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Income Tax Bill


Income Tax Bill
Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses

334

 

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,

10

   

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.

40

(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.

 
 

Income Tax Bill
Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses

335

 

(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.

5

(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).

 
 

Income Tax Bill
Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses

336

 

(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.

5

(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

10

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—

15

(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

35

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

40

securities in the course of the trade, and re-acquiring them otherwise than in

the course of the trade, on the day of cessation.

 
 

Income Tax Bill
Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses

337

 

(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.

5

(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.

30

(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

35

a result of the exercise of an option acquired under the agreement or a

related agreement, or

 
 

Income Tax Bill
Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses

338

 

(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.

10

(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—

15

(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

40

(b)   

the option to buy them back is not exercised.

 
 

Income Tax Bill
Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses

339

 

(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

10

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

30

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

35

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,

40

consequential and transitional provision and savings.

(3)   

In this section and sections 656 and 657 “modifications” includes exceptions

and omissions.

 
 

Income Tax Bill
Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses

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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).

5

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.

15

(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,

20

(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.

25

(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.

30

(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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