Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 10 — Special rules about charitable trusts etc
293

(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
5
(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
10
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
15
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
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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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(4)
In this section “bank” has the meaning given by section 991.
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.
35
(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”
40
for a tax year is the sum of—

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Part 10 — Special rules about charitable trusts etc
294

(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
(ignoring any restriction on the exemption under section 256(1) of
5
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.
(5)
In subsection (4) “non-taxable sums” means donations, legacies and other
10
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
(1)
The rules in this section apply for attributing a charitable trust’s excess
15
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
year in question, and
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(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
to an earlier tax year.
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(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.
(5)
For the purposes of subsections (2)(b) and (4) the charitable trust’s non-
30
charitable expenditure for the earlier tax year includes any excess expenditure
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
35
assessments or otherwise) as may be required in consequence of section 562.

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

Part 11
Manufactured payments and repos
Chapter 1
Introduction
565
Overview of Part
5
(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.
10
(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
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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—
25
(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.
567
Meaning of “overseas securities” and “overseas dividend”
(1)
This section applies for the purposes of this Part.
(2)
“Overseas securities” means shares, stock or other securities issued by—
(a)
a government, local authority or other public authority of a territory
35
outside the United Kingdom, or
(b)
another non-UK resident body of persons.

Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 1 — Introduction
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(3)
“Overseas dividend” means any interest, dividend or other annual payment
payable in respect of overseas securities.
(4)
In this section “securities” includes loan stock or any similar security.
568
Meaning of “stock lending arrangement”
(1)
For the purposes of this Part there is a stock lending arrangement in respect of
5
securities if—
(a)
a person (“the lender”) has transferred the securities to another person
(“the borrower”) otherwise than by way of sale,
(b)
the securities are UK shares, UK securities or overseas securities,
(c)
the transfer is under an arrangement between the lender and the
10
borrower, and
(d)
under the arrangement, the borrower is required to transfer the
securities back to the lender otherwise than by way of sale.
(2)
The reference in subsection (1)(d) to the transfer of the securities back to the
lender includes a reference to—
15
(a)
a transfer within subsection (3), and
(b)
a payment within subsection (5).
(3)
A transfer is within this subsection if it is a transfer to the lender of securities
of the same description as the securities—
(a)
in accordance with a requirement to do so, or
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(b)
in exercise of a power to substitute securities of the same description for
the securities that are required to be transferred back.
(4)
For the purposes of subsection (3), securities are taken to be of the same
description as other securities if (and only if) they—
(a)
are in the same quantities,
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(b)
give the same rights against the same persons, and
(c)
are of the same type and nominal value,

as the other securities.
(5)
A payment is within this subsection if it is a payment to the lender, in
pursuance of a redemption obligation, of an amount equal to the amount of the
30
entitlement under the redemption obligation.
(6)
A redemption obligation is an obligation that arises on a person’s becoming
entitled to receive an amount in respect of the redemption of the securities.
569
Meaning of “repo”
(1)
For the purposes of this Part there is a repo in respect of securities if conditions
35
A, B and C are met.
(2)
Condition A is that a person (“the original owner”) has agreed to sell the
securities to another person (“the interim holder”).
(3)
Condition B is that the securities are UK shares, UK securities or overseas
securities.
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(4)
Condition C is that the original owner or a person connected with the original
owner—

Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 2 — Manufactured payments
297

(a)
is required to buy back the securities by the agreement or a related
agreement,
(b)
is required to buy back the securities as a result of the exercise of an
option acquired under the agreement or a related agreement, or
(c)
exercises an option to buy back the securities which was acquired
5
under the agreement or a related agreement.
570
Meaning of “buying back” securities etc
(1)
This section applies for the purposes of this Part, in the context of a repo.
(2)
References to buying back securities include references to—
(a)
buying similar securities, and
10
(b)
in the case of a person connected with the person who is the original
owner under the repo, buying the securities sold by the original owner
or similar securities.
(3)
Subsection (2) applies even if the person buying the securities has not held
them before.
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(4)
References to repurchase or a repurchaser are to be read accordingly.
(5)
For the purposes of subsection (2) securities are similar if they give their
holders—
(a)
the same rights against the same persons as to capital and distributions,
interest and dividends, and
20
(b)
the same remedies to enforce those rights.
(6)
Subsection (5) applies even if there is a difference in—
(a)
the total nominal amounts of the securities,
(b)
the form in which they are held, or
(c)
the manner in which they can be transferred.
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571
Meaning of “related” agreements
Agreements are related for the purposes of this Part if they are entered into in
pursuance of the same arrangement (regardless of the date on which either
agreement is entered into).
Chapter 2
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Manufactured payments
Introduction
572
Overview of Chapter
This Chapter is about the situation where a person—
(a)
pays another person an amount which is representative of—
35
(i)
dividends on UK shares,
(ii)
periodical payments of interest on UK securities, or
(iii)
overseas dividends on overseas securities, and

Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 2 — Manufactured payments
298

(b)
does so under a requirement of an arrangement between them for the
transfer of the UK shares, UK securities or overseas securities
concerned.
Manufactured dividends on UK shares
573
Manufactured dividends on UK shares
5
(1)
This section applies if a person—
(a)
pays another person an amount (a “manufactured dividend”) which is
representative of a dividend on UK shares, and
(b)
does so under a requirement of an arrangement between them for the
transfer of the shares.
10
(2)
The Income Tax Acts apply in relation to the recipient, and persons claiming
title through or under the recipient, as if the manufactured dividend were a
dividend on the shares.
(3)
If the payer is a UK resident company, the Income Tax Acts apply in relation
to the payer as if the manufactured dividend were a dividend of the company.
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(4)
If the payer is UK resident and is not a company, the Income Tax Acts apply in
relation to the payer subject to sections 574 and 575 (allowable deductions).
(5)
This section is subject to—
(a)
section 576 (manufactured dividends on UK shares: Real Estate
Investment Trusts),
20
(b)
section 583 (manufactured payments exceeding underlying payments),
and
(c)
section 585 (power to deal with other special cases).
574
Allowable deductions: matching
(1)
This section applies if a person who pays a manufactured dividend as
25
mentioned in section 573(1) is UK resident and is not a company.
(2)
An amount equal to the lesser of—
(a)
the amount of the manufactured dividend, and
(b)
the amount of the dividend of which the manufactured dividend is
representative,
30

is allowable as a deduction for income tax purposes, subject to subsection (3).
(3)
It is allowable only so far as—
(a)
it is not otherwise deductible, and
(b)
it falls within subsection (4) or (7).
(4)
An amount falls within this subsection so far as the payer—
35
(a)
receives either the dividend which is represented by the manufactured
dividend or a payment which is representative of that dividend, and
(b)
is chargeable to income tax on the dividend or payment received.
(5)
An amount falls within subsection (4) only if the amount of the dividend or
payment received is received by the payer in—
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(a)
the tax year in which the payer pays the manufactured dividend, or
(b)
the tax year immediately before, or immediately after, that year.

Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 2 — Manufactured payments
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(6)
An amount which falls within subsection (4) is allowable as a deduction only
from the amount of the dividend or payment received on which the payer is
chargeable to income tax.
(7)
An amount falls within this subsection so far as the payer—
(a)
is treated under section 607 (treatment of price differences under repos)
5
as receiving a payment of interest in respect of the shares, and
(b)
is chargeable to income tax on the payment.
(8)
An amount which falls within subsection (7) is allowable as a deduction in
calculating the net income of the payer (see Step 2 of the calculation in section
23).
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(9)
See section 575 for a further qualification to the rule in subsection (2).
(10)
For the purposes of subsection (3)(a) an amount is deductible if it is—
(a)
deductible in calculating any of the payer’s profits or gains for income
tax purposes, or
(b)
deductible for those purposes in calculating the net income of the
15
payer.
575
Allowable deductions: restriction on double-counting
(1)
This section applies if an amount has been allowed as a deduction under
section 574(2) by reference to the whole or part of—
(a)
the dividend or payment mentioned in section 574(4)(a), or
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(b)
the deemed payment of interest mentioned in section 574(7)(a).
(2)
No further deduction is allowable by reference to all or part of the matched
portion of the dividend, payment or deemed payment.
(3)
The “matched portion” of the dividend, payment or deemed payment means—
(a)
the whole of it, if the amount has been allowed as a deduction by
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reference to the whole of it, or
(b)
the part of it by reference to which the amount has been allowed as a
deduction, in any other case.
576
Manufactured dividends on UK shares: Real Estate Investment Trusts
(1)
This section applies (instead of section 573(2) and (3)) if—
30
(a)
a person pays a manufactured dividend as mentioned in section 573(1),
and
(b)
the manufactured dividend is representative of a dividend which is—
(i)
paid by a company to which Part 4 of FA 2006 applies (Real
Estate Investment Trusts) in respect of profits of C (tax-exempt),
35
or
(ii)
paid by the principal company of a group to which that Part
applies in respect of profits of G (property rental business).
(2)
This section applies only so far as the manufactured dividend is representative
of such a dividend.
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(3)
The Income Tax Acts apply in relation to the recipient, and persons claiming
title through or under the recipient, as if the manufactured dividend were a