Income Tax Bill

House of Commons

Session 2006 - 07
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Income Tax Bill

Income Tax Bill
Part 10 — Special rules about charitable trusts etc
289

(2)
The provision of services to a substantial donor is not a substantial donor
transaction if an officer of Revenue and Customs determines that those services
are provided—
(a)
in the course of carrying out a primary purpose of the charitable trust,
and
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(b)
on terms which are no more beneficial to the substantial donor than
those on which services are provided to others.
(3)
The provision of financial assistance to a charitable trust by a substantial donor
is not a substantial donor transaction if an officer of Revenue and Customs
determines that the assistance—
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(a)
is on terms which are no less beneficial to the charitable trust than those
which might be expected in a transaction at arm’s length, and
(b)
is not part of an arrangement for the avoidance of any tax.
(4)
Investment by a charitable trust in the business of a substantial donor is not a
substantial donor transaction if the investment takes the form of the purchase
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of shares or securities listed on a recognised stock exchange.
(5)
The following are not substantial donor transactions—
(a)
a disposal at an undervalue in respect of which relief is available under
section 431 or section 587B of ICTA (gifts of shares, securities and real
property), or
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(b)
a disposal at an undervalue to which section 257(2) of TCGA 1992 (gifts
of chargeable assets) applies,

but such disposals may be taken into account in the application of section
549(2).
555
Donors: exceptions
25
(1)
A company which is wholly owned by a charity within the meaning of section
339(7AB) of ICTA is not a substantial donor in relation to a charitable trust
which owns it (or which owns any part of it).
(2)
A registered social landlord or housing association is not a substantial donor
in relation to a charitable trust with which it is connected.
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(3)
“Registered social landlord or housing association” means a body entered on a
register maintained under—
(a)
section 1 of the Housing Act 1996 (c. 52),
(b)
section 57 of the Housing (Scotland) Act 2001 (asp 10), or
(c)
Article 14 of the Housing (Northern Ireland) Order 1992 (S.I. 1725 (N.I.
35
15)).
(4)
For the purposes of subsection (2), a body and a charity are connected if (and
only if)—
(a)
one is wholly owned, or subject to control, by the other, or
(b)
both are wholly owned, or subject to control, by the same person.
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556
Connected charities
(1)
A charitable trust and any other charities with which it is connected are to be
treated as a single charitable trust for the purposes of section 549 to 555.

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Part 10 — Special rules about charitable trusts etc
290

(2)
For this purpose “connected” means connected in a matter relating to the
structure, administration or control of a charity.
557
Substantial donor transactions: supplementary
(1)
In sections 549 to 555—
(a)
a reference to a substantial donor or other person includes a reference
5
to a person connected with the donor or other person,
(b)
“financial assistance” includes, in particular—
(i)
the provision of a loan, guarantee or indemnity, and
(ii)
entering into alternative finance arrangements within the
meaning of section 46 of FA 2005, and
10
(c)
a reference to a gift of a specified amount includes a reference to a non-
monetary gift of that value.
(2)
On an appeal against an assessment the Special Commissioners may affirm or
replace a decision of an officer of Revenue and Customs under section 551 or
554.
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(3)
The Treasury may by regulations vary a sum, or a period of time, specified in
section 549(2).
Approved charitable investments and loans
558
Approved charitable investments

An investment is an approved charitable investment for the purposes of
20
section 543 (meaning of “non-charitable expenditure”) if it is an investment of
any of the following types.


Type 1

An investment to which section 559 applies.
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Type 2

An investment in a common investment fund established under—
(a)
section 22 of the Charities Act 1960 (c. 58),
(b)
section 24 of the Charities Act 1993 (c. 10), or
30
(c)
section 25 of the Charities Act (Northern Ireland) 1964.


Type 3

An investment in a common deposit fund established under—
(a)
section 22A of the Charities Act 1960, or
35
(b)
section 25 of the Charities Act 1993.


Type 4

An investment in a fund which—
(a)
is similar to a fund mentioned in relation to Type 2 or 3, and
40
(b)
is established for the exclusive benefit of charities by or under a
provision relating to any particular charities or class of charities
contained in an Act.


Income Tax Bill
Part 10 — Special rules about charitable trusts etc
291


Type 5

An interest in land, other than an interest held as security for a debt.


Type 6

Any of the following issued by Her Majesty’s Government in the United
5
Kingdom—
(a)
bills,
(b)
Certificates of Tax Deposit,
(c)
Savings Certificates, and
(d)
Tax Reserve Certificates.
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Type 7

Northern Ireland Treasury Bills.


Type 8
15

Units in a unit trust scheme (as defined in section 237(1) of FISMA 2000) or in
a recognised scheme (as defined in section 237(3) of FISMA 2000).

“Units” is defined in section 237(2) of FISMA 2000.


Type 9
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A deposit with a bank (as defined in section 925)—
(a)
in respect of which interest is payable at a commercial rate, and
(b)
which is not made as part of an arrangement under which a loan is
made by the bank to some other person.

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Type 10

A deposit with—
(a)
the National Savings Bank,
(b)
a building society, or
(c)
a credit institution which operates on mutual principles and which is
30
authorised by an appropriate governmental body in the territory in
which the deposit is taken.


Type 11

Certificates of deposit (including uncertificated eligible debt security units as
35
defined in section 920(3)).


Type 12

A loan or other investment as to which an officer of Revenue and Customs is
satisfied, on a claim, that it is made for the benefit of the charitable trust and
40
not for the avoidance of tax (whether by the trust or any other person).
559
Securities which are approved charitable investments
(1)
The investments to which this section applies are investments in securities—
(a)
issued or guaranteed by the government of a member State of the European
Union,
45
(b)
issued or guaranteed by the government or a governmental body of any
territory or part of a territory,

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Part 10 — Special rules about charitable trusts etc
292

(c)
issued by an international entity listed in the Annex to Council
Directive 2003/48/EC (directive on taxation of interest payments),
(d)
issued by an entity meeting the four criteria set out at the end of that
Annex,
(e)
issued by a building society,
5
(f)
issued by a credit institution which operates on mutual principles and
which is authorised by an appropriate governmental body in the
territory in which the securities are issued,
(g)
issued by an open-ended investment company,
(h)
issued by a company and listed on a recognised stock exchange, or
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(i)
issued by a company but not listed on a recognised stock exchange.
(2)
Subsection (1) is subject to section 560.
(3)
In this section and in section 560—
“debentures” includes—
(a)
debenture stock and bonds (whether constituting a charge on
15
assets or not), and
(b)
loan stock or notes,
“open-ended investment company” is to be read in accordance with
section 468A(2) to (4) of ICTA,
“securities” includes shares and debentures, and
20
“shares” includes stocks.
560
Conditions to be met for some securities
(1)
Section 559 does not apply to an investment by virtue of subsection (1)(b), (c)
or (d) of that section unless—
(a)
condition A is met in relation to the securities, and
25
(b)
if the securities are shares or debenture stock, condition B is met in
relation to the securities.

But see subsection (3) of this section.
(2)
In the case of an investment in securities issued by a company which is
incorporated, section 559 does not apply to the investment by virtue of
30
subsection (1)(i) of that section unless—
(a)
condition A is met in relation to the securities,
(b)
if the securities are shares or debenture stock, condition B is met in
relation to the securities, and
(c)
condition C is met in relation to the company.
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But see subsection (3) of this section.
(3)
Conditions A and B need not be met if the securities are traded or quoted on a
money market supervised by the government or a governmental body of any
territory or part of a territory.
(4)
Condition A is that the securities are traded or quoted on—
40
(a)
a recognised investment exchange (as defined in section 285(1) of
FISMA 2000), or
(b)
an investment exchange which constitutes the principal or only market
established in a territory on which securities admitted to official listing
are dealt in or traded.
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Income Tax Bill
Part 10 — Special rules about charitable trusts etc
293

(5)
Condition B is that—
(a)
the securities are fully paid up,
(b)
the terms of the issue of the securities require them to be fully paid up
within the period of 9 months beginning with the day after the day on
which they are issued, or
5
(c)
the securities are shares issued with no nominal value.
(6)
Condition C is that—
(a)
throughout the last business day before the investment day, the
company has total issued and paid up share capital of at least
£1,000,000 (or the equivalent of £1,000,000 in some other currency), and
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(b)
in each of the five years immediately before the calendar year in which
the investment day falls, the company paid a dividend on all the shares
issued by the company (excluding any shares issued after the dividend
was declared and any shares which by their terms of issue did not rank
for dividend for that year).
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(7)
For the purposes of the words in brackets in subsection (6)(a) use the exchange
rate prevailing in the United Kingdom at the close of business on the last
business day before the investment day.
(8)
For the purposes of subsection (6)(b) a company formed—
(a)
to take over the business of another company or other companies, or
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(b)
to acquire the securities of, or control of, another company or other
companies,

is treated as having paid a dividend in any year in which a dividend has been
paid by the other company or all of the other companies (as the case may be).
(9)
It is irrelevant that the company is formed for other purposes in addition to
25
those mentioned in paragraph (a) or (b) of subsection (8).
(10)
In this section—
“business day” means, in relation to an investment, a business day in the
place where the investment is made, and
“the investment day” means, in relation to an investment, the day on
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which the investment is made.
561
Approved charitable loans
(1)
A loan is an approved charitable loan for the purposes of section 543 (meaning
of “non-charitable expenditure”) if it meets conditions A and B.
(2)
Condition A is that the loan is not made by way of investment.
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(3)
Condition B is that either—
(a)
the loan is made to another charity for charitable purposes only,
(b)
it is made to a beneficiary of the charitable trust in the course of
carrying out the purposes of the charitable trust,
(c)
it consists of money placed on current account with a bank otherwise
40
than as part of an arrangement under which a loan is made by a bank
to some other person, or
(d)
an officer of Revenue and Customs is satisfied, on a claim, that the loan
is made for the benefit of the charitable trust and not for the avoidance
of tax (whether by the charitable trust or by some other person).
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Income Tax Bill
Part 10 — Special rules about charitable trusts etc
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(4)
In this section “bank” has the meaning given by section 925.
Carry back of excess non-charitable expenditure
562
Excess expenditure treated as non-charitable expenditure of earlier years
(1)
This section applies if a charitable trust’s non-charitable expenditure for a tax
year exceeds its available income and gains for the tax year.
5
(2)
The excess is the charitable trust’s “excess expenditure” for the tax year.
(3)
The charitable trust’s excess expenditure for the tax year is treated for the
purposes of this Part as non-charitable expenditure for earlier tax years so far
as it can be attributed to earlier tax years under section 563.
(4)
For the purposes of this Part a charitable trust’s “available income and gains”
10
for a tax year is the sum of—
(a)
the charitable trust’s total income for the tax year (ignoring any
restrictions on the exemptions under this Part which result from
sections 539(2) and 541),
(b)
any chargeable gains accruing to the charitable trust in the tax year
15
(ignoring any restriction on the exemption under section 256(1) of
TCGA 1992 which results from section 256(4) of that Act),
(c)
the charitable trust’s attributable income and gains for the tax year (see
section 540), and
(d)
any non-taxable sums received by the charitable trust in the tax year.
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(5)
In subsection (4) “non-taxable sums” means donations, legacies and other
sums of a similar nature which, ignoring exemptions from income tax under
this Part and from capital gains tax under section 256 of TCGA 1992, are not
liable to income tax or capital gains tax.
563
Rules for attributing excess expenditure to earlier years
25
(1)
The rules in this section apply for attributing a charitable trust’s excess
expenditure for a tax year to earlier tax years under section 562.
(2)
The excess expenditure for a tax year may be attributed to an earlier tax year
if—
(a)
the earlier tax year ends not more than 6 years before the end of the tax
30
year in question, and
(b)
the charitable trust’s available income and gains for the earlier tax year
exceed its non-charitable expenditure for the earlier tax year.
(3)
If the conditions in subsection (2) are met in the case of more than one earlier
tax year, the excess expenditure is to be attributed to a later tax year in priority
35
to an earlier tax year.
(4)
The amount of excess expenditure that is to be attributed to an earlier tax year
must not be greater than the amount by which the charitable trust’s available
income and gains for the earlier tax year exceed its non-charitable expenditure
for the earlier tax year.
40
(5)
For the purposes of subsections (2)(b) and (4) the charitable trust’s non-
charitable expenditure for the earlier tax year includes any excess expenditure

Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 1 — Introduction
295

attributed to the earlier tax year as a result of a previous operation of this
section, but ignores the attribution in question.
564
Adjustments in consequence of section 562
Such adjustments must be made (whether by way of the making of
assessments or otherwise) as may be required in consequence of section 562.
5
Part 11
Manufactured payments and repos
Chapter 1
Introduction
565
Overview of Part
10
(1)
This Part is about the income tax treatment of some arrangements for the
transfer of securities.
(2)
Chapter 2 deals with arrangements for the transfer of securities under which
provision is made for the payment of amounts representative of dividends or
interest in respect of the securities.
15
(3)
Chapter 3 prevents parties to stock lending arrangements (see section 568) and
repos (see section 569) from being entitled to tax credits in some circumstances.
(4)
Chapter 4 brings within the rules in Chapters 2 and 3—
(a)
some stock lending arrangements under which the dividends or
interest in respect of the transferred securities are paid to a person other
20
than the lender, and
(b)
some repos where the original owner is not entitled to the dividends or
interest in respect of the transferred securities.
(5)
Chapter 5 deals with differences between the sale and repurchase price under
repos.
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(6)
Chapter 6 contains powers to modify some of the provisions about repos.
566
Meaning of “UK shares” and “UK securities”
(1)
This section applies for the purposes of this Part.
(2)
“UK shares” means shares in a UK resident company.
(3)
“UK securities” means securities of—
30
(a)
the government of the United Kingdom,
(b)
a local authority in the United Kingdom,
(c)
another public authority in the United Kingdom, or
(d)
a UK resident company or other UK resident body.
(4)
But “UK securities” does not include UK shares.
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(5)
In this section “securities” includes loan stock or any similar security.