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489 | “The applicable period” in relation to shares |
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(1) | This section sets out how the applicable period in relation to any shares (“the |
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relevant shares”) is determined for the purposes of section 488. |
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(2) | The length of the applicable period depends on whether any shares in the |
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relevant company were readily convertible assets at the time the relevant |
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shares were acquired by the trustees. |
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(3) | If any were, the applicable period is the period of two years beginning with the |
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(4) | If none were, the applicable period is— |
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(a) | the period of 5 years beginning with the acquisition date, or |
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(b) | if within that period any shares in the relevant company become |
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readily convertible assets, the period of two years beginning with the |
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date on which they did so, |
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(5) | Subsections (2) to (4) are subject to subsection (6). |
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(6) | If the relevant shares were acquired by the trustees by virtue of a payment in |
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respect of which a deduction is allowed under paragraph 9 of Schedule 4AA to |
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ICTA (deduction for contribution to plan trust), the applicable period is the |
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period of 10 years beginning with the acquisition date. |
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“the acquisition date” means the date on which the trustees acquired the |
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“readily convertible assets” has, subject to subsection (8), the meaning |
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given by sections 701 and 702 of ITEPA 2003, and |
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“the relevant company” means the company in which the relevant shares |
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(8) | In determining for the purposes of this section whether shares are readily |
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convertible assets, ignore any market for the shares that— |
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(a) | is created by virtue of the trustees acquiring shares for the purposes of |
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the approved share incentive plan, and |
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(b) | exists solely for the purposes of that plan. |
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490 | Interpretation of Chapter |
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(1) | This Chapter forms part of the SIP code (see section 488 of ITEPA 2003 |
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(approved share incentive plans)). |
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(2) | Therefore expressions used in this Chapter and contained in the index at the |
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end of Schedule 2 to ITEPA 2003 have the meaning indicated by that index. |
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(3) | For the purposes of this Chapter shares which are subject to provision for |
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forfeiture are treated as acquired by the trustees if and when the forfeiture |
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Trustees’ first slice of trust rate income |
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491 | Special rates not to apply to first slice of trustees’ trust rate income |
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(1) | If the trust rate income for a tax year of the trustees of a settlement is £1,000 or |
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less, income tax is not charged on it at the dividend trust rate or at the trust rate. |
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(2) | If the trustees’ trust rate income is more than £1,000, income tax is not charged |
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on the first £1,000 of it at the dividend trust rate or at the trust rate. |
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(3) | Instead, income tax is charged on the trustees’ trust rate income or the first |
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£1,000 of it (as the case may be) at the rate or rates which would apply apart |
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from Chapter 3 (see Chapter 2 of Part 2). |
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(4) | For the purposes of subsection (2) apply the following rules in determining the |
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type or types of income that make up the first £1,000 of the trustees’ trust rate |
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| If the trustees’ trust rate income includes amounts on which income tax would |
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be charged at the basic rate apart from Chapter 3, treat those amounts as the |
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lowest part of the trust rate income. |
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| If the trustees’ trust rate income includes amounts on which income tax would |
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be charged at the dividend ordinary rate apart from Chapter 3, treat those |
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amounts as the highest part of the trust rate income. |
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(5) | For the purposes of this section gains chargeable under Chapter 9 of Part 4 of |
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ITTOIA 2005 (gains from contracts for life assurance etc) are treated as if they |
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(6) | Amounts on which income tax is not to be charged at the dividend trust rate or |
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at the trust rate as a result of Chapter 4 are excluded from the trustees’ trust |
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rate income for the purposes of this section. |
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492 | Cases where settlor has made more than one settlement |
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(1) | The application of section 491 in relation to the trustees of a settlement (“the |
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relevant settlement”) for a tax year is modified in accordance with subsection |
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(2) if the settlor in relation to the relevant settlement has made one or more |
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other current settlements. |
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(2) | References to £1,000 are to be read as references to— |
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(b) | if greater, the settlor’s threshold amount. |
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(3) | The settlor’s threshold amount is the amount calculated by dividing £1,000 by |
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the number of current settlements (including the relevant settlement) made by |
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(4) | If there is more than one settlor in relation to the relevant settlement— |
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(a) | calculate the threshold amount of each of them, and |
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(b) | use the lowest of those threshold amounts for the purposes of |
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(5) | A settlement is current if it is in existence at a time during the tax year. |
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493 | Discretionary payments by trustees |
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(1) | Sections 494 and 495 apply for income tax purposes if— |
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(a) | in a tax year the trustees of a settlement make an annual payment to a |
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person (“the beneficiary”) in the exercise of a discretion (whether |
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exercisable by the trustees or any other person), |
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(b) | the trustees are UK resident for the tax year, and |
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(c) | condition A or condition B is met. |
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(2) | Condition A is that what is paid to the beneficiary is, only because of the |
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payment, income of the beneficiary for income tax or corporation tax purposes. |
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| “Income” does not include employment income. |
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(3) | Condition B is that the payment is treated for income tax purposes as the |
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income of a settlor under section 629 of ITTOIA 2005 (income paid to relevant |
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| “Settlor” is to be read in accordance with section 620 of ITTOIA 2005. |
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(4) | The payment is referred to in sections 494 and 495 as “the discretionary |
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(5) | In this Chapter “payment” includes payment in money’s worth. |
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494 | Grossing up of discretionary payment and payment of income tax |
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(1) | The discretionary payment is treated as if it were made after the deduction of |
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a sum representing income tax at the trust rate on the grossed up amount of the |
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(2) | The grossed up amount of the discretionary payment is the actual amount of |
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the discretionary payment grossed up by reference to the trust rate. |
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(3) | The person mentioned in subsection (4) is treated as having paid income tax of |
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an amount equal to the sum deducted as mentioned in subsection (1). |
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(a) | if condition A in section 493 is met, the beneficiary, and |
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(b) | if condition B in section 493 is met, the settlor. |
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495 | Statement about deduction of income tax |
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(1) | If the person who is treated as having paid income tax requests it in writing, |
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the trustees must provide that person with a statement showing— |
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(a) | the grossed up amount of the discretionary payment, |
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(b) | the sum deducted as mentioned in section 494(1), and |
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(c) | the actual amount of the discretionary payment. |
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(2) | A statement under this section must be in writing. |
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(3) | The duty to comply with a request under this section is enforceable by the |
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496 | Income tax charged on trustees |
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(1) | Income tax is charged for a tax year if— |
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(a) | in the tax year the trustees of a settlement make payments as a result of |
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which income tax is treated as having been paid under section 494, and |
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(b) | amount A is greater than amount B. |
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(2) | Amount A is the total amount of the income tax treated under section 494 as |
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(3) | Amount B is the amount of the trustees’ tax pool available for the tax year (see |
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(4) | The amount of the tax charged under this section is equal to the difference |
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(5) | The trustees are liable for the tax. |
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497 | Calculation of trustees’ tax pool |
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(1) | Take the following steps to calculate the amount of the trustees’ tax pool |
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available for a tax year (“the current tax year”). |
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| This is subject to subsections (2) and (3). |
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| Take the amount of the trustees’ tax pool available for the previous tax year |
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and deduct from that amount (but not so that it goes below nil) the total |
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amount of income tax treated under section 494 as having been paid as a result |
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of payments made by the trustees in the previous tax year. |
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| Add together all amounts of income tax for which the trustees are liable for the |
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current tax year and which are of a type set out in section 498. |
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| Add the sum calculated at Step 2 to the amount resulting from Step 1. |
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(2) | If the trustees were non-UK resident for the previous tax year, references in subsection |
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(1) to the previous tax year are to be read as references to the last tax year prior to the |
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current tax year for which the trustees were UK resident. |
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(a) | the current tax year is the tax year during which the settlement is |
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(b) | the trustees have been UK resident for no tax year prior to the current tax year, |
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| ignore Steps 1 and 3 and, accordingly, the trustees’ tax pool available for the |
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current tax year is the sum calculated at Step 2. |
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