
3½% War Loan 1952 Or After.
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(3)
In this Chapter “the exemption condition” has the meaning given by
subsections (4) to (6), according to the kind of FOTRA security involved.
(4)
In relation to a security within subsection (2)(a), it means the condition
authorised by section 22 of F(No.2)A 1931.
(5)
In relation to a security within subsection (2)(b), it means a condition with
35
which 7.25% Treasury Stock 2007 was first issued, being a condition treated by
section 161(1) of FA 1998 (non-FOTRA securities)—
(a)
as a condition with which the security within subsection (2)(b) was
issued, and
(b)
as a condition authorised in relation to its issue by section 22 of
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F(No.2)A 1931.

Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 6 — Income from FOTRA securities
313

(6)
In relation to 3½% War Loan 1952 Or After, it means a condition of its issue
authorised by section 47 of F(No.2)A 1915.
714
Exemption of profits from FOTRA securities
(1)
No liability to income tax arises in respect of profits from a FOTRA security if
conditions A and B are met.
5
(2)
Subsection (1) is subject to subsection (5).
(3)
Condition A is that the profits are stated in the exemption condition to be
exempt from income tax.
(4)
Condition B is that any requirements for obtaining the exemption imposed by
the security’s conditions of issue are met.
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(5)
Whatever the exemption condition provides, amounts charged under the
provisions specified in subsection (6) are not exempted by subsection (1).
(6)
The provisions are—
Chapter 5 of Part 5 (settlements: amounts treated as income of settlor) so
far as it applies to income within section 619(1)(a) or (b), and
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Chapter 3 of Part 17 of ICTA (anti-avoidance provisions: transfer of assets
abroad).
(7)
This section does not affect the need to claim repayment of tax within the time
limit applicable for a claim.
715
Interest from FOTRA securities held on trust
20
(1)
This section applies if—
(a)
a FOTRA security is held on trust, and
(b)
apart from this section, interest payable on the security would not be
exempt from income tax under section 714 because of the security not
being in the beneficial ownership of a person not ordinarily UK
25
resident.
(2)
For the purposes of determining whether the interest is exempt under section
714 it is to be assumed that the security is in the beneficial ownership of a
person not ordinarily UK resident if none of the beneficiaries of the trust is
ordinarily UK resident at the time when the interest arises.
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(3)
In subsection (2) “beneficiaries of the trust” includes any person known to the
trustees as a person—
(a)
who is, or will or may become, entitled under the terms of the trust to
receive income under the trust, or
(b)
to whom or for whose benefit such income may be paid or applied.
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(4)
In subsection (3) “income under the trust” includes any property held on the
terms of the trust and falling to be treated as capital so far as it is or represents
amounts received by the trustees as income.
716
Restriction on deductions etc. relating to FOTRA securities
(1)
A person who meets conditions A and B may not bring into account for income
40
tax purposes—