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Income Tax Act 2007 (c. 3) Laws UK
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Income Tax Act 2007 (c. 3)

(The document as of February, 2008)

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(2) Subsection (1) is subject to section 660 (transfers with unrealised interest: interest in default).

(3) In the case of a transfer of variable rate securities to which section 630 applies, the amount of the accrued income profits treated as made is such amount as is just and reasonable.



The payments treated as made on transfers

632 Payment on transfer with accrued interest

(1) In the case of a transfer of securities with accrued interest, for the purposes of this Chapter a payment is treated as made by the transferee to the transferor in the interest period in which the settlement day falls.

(2) The amount of that payment depends on whether the transfer is under an arrangement by which the transferee accounts to the transferor separately--

(a) for the consideration for the securities, and

(b) for gross interest accruing to the settlement day.

(3) If the transfer is under such an arrangement, the amount of the payment is the amount of gross interest which the transferee accounts for.

(4) If--

(a) the transfer is not under such an arrangement, and

(b) the settlement day is itself an interest payment day for the securities,

the amount of the payment is the amount of interest payable on the securities on that day.

(5) If--

(a) the transfer is not under such an arrangement, and

(b) the settlement day is not an interest payment day for the securities,

the amount of the payment is an amount equal to--

---

where--

  • I is the interest payable on the securities on the first interest payment day after the settlement day ("the payment day"),

  • A is the number of days in the period beginning with the first day on which that interest accrues and ending with the settlement day, and

  • B is the number of days in the period beginning with the first day on which that interest accrues and ending with the payment day.

(6) For the purposes of subsection (5), the first day on which that interest accrues is taken to be--

(a) the day after the last interest payment day before the settlement day, or

(b) if there was no interest payment day before the settlement day, the first day of the first interest period of the securities.

(7) In a case where no one is treated as the transferor (see sections 648(4) and 649(5)), this section has effect as if--

(a) in subsection (1) the words "to the transferor" were omitted, and

(b) subsections (2), (3), (4)(a) and (5)(a) were omitted.

(8) In a case where no one is treated as the transferee (see sections 621(2) and (3) and 648(2)), this section has effect as if--

(a) in subsection (1) the words "by the transferee" were omitted, and

(b) subsections (2), (3), (4)(a) and (5)(a) were omitted.

(9) Subsections (2) to (5) are subject to section 662 (new securities issued with extra return: special rules about payments).

(10) Subsections (4) and (5) are subject to section 659 (transfers with or without accrued interest: interest in default).

633 Payment on transfer without accrued interest

(1) In the case of a transfer of securities without accrued interest, for the purposes of this Chapter a payment is treated as made by the transferor to the transferee in the interest period in which the settlement day falls.

(2) The amount of that payment depends on whether the transfer is under an arrangement by which the transferor accounts to the transferee for gross interest accruing from the settlement day to the next interest payment day.

(3) If the transfer is under such an arrangement, the amount of the payment is the amount of gross interest which the transferor accounts for.

(4) If--

(a) the transfer is not under such an arrangement, and

(b) the settlement day is itself an interest payment day for the securities,

the amount of the payment is nil.

(5) If--

(a) the transfer is not under such an arrangement, and

(b) the settlement day is not an interest payment day for the securities,

the amount of the payment is an amount equal to--

---

where--

  • I is the interest payable on the securities on the first interest payment day after the settlement day ("the payment day"),

  • A is the number of days in the period beginning with the day after the settlement day and ending with the payment day, and

  • B is the number of days in the period beginning with the first day on which that interest accrues and ending with the payment day.

(6) For the purposes of subsection (5), the first day on which that interest accrues is taken to be--

(a) the day after the last interest payment day before the settlement day, or

(b) if there is no interest payment day before the settlement day, the first day of the first interest period of the securities.

(7) In a case where no one is treated as the transferor (see section 648(4)), this section has effect as if--

(a) in subsection (1) the words "by the transferor" were omitted, and

(b) subsections (2), (3), (4)(a) and (5)(a) were omitted.

(8) In a case where no one is treated as the transferee (see sections 621(2) and (3) and 648(2)), this section has effect as if--

(a) in subsection (1) the words "to the transferee" were omitted, and

(b) subsections (2), (3), (4)(a) and (5)(a) were omitted.

(9) Subsection (5) is subject to section 659 (transfers with or without accrued interest: interest in default).

(10) See also section 663(2) (reduction of amount of payment under this section where transfer to maker of manufactured payments).

634 Payment on transfer with unrealised interest

(1) In the case of a transfer of securities with unrealised interest where the settlement day falls within an interest period, for the purposes of this Chapter a payment is treated as made to the transferor in that period.

(2) The amount of the payment is equal to the unrealised interest.

(3) Subsection (2) is subject to section 660 (transfers with unrealised interest: interest in default).

(4) No one is treated as making the payment.

(5) Accordingly, the payment is not brought into account in determining whether the transferee is treated as making accrued income profits or losses under section 628.

(6) But see section 681 (exemption for unrealised interest received by transferee after transfer).

(7) See section 630 for the rules that apply to transfers of securities with unrealised interest where the settlement day falls outside an interest period.

635 Payment on transfer of variable rate securities

(1) In the case of a transfer of variable rate securities where the settlement day falls within an interest period, for the purposes of this Chapter a payment is treated as made to the transferor in that period.

(2) The amount of the payment is such amount as is just and reasonable.

(3) No one is treated as making the payment.

(4) Accordingly, the payment is not brought into account in determining whether the transferee is treated as making accrued income profits or losses under section 628.

(5) See section 630 for the rules that apply to transfers of variable rate securities where the settlement day falls outside an interest period.



Exception where there is a transfer to a legatee

636 Exception where there is a transfer to a legatee

(1) This section applies if--

(a) an individual who is entitled to securities dies, and

(b) the securities are transferred by the personal representatives to a legatee.

(2) If the securities are transferred in the interest period in which the death occurs, no payment is treated as made under this Chapter as a result of the transfer.

(3) If the securities are variable rate securities and the deceased dies after the end of the only or last interest period of the securities, no accrued income profits are treated as made under section 630(2).

(4) In this section "legatee" includes any person taking (whether beneficially or as trustee)--

(a) under a testamentary disposition, or

(b) on an intestacy or partial intestacy.

(5) Such a person includes a person taking as a result of an appropriation by personal representatives in or towards the satisfaction of a legacy or other interest or share in the deceased's property.



Relief for losses

637 Accrued income losses treated as payments in next interest period

(1) This section applies if--

(a) a person is treated as making accrued income losses in an interest period as a result of transfers of securities, and

(b) the period does not end with an interest payment day.

(2) For the purposes of this Chapter the person is treated as making a payment on a transfer of the securities in the next interest period equal to the amount of the losses.

(3) For cases where the period does end with an interest payment day, see sections 678 to 680 (exemptions for interest on securities involving accrued income losses).



Excluded transferors and transferees

638 Excluded persons: disregard of certain payments and transfers

(1) This section applies if there is a transfer of securities in relation to which a person ("P") is an excluded transferor or excluded transferee.

(2) In determining whether P has made accrued income profits or accrued income losses under section 628 (making accrued income profits and losses: general rule) and the amount of any such profits or losses, no account is to be taken of any payment treated as made by or to P on the transfer.

(3) In determining whether P has made accrued income profits under section 630 (making accrued income profits: settlement day outside interest period) and the amount of any such profits, no account is to be taken of the transfer if P is an excluded transferor in relation to it.

(4) For the cases where a person is an excluded transferor or excluded transferee in relation to a transfer, see--

  • section 639 (small holdings: individuals),

  • section 640 (small holdings: personal representatives),

  • section 641 (small holdings: trustees of a disabled person's trusts),

  • section 642 (traders),

  • section 643 (non-residents),

  • section 644 (individuals to whom the remittance basis applies),

  • section 645 (charitable trusts etc),

  • section 646 (pension scheme trustees), and

  • section 647 (makers of manufactured payments).

(5) Whether a person is an excluded transferee is also relevant to the application of section 681 (exemption for unrealised interest received by transferee after transfer).

639 Small holdings: individuals

(1) In relation to a transfer with accrued interest or transfer without accrued interest, an individual is an excluded transferor or excluded transferee unless the nominal value of securities held by the individual exceeds £5,000 on any day--

(a) in the tax year in which the interest period ends, or

(b) in the previous tax year.

(2) In relation to a transfer with unrealised interest, an individual is an excluded transferor or excluded transferee unless the nominal value of securities held by the individual exceeds £5,000 on any day--

(a) in the tax year in which the settlement day falls, or

(b) in the previous tax year.

(3) In relation to a transfer of variable rate securities, an individual is an excluded transferor unless the nominal value of securities held by the individual exceeds £5,000 on any day in the relevant tax year or the previous tax year.

(4) In subsection (3) "the relevant tax year" means--

(a) if the settlement day falls in an interest period, the tax year in which the interest period ends, or

(b) otherwise, the tax year in which the settlement day falls.

(5) For the purposes of this section, if--

(a) an individual holds securities at a particular time, and

(b) any interest on them which became payable at that time would be treated for income tax purposes as part of another individual's income,

each of those individuals is treated as holding at that time the securities which the other holds, as well as those which that individual actually holds.

640 Small holdings: personal representatives

(1) In relation to a transfer with accrued interest or transfer without accrued interest of securities that form part of a deceased person's estate, the deceased's personal representatives are an excluded transferor or excluded transferee unless the nominal value of securities held by the deceased's personal representatives as such exceeds £5,000 on any day--

(a) in the tax year in which the interest period ends, or

(b) in the previous tax year.

(2) In relation to a transfer with unrealised interest of securities that form part of a deceased person's estate, the deceased's personal representatives are an excluded transferor or excluded transferee unless the nominal value of securities held by the deceased's personal representatives as such exceeds £5,000 on any day--

(a) in the tax year in which the settlement day falls, or

(b) in the previous tax year.

(3) In relation to a transfer of variable rate securities that form part of a deceased person's estate, the deceased's personal representatives are an excluded transferor unless the nominal value of securities held by the deceased's personal representatives as such exceeds £5,000 on any day in the relevant tax year or the previous tax year.

(4) In subsection (3) "the relevant tax year" has the meaning given by section 639(4).

641 Small holdings: trustees of a disabled person's trusts

(1) In relation to a transfer with accrued interest or transfer without accrued interest of securities held on a disabled person's trusts, the trustees of the settlement are an excluded transferor or excluded transferee unless the nominal value of securities held by the trustees of the settlement as such exceeds £5,000 on any day--

(a) in the tax year in which the interest period ends, or

(b) in the previous tax year.

(2) In relation to a transfer with unrealised interest of securities held on a disabled person's trusts, the trustees of the settlement are an excluded transferor or excluded transferee unless the nominal value of securities held by the trustees of the settlement as such exceeds £5,000 on any day--

(a) in the tax year in which the settlement day falls, or

(b) in the previous tax year.

(3) In relation to a transfer of variable rate securities held on a disabled person's trusts, the trustees of the settlement are an excluded transferor unless the nominal value of securities held by the trustees of the settlement as such exceeds £5,000 on any day in the relevant tax year or the previous tax year.

(4) In this section--

  • "disabled person's trusts" means trusts falling within paragraph 1(1) of Schedule 1 to TCGA 1992 (application of annual exempt amount), and

  • "the relevant tax year" has the meaning given by section 639(4).

642 Traders

(1) In relation to a transfer of securities by a person carrying on a trade, the person is an excluded transferor if the transfer is taken into account for income tax purposes in calculating the profits or losses of the trade.

(2) In relation to a transfer of securities at any time to a person carrying on a trade, the person is an excluded transferee if, had the transfer been made by the person at that time, it would have been taken into account for income tax purposes in calculating the profits or losses of the trade.

643 Non-residents

(1) A person is--

(a) an excluded transferor in relation to a transfer by the person, and

(b) an excluded transferee in relation to a transfer to the person,

if the person is non-UK resident throughout the tax year in which the transfer occurs and is not ordinarily UK resident during that year.

(2) In the case of a person who is carrying on a trade in the United Kingdom through a branch or agency during any part of that year ("a UK branch trader"), subsection (1) is subject to subsections (3) and (4).

(3) A UK branch trader is not an excluded transferor under subsection (1) if the securities transferred were situated in the United Kingdom and used or held for the purposes of the branch or agency at or before the time of the transfer.

(4) A UK branch trader is not an excluded transferee under subsection (1) if the securities transferred were situated in the United Kingdom at the time of the transfer and were acquired for use by or for the purposes of the branch or agency.

(5) In this section "branch or agency" has the meaning given by section 10(6) of TCGA 1992.

(6) The place where securities are situated is determined for the purposes of this section in accordance with sections 275(1) and (2)(b) and 275C of TCGA 1992.

(7) Further provision about trustees who are non-UK resident is made in section 667 (trustees' accrued income profits treated as settlement income).

644 Individuals to whom the remittance basis applies

(1) This section applies if--

(a) there is a transfer of securities by or to an individual in a tax year, and

(b) interest on the securities in respect of which the individual is liable to income tax for the tax year--

(i) is charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis), or

(ii) would be so charged if there were any.

(2) The individual is an excluded transferor in relation to the transfer if it is made by the individual.

(3) The individual is an excluded transferee in relation to the transfer if it is made to the individual.

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 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,

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

(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 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

(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 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 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.

(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.

(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.

(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

(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 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 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 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--

(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 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 subsection (2).

(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.

(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 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--

    (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

  • "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

(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.

(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 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 securities in the course of the trade, and re-acquiring them otherwise than in the course of the trade, on the day of cessation.

(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.

(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 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 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.

(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 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

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