Income Tax Bill

House of Commons

Session 2006 - 07
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Income Tax Bill

Income Tax Bill
Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses
346

Interpretation
671
Meaning of “interest”
(1)
In this Chapter “interest” includes dividends and any other return (however
described).
(2)
But it does not include a return consisting of the difference between the
5
amount payable on a security’s redemption and its issue price.
672
Meaning of “interest payment day”
(1)
In this Chapter “interest payment day”, in relation to securities of any kind,
means a day on which interest on those securities is payable.
(2)
If a particular payment of interest may be made on one of a number of days,
10
the first of them is the interest payment day.
673
Meaning of “interest period”
(1)
The general rule is that for the purposes of this Chapter—
(a)
the first interest period of securities of any kind begins with the day
after that on which those securities are first issued and ends with the
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first interest payment day or, if it is earlier, the expiry of 12 months, and
(b)
any other interest period of those securities begins with the day after
the last day of their previous interest period and ends with the next
interest payment day or, if it is earlier, the expiry of 12 months.
(2)
Subsection (1) is subject to subsections (3) and (4).
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(3)
The last interest period of securities of any kind ends with the last interest
payment day for those securities, unless subsection (4) applies.
(4)
An interest period of securities of any kind in which either of the events
specified in subsection (5) occurs is treated as ending on the day on which it
would have ended apart from that event.
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(5)
The events are—
(a)
a conversion of those securities, and
(b)
if those securities are gilt-edged securities, the exchange of those
securities for strips of those securities.
(6)
In this section “strip” has the meaning given by section 444 of ITTOIA 2005.
30
(7)
See also section 667(5) (construction of reference to “interest period” in section
667(2)).
674
Meaning of “the settlement day”
(1)
For the purposes of this Chapter the settlement day for a transfer of securities
in accordance with the rules of a recognised market is—
35
(a)
the day on which the transferee agrees to settle, or
(b)
if the transferee may settle on one of a number of days, the day on
which settlement actually occurs.

Income Tax Bill
Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses
347

(2)
The settlement day for a transfer of securities which is not in accordance with
such rules is determined in accordance with subsection (3), (4) or (6) (and see
also section 649(6): settlement day where new securities issued with extra
return).
(3)
If—
5
(a)
the consideration for the transfer is money alone, and
(b)
the transferee agrees to pay the whole of it on or before the first interest
payment day after an agreement for the transfer is made,

the settlement day is the day on which the transferee agrees to make the
payment or, if payment may be made on one of a number of days, or on a
10
number of different days, the latest of them.
(4)
If—
(a)
there is no consideration for the transfer, or
(b)
the transfer is a transfer because of a provision specified in subsection
(5),
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the settlement day is the day on which the securities are transferred.
(5)
The provisions are—
section 620(1)(b) or (c) (conversions, or redemption of variable rate
securities),
section 648(1) or (3) (exchanges relating to strips of gilt-edged securities),
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section 650 (trading stock appropriations etc),
section 651 (owner becoming entitled to securities as trustee), and
section 652 (securities ceasing to be held on charitable trusts).
(6)
If neither subsection (3) nor (4) applies, the settlement day is such day as an
officer of Revenue and Customs decides.
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(7)
The jurisdiction of the General Commissioners or the Special Commissioners
on any appeal includes jurisdiction to affirm or replace such a decision.
675
The holding of securities
(1)
For the purposes of this Chapter, a person holds securities—
(a)
at a particular time if the person is entitled to them at that time, and
30
(b)
on a particular day if the person is entitled to them throughout that day
or becomes and does not cease to be entitled to them on that day.
(2)
A person acquires securities when the person becomes entitled to them.
(3)
If a Scottish partnership carries on a trade or business—
(a)
any partnership dealings are treated as dealings by the partners and not
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by the partnership as such, and
(b)
the partners are treated as being entitled to securities held by the
partnership.
676
Nominal value of securities: general
(1)
If the interest on securities is expressed to be payable by reference to a given
40
value, for the purposes of this Chapter their nominal value is that value.
(2)
In any other case, the nominal value of securities for those purposes is their
price when they were issued.

Income Tax Bill
Part 12 — Accrued income profits
Chapter 3 — Exemptions relating to interest on securities
348

(3)
See section 677 if the nominal value of the securities is expressed in a currency
other than sterling.
677
Nominal value: foreign currency securities
(1)
If the nominal value of securities is expressed in a currency other than sterling
(“a foreign currency”), for the purposes of this Chapter their nominal value on
5
any day is taken to be the sterling equivalent on that day of that value.
(2)
For the purposes of this section, the sterling equivalent of a value in a foreign
currency is to be calculated by reference to the London closing rate of exchange
for the day concerned.
Chapter 3
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Exemptions relating to interest on securities
678
Exemptions relating to interest on securities: preliminary
(1)
This Chapter confers exemptions relating to interest on securities.
(2)
Expressions used in this Chapter and in Chapter 2 have the same meaning as
in that Chapter.
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(3)
Accordingly, for the meanings of the following expressions see the sections
indicated—
“interest” see section 671,
“interest payment day” see section 672,
“interest period” see section 673,
20
“makes accrued income losses” see section 628(6),
“securities” see section 619,
“transfer with unrealised interest” see section 625(1),
“transferee” see section 621,
“transfer” see section 620, and
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“unrealised interest” see section 625(2).
(4)
Section 666 (certain transfers by or to nominees or trustees treated as made by
or to others) applies for the purposes of this Chapter as it applies for the
purposes of Chapter 2.
679
Interest on securities involving accrued income losses: general
30
(1)
This section applies if—
(a)
a person is liable for income tax on interest on securities of any kind
which is due at the end of an interest period of the securities,
(b)
in that period accrued income losses are made as a result of transfers of
those securities, and
35
(c)
the period ends with an interest payment day.
(2)
No liability to income tax arises in respect of the interest to the extent that it
does not exceed the losses.

Income Tax Bill
Part 12 — Accrued income profits
Chapter 3 — Exemptions relating to interest on securities
349

(3)
If, apart from this subsection, a person would be entitled to the exemption
under this section in more than one tax year, the person is so entitled only in
the tax year in which the interest period ends.
(4)
For cases where the interest period does not end with an interest payment day,
see section 637 (accrued income losses treated as payments in next interest
5
period).
680
Interest on securities involving accrued income losses: foreign trustees
(1)
This section applies if—
(a)
the trustees of a settlement are non-UK resident or domiciled outside
the United Kingdom throughout a tax year in which an interest period
10
or part of an interest period of securities falls,
(b)
the trustees’ income is or includes interest from those securities,
(c)
the interest falls due at the end of that interest period, and
(d)
had the trustees been UK resident, or domiciled in the United
Kingdom, during a part of each such tax year the interest would have
15
been wholly or partly exempt from income tax under section 679.
(2)
No liability to income tax arises as a result of Chapter 5 of Part 5 of ITTOIA 2005
(settlements: amounts treated as income of settlor) in respect of so much of the
interest as would have been exempt from income tax under section 679.
(3)
For cases where the interest period does not end with an interest payment day,
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see section 637 (accrued income losses treated as payments in next interest
period).
681
Unrealised interest received by transferee after transfer
(1)
This section applies if—
(a)
securities are transferred with unrealised interest,
25
(b)
the transferee is not an excluded transferee in relation to the transfer for
the purposes of Chapter 2 (see sections 638 to 647),
(c)
the transferee receives some or all of the unrealised interest, and
(d)
apart from this section, the transferee would be liable to income tax on
the unrealised interest.
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(2)
No liability to income tax arises in respect of the unrealised interest received by
the transferee, unless conditions A and B are met.
(3)
Condition A is that section 660 (transfers with unrealised interest: interest in
default) applies on the transfer.
(4)
Condition B is that the unrealised interest received by the transferee exceeds
35
the residual value of the interest.
(5)
In this section “the residual value of the interest” means—
(a)
the value on the day of the transfer of the right to receive the unrealised
interest, less
(b)
the total amount of any of that unrealised interest received previously
40
by the transferee.
(6)
If conditions A and B are met, no liability to income tax arises in respect of the
unrealised interest to the extent that it does not exceed the residual value of the
interest.

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Part 13 — Tax avoidance
Chapter 1 — Transactions in securities
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(7)
Section 665 (foreign currency securities: unrealised interest payable in foreign
currency) applies for the purposes of this section as it applies for the purposes
of sections 660 and 661.
Part 13
Tax avoidance
5
Chapter 1
Transactions in securities
Introduction
682
Overview of Chapter
(1)
This Chapter makes provision for counteracting income tax advantages
10
obtained or obtainable by persons to whom section 684 applies in respect of a
transaction or transactions in securities.
(2)
See section 698 (counteraction notices) for the way in which the income tax
advantages may be counteracted.
683
Meaning of “income tax advantage”
15
(1)
In this Chapter “income tax advantage” means—
(a)
a relief from income tax or increased relief from income tax,
(b)
a repayment of income tax or increased repayment of income tax,
(c)
the avoidance or reduction of a charge to income tax or an assessment
to income tax, or
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(d)
the avoidance of a possible assessment to income tax.
(2)
For the purposes of subsection (1)(c) and (d) it does not matter whether the
avoidance or reduction is effected—
(a)
by receipts accruing in such a way that the recipient does not pay or
bear income tax on them, or
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(b)
by a deduction in calculating profits or gains.
(3)
In this section “relief from income tax” includes a tax credit.
Person liable to counteraction of income tax advantages
684
Person liable to counteraction of income tax advantage
(1)
This section applies to a person in respect of a transaction in securities or two
30
or more such transactions if the person is in a position to obtain or has obtained
an income tax advantage—
(a)
in circumstances where any of the provisions specified in subsection (2)
applies in relation to the person, and
(b)
in consequence of—
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(i)
the transaction, or
(ii)
the combined effect of the transactions.

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Part 13 — Tax avoidance
Chapter 1 — Transactions in securities
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(2)
The provisions are—
section 686 (abnormal dividends used for exemptions or reliefs
(circumstance A)),
section 687 (deductions from profits obtained following distribution or
dealings (circumstance B)),
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section 688 (receipt of consideration representing company’s assets,
future receipts or trading stock (circumstance C)),
section 689 (receipt of consideration in connection with relevant company
distribution (circumstance D)), and
section 690 (receipt of assets of relevant company (circumstance E)).
10
(3)
For the purposes of this Chapter an income tax advantage is treated as obtained
or obtainable by a person in consequence of—
(a)
a transaction in securities, or
(b)
the combined effect of two or more such transactions,

if it is obtained or obtainable by the person in consequence of the combined
15
effect of the transaction or transactions and the liquidation of a company.
(4)
This section is subject to—
section 685 (exception where no tax avoidance object shown),
section 696(3) (disapplication of this section where person receiving
preliminary notification that this section may apply makes a statutory
20
declaration and the relevant officer of Revenue and Customs sees no
reason to take further action), and
section 697(5) (determination by tribunal that there is no prima facie case
that this section applies).
685
Exception where no tax avoidance object shown
25
(1)
Section 684 does not apply to a person in respect of a transaction in securities
or two or more such transactions if the person shows that the transaction or
transactions meet conditions A and B.
(2)
Condition A is that the transaction or transactions are effected—
(a)
for genuine commercial reasons, or
30
(b)
in the ordinary course of making or managing investments.
(3)
Condition B is that enabling income tax advantages to be obtained is not the
main object or one of the main objects of the transaction or, as the case may be,
any of the transactions.
Circumstances in which income tax advantages obtained or obtainable
35
686
Abnormal dividends used for exemptions or reliefs (circumstance A)
(1)
This section applies in relation to a person if subsections (2) to (4) apply.
(2)
The person receives an abnormal amount by way of dividend (see section 692).
(3)
The receipt is in connection with—
(a)
the purchase of securities where the purchase is followed by the sale of
40
the same or other securities,
(b)
the sale of securities where the sale is followed by the purchase of the
same or other securities,

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Part 13 — Tax avoidance
Chapter 1 — Transactions in securities
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(c)
the distribution, transfer or realisation of assets of a company, or
(d)
the application of such assets in discharge of liabilities.
(4)
The amount so received is taken into account for the purposes of—
(a)
any exemption from income tax,
(b)
the setting-off of losses against profits or income, or
5
(c)
the giving of relief under section 383 (relief for interest payments).
687
Deductions from profits obtained following distribution or dealings
(circumstance B)
(1)
This section applies in relation to a person if subsections (2) to (4) apply.
(2)
The person becomes entitled—
10
(a)
in respect of securities held or sold by the person, or
(b)
in respect of securities formerly held by the person,

to a deduction in calculating profits or gains.
(3)
The entitlement arises in connection with—
(a)
the purchase of securities where the purchase is followed by the sale of
15
the same or other securities,
(b)
the sale of securities where the sale is followed by the purchase of the
same or other securities,
(c)
the distribution, transfer or realisation of assets of a company, or
(d)
the application of such assets in discharge of liabilities.
20
(4)
The entitlement arises because of a fall in the value of the securities resulting
from—
(a)
the payment of a dividend on them, or
(b)
any other dealing with any assets of a company.
(5)
Subsection (2)(b) applies whether or not the person has sold the securities.
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688
Receipt of consideration representing company’s assets, future receipts or
trading stock (circumstance C)
(1)
This section applies in relation to a person (“A”) if subsections (2), (3) and (6)
apply.
(2)
A receives consideration which—
30
(a)
is or represents the value of—
(i)
assets which are available for distribution by a company by way
of dividend, or
(ii)
assets which would have been so available apart from anything
done by the company,
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(b)
is received in respect of future receipts of a company, or
(c)
is or represents the value of trading stock of a company.
(3)
The receipt is in consequence of a transaction whereby another person (“B”)—
(a)
subsequently receives, or has received, an abnormal amount by way of
dividend (see section 692), or
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(b)
subsequently becomes entitled, or has become entitled—
(i)
in respect of securities held or sold by B, or