Income Tax Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses
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645
Charitable trusts etc
(1)
A person is—
(a)
an excluded transferor in relation to a transfer of securities by the
person, and
(b)
an excluded transferee in relation to a transfer of securities to the
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person,

if condition A or B is met.
(2)
Condition A is that if the person—
(a)
became entitled to any interest on the securities, and
(b)
applied it for charitable purposes only,
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exemption could be granted in respect of the interest under section 532
(exemption for certain savings and investment income that belongs to a
charitable trust and is applicable and applied to charitable purposes only).
(3)
Condition B is that if the person—
(a)
became entitled to any interest on the securities, and
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(b)
applied it for the purposes mentioned in section 533 (exemption for
public revenue dividends that are applied only for the repair of college
or church buildings etc),

exemption could be granted in respect of the interest under that section.
(4)
For the transfer treated as occurring where charitable trusts over securities
20
cease, see section 652 (securities ceasing to be held on charitable trusts).
646
Pension scheme trustees
A person is—
(a)
an excluded transferor in relation to a transfer of securities by the
person, and
25
(b)
an excluded transferee in relation to a transfer of securities to the
person,
if, were the person to become entitled to interest on the securities, exemption
in respect of it would be allowable under section 186 of FA 2004 (exemption for
income from investments held for the purposes of a registered pension
30
scheme).
647
Makers of manufactured payments
(1)
This section applies if the manufactured payments conditions are met.
(2)
The manufactured payments conditions are that—
(a)
securities are transferred without accrued interest to a person (“the
35
seller”),
(b)
the seller makes a contract for the sale of securities of that kind (“the
seller’s contract”), and
(c)
any contract under which the securities are transferred to the seller, or
the seller’s contract itself, is a manufactured payments contract.
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(3)
The seller is an excluded transferee in relation to the transfer to the seller if the
nominal value of the securities subject to the seller’s contract equals or exceeds
that of the securities transferred to the seller.

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Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses
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(4)
The seller is an excluded transferor in relation to the transfer of securities under
the seller’s contract.
(5)
See section 663 (transfers without accrued interest to makers of manufactured
payments) for cases where that nominal value is less than that of the securities
transferred to the seller.
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(6)
In this section “manufactured payments contract” means a contract under
which the seller is required to pay another person manufactured interest or a
manufactured overseas dividend as mentioned in section 578 or 581.
Further transactions treated as transfers
648
Strips of gilt-edged securities
10
(1)
The exchange of a gilt-edged security for strips of that security is treated for the
purposes of this Chapter as a transfer of the security by the person who
exchanges the security.
(2)
But no one is treated as the transferee.
(3)
The exchange of strips of a gilt-edged security for a single gilt-edged security
15
consolidating those strips is treated for the purposes of this Chapter as a
transfer of the single security to the person who exchanges those strips.
(4)
But no one is treated as the transferor.
(5)
An exchange within subsection (1) or (3) is treated as a transfer without
accrued interest if it is made at any time after the balance has been struck for a
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dividend on the security but before the day on which that dividend is payable.
(6)
In any other case, such an exchange is treated as a transfer with accrued
interest.
(7)
If an exchange is treated as a transfer under subsection (1) or (3), any
transaction forming part of the exchange is not itself a transfer for the purposes
25
of this Chapter.
(8)
In this section “strip” has the meaning given by section 444 of ITTOIA 2005.
(9)
For the meaning of “gilt-edged security”, see section 1024.
649
New securities issued with extra return
(1)
This section applies if—
30
(a)
securities (“old securities”) of a particular kind are issued by way of an
original issue of securities of that kind,
(b)
on a later occasion securities (“new securities”) of the same kind are
issued,
(c)
a sum (“the extra return”) is payable in respect of the new securities by
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the issuer of them to reflect the fact that interest is accruing on the old
securities,
(d)
the issue price of the new securities includes an element (whether or not
separately identified) representing payment for the extra return, and
(e)
the extra return is equal to the amount of interest mentioned in
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subsection (2).

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Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses
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(2)
The amount of interest referred to in subsection (1)(e) is—
(a)
the amount of interest payable for the relevant period on so many old
securities as there are new, or
(b)
if there are more new securities than old, the amount of interest which
would be so payable if there were as many old securities as new.
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(3)
This section does not apply if the new securities are variable rate securities.
(4)
The new securities are treated as transferred with accrued interest to the person
to whom they are issued on the new issue day.
(5)
But no one is treated as the transferor.
(6)
For the purposes of this Chapter, the settlement day for the transfer is taken to
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be the new issue day.
(7)
See section 662 for the amount of the payment treated as made in the case of
the transfer.
(8)
In this section—
“the relevant period” is the period beginning with the day after—
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(a)
the only or last interest payment day before the new issue day,
or
(b)
if there is no interest payment day before the new issue day, the
day on which the old securities are issued,
and ending with the new issue day, and
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“the new issue day” is the day on which the new securities are issued.
650
Trading stock appropriations etc
(1)
Subsection (2) applies if a person—
(a)
acquires securities otherwise than as trading stock of a trade the person
carries on, and
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(b)
appropriates the securities as trading stock for the purposes of such a
trade (whether on the start of the trade or otherwise).
(2)
The person is treated for the purposes of this Chapter as transferring the
securities otherwise than in the course of the trade, and re-acquiring them in
the course of the trade, on the day of appropriation.
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(3)
Subsection (4) applies if securities—
(a)
form part of the trading stock of a person’s trade, and
(b)
are appropriated by the person for any other purpose.
(4)
The person is treated for the purposes of this Chapter as transferring the
securities in the course of the trade, and re-acquiring them otherwise than in
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the course of the trade, on the day of appropriation.
(5)
Subsection (6) applies if securities—
(a)
form part of the trading stock of a person’s trade, and
(b)
are retained by the person on ceasing to carry on the trade.
(6)
The person is treated for the purposes of this Chapter as transferring the
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securities in the course of the trade, and re-acquiring them otherwise than in
the course of the trade, on the day of cessation.

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(7)
See sections 623(2) to (4) and 624(2) to (4) for cases where securities are treated
as transferred with or without accrued interest where this section applies.
651
Owner becoming entitled to securities as trustee
(1)
This section applies if a person entitled to securities otherwise than as trustee
becomes trustee of them.
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(2)
The person is treated for the purposes of this Chapter as transferring the
securities at the time the person becomes trustee of them.
(3)
The transfer is treated as being made—
(a)
by the person in a capacity other than trustee, and
(b)
to the person and, if there are any other trustees, to the others in the
10
capacity of trustees.
(4)
See sections 623(2) to (4) and 624(2) to (4) for cases where securities are treated
as transferred with or without accrued interest where this section applies.
652
Securities ceasing to be held on charitable trusts
(1)
This section applies if securities held on charitable trusts cease to be subject to
15
those trusts.
(2)
The trustees are treated for the purposes of this Chapter as transferring the
securities at the time when the securities cease to be so subject.
(3)
The transfer is treated as being made by the trustees in their capacity as
charitable trustees to themselves in another capacity.
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(4)
See sections 623(2) to (4) and 624(2) to (4) for cases where securities are treated
as transferred with or without accrued interest where this section applies.
Excluded transfers
653
Stock lending
This Chapter does not apply to transfers of securities in circumstances such
25
that any disposal and acquisition are disregarded for the purposes of capital
gains tax as a result of section 263B(2) of TCGA 1992 (capital gains tax
exemption for disposals in pursuance of stock lending arrangements).
654
Sale and repurchase arrangements
(1)
This section applies for the purposes of sections 655 to 658.
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(2)
There is a sale and repurchase arrangement in respect of securities if the
securities are transferred under an agreement to sell them and—
(a)
the transferor (“T”) or a person connected with T is required to buy
back the securities by the agreement or a related agreement,
(b)
T or a person connected with T is required to buy back the securities as
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a result of the exercise of an option acquired under the agreement or a
related agreement, or

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Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses
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(c)
T or a person connected with T exercises an option to buy back the
securities which was acquired under the agreement or a related
agreement.
(3)
Agreements are related for the purposes of this section if they are entered into
in pursuance of the same arrangement (regardless of the date on which either
5
agreement is entered into).
(4)
References in this section to buying back securities include—
(a)
buying similar securities, and
(b)
in the case of a person connected with T, buying the securities sold by
T or similar securities.
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(5)
Subsection (4) applies even if the person buying the securities has not held
them before.
(6)
References in sections 656 and 657 to repurchase are to be read accordingly.
(7)
Securities are similar for the purposes of subsection (4) if they give their
holders—
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(a)
the same rights against the same persons as to capital and interest, and
(b)
the same remedies to enforce those rights.
(8)
Subsection (7) 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
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(c)
the manner in which they can be transferred.
655
Transfers under sale and repurchase arrangements
(1)
If there is a sale and repurchase arrangement in respect of securities, this
Chapter does not apply to the transfer by T or the transfer back under the
arrangement.
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(2)
But subsection (1) does not apply if section 608 prevents section 607 (treatment
of price differences under repos) from applying in relation to the arrangement.
656
Power to modify: non-standard sale and repurchase arrangements
(1)
The Treasury may by regulations provide for section 655 to apply with
modifications in relation to cases involving non-standard sale and repurchase
30
arrangements.
(2)
A case involves a non-standard sale and repurchase arrangement if—
(a)
there is a sale and repurchase arrangement in respect of securities,
(b)
T makes a sale of the securities under the agreement to sell them (“the
original sale”),
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(c)
the securities are UK shares, UK securities or overseas securities, and
(d)
any of conditions A to E is met in relation to the sale and repurchase
arrangement.
(3)
Condition A is that—
(a)
the obligation to buy back the securities is not performed, or
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(b)
the option to buy them back is not exercised.

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(4)
Condition B is that provision is made by or under an agreement for different or
additional UK shares, UK securities or overseas securities to be treated as (or
as included with) representative securities.
(5)
Condition C is that provision is made by or under an agreement for any UK
shares, UK securities or overseas securities to be treated as not included with
5
representative securities.
(6)
Condition D is that provision is made by or under an agreement for the sale
price or repurchase price to be decided or varied wholly or partly by reference
to post-agreement fluctuations.
(7)
Condition E is that provision is made by or under an agreement for a person to
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be required, in a case where there are post-agreement fluctuations, to make a
payment in the period—
(a)
beginning immediately after the making of the agreement for the
original sale, and
(b)
ending when the repurchase price becomes due.
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(8)
“Post-agreement fluctuations” are fluctuations in the value of —
(a)
securities transferred in pursuance of the original sale, or
(b)
representative securities,

which occur in the period after the making of the agreement for the original
sale.
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(9)
“Representative securities” are UK shares, UK securities or overseas securities
which, for the purposes of the repurchase, are to represent securities
transferred in pursuance of the original sale.
657
Power to modify: redemption arrangements
(1)
The Treasury may by regulations provide for section 655 to apply with
25
modifications in relation to cases involving redemption arrangements.
(2)
A case involves redemption arrangements if—
(a)
arrangements, corresponding to those made in cases where there is a
sale and repurchase arrangement in respect of securities, are made by
an agreement, or one or more related agreements, in relation to
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securities that are to be redeemed in the period after their sale,
(b)
the securities are UK shares, UK securities or overseas securities, and
(c)
the arrangements are such that the seller or a person connected with the
seller (instead of being required to repurchase the securities or
acquiring an option to do so) is granted rights in respect of the benefits
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that will result from the redemption.
658
Powers to modify: supplementary
(1)
Regulations under section 656 or 657 may make different provision for
different cases.
(2)
Regulations under either section may contain incidental, supplemental,
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consequential and transitional provision and savings.
(3)
In this section and sections 656 and 657 “modifications” includes exceptions
and omissions.

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(4)
Accordingly, a power in sections 656 and 657 to provide for a provision to
apply with modifications in relation to a particular case includes power to
provide for the provision not to apply in relation to that case.
(5)
In sections 656 and 657 “UK shares”, “UK securities” and “overseas securities”
have the same meaning as in Part 11 (see sections 566 and 567).
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Special rules about some calculations
659
Transfers with or without accrued interest: interest in default
(1)
This section applies if—
(a)
the amount of the payments treated as made on a transfer of securities
is to be determined under section 632(4) or (5), 633(5) or 662(4) (cases
10
where interest is not accounted for separately),
(b)
there has been a failure to pay interest due on the securities, and
(c)
as a result of the failure, on the interest payment day which is or follows
the settlement day the value of the right to receive the interest payable
on the securities is less than the interest payable.
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(2)
The calculation under section 632(4) or (5), 633(5) or 662(4) is to be made by
reference to that value instead of the interest.
660
Transfers with unrealised interest: interest in default
(1)
This section applies if—
(a)
securities are transferred with unrealised interest,
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(b)
there has been a failure to pay interest due on the securities transferred,
and
(c)
as a result of the failure, on the day of the transfer the value of the right
to receive the unrealised interest (“the unrealised interest value”) is less
than the unrealised interest.
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(2)
The amount of the payment treated as made to the transferor under section
634(2) is taken to be the unrealised interest value instead of the amount of the
unrealised interest.
(3)
The amount of accrued income profits under section 631(1) is taken to be the
unrealised interest value instead of the amount of the unrealised interest.
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(4)
Subsections (2) and (3) are subject to section 661 (successive transfers with
unrealised interest in default).
(5)
For the purposes of this section and section 661, a person is treated as
transferring securities of a particular kind which the person acquired later
before securities of that kind acquired earlier.
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(6)
See also section 681 (exemption for unrealised interest received by transferee
after transfer).
661
Successive transfers with unrealised interest in default
(1)
The amount taken as the unrealised interest value for the purposes of section
660(2) or (3) is reduced if the person (“T”) who makes the transfer referred to
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