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Income Tax Act 2007 (c. 3)

(The document as of February, 2008)

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654 Sale and repurchase arrangements

(1) This section applies for the purposes of sections 655 to 658.

(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 a result of the exercise of an option acquired under the agreement or a related agreement, or

(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 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.

(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--

(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

(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.

(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 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"),

(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

(b) the option to buy them back is not exercised.

(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 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 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.

(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.

(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 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 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 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, consequential and transitional provision and savings.

(3) In this section and sections 656 and 657 "modifications" includes exceptions and omissions.

(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).



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 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.

(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,

(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.

(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.

(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.

(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 in section 660(1) also acquired the securities with the right to receive unrealised interest.

(2) The amount of the reduction depends on whether subsection (3) applies.

(3) This subsection applies if--

(a) T has received, as transferee, some or all of that unrealised interest, and

(b) T is liable for income tax on it for the tax year in which it was received.

(4) If subsection (3) applies, the reduction is equal to the value on the day of the transfer to T of the right to receive the unrealised interest ("the earlier value") less the total so received.

(5) If subsection (3) does not apply, the reduction is equal to the earlier value.

(6) But if the reduction under subsection (4) or (5) exceeds the amount mentioned in subsection (1), that amount is treated as reduced to nil.

662 New securities issued with extra return: special rules about payments

(1) In the case of a transfer treated as made under section 649 (new securities issued with extra return), the amount of the payment treated as made under section 632(1) (payment on transfer with accrued interest) is not determined under section 632(2) to (5).

(2) Instead, that amount depends on whether under the issue arrangements the person to whom the new securities are issued accounts to the issuer separately--

(a) for the extra return, and

(b) for the rest of the issue price.

(3) If the person does account for them separately, the amount of the payment is the amount of the extra return separately accounted for.

(4) If the person does not account for them separately, the amount of the payment is an amount equal to--

---

where--

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

  • A is the number of days in the relevant period, and

  • B is the number of days in the period beginning with the first day of the relevant period and ending with the payment day.

(5) Subsection (4) is subject to section 659 (transfers with or without accrued interest: interest in default).

(6) In this section "the extra return", "the new issue day", "new securities" and "the relevant period" have the same meaning as in section 649.

663 Transfers without accrued interest to makers of manufactured payments

(1) This section applies if--

(a) the manufactured payments conditions are met (see section 647(2)), and

(b) the nominal value of the securities subject to the seller's contract is less than that of the securities transferred to the seller.

(2) The amount of the payment treated as made to the seller under section 633 on the transfer of the securities to the seller is reduced.

(3) The reduction is by so much of that amount as is attributable to securities ("the matched securities") of a nominal value equal to that of the securities subject to the seller's contract.

(4) If there is more than one transfer of securities to the seller, those transferred to the seller earlier are treated as the matched securities before those transferred later.

(5) In this section "the seller" and "the seller's contract" have the same meaning as in section 647.

(6) For cases where subsection (1)(b) does not apply, see section 647(3) (under which the seller is treated as an excluded transferee).

664 Foreign currency securities: sterling equivalent of payments on transfers

(1) The sterling equivalent of the amount of the payment treated as made on a transfer of securities is determined in accordance with this section if interest on the securities is payable in a currency other than sterling ("a foreign currency").

(2) If the payment is determined under section 632(3), 633(3) or 662(3) (transfers under an arrangement by which interest is accounted for separately), the amount of the payment depends on whether the sterling equivalent of the interest separately accounted for is shown in an agreement for transfer.

(3) If the sterling equivalent is so shown, the amount of the payment is taken to be that sterling equivalent.

(4) If the sterling equivalent is not so shown, the amount is taken to be the sterling equivalent on the settlement day of the interest separately accounted for.

(5) If the amount of the payment treated as made is determined under any other provision (except section 660 (transfers with unrealised interest: interest in default)), the amount is taken to be its sterling equivalent on the settlement day.

(6) For the purposes of this section, the sterling equivalent of an amount or value in a foreign currency is to be calculated by reference to the London closing rate of exchange for the day concerned.

665 Foreign currency securities: unrealised interest payable in foreign currency

(1) This section applies if unrealised interest is payable in a currency other than sterling ("a foreign currency").

(2) For the purposes of section 631(1) (amount of accrued income profits where settlement day outside interest period) the amount of the unrealised interest is taken to be its sterling equivalent on the settlement day.

(3) For the purposes of sections 660 (transfers with unrealised interest: interest in default) and 661 (successive transfers with unrealised interest in default), the value on any day of the right to receive unrealised interest is the sterling equivalent on that day of that value in the foreign currency.

(4) For the purposes of those sections unrealised interest received in a foreign currency is taken to be the sterling equivalent on the day of receipt of the amount received.

(5) For the purposes of this section, the sterling equivalent of an amount or value in a foreign currency is to be calculated by reference to the London closing rate of exchange for the day concerned.



Nominees and trustees

666 Certain transfers by or to nominees or trustees treated as made by or to others

(1) Transfers of securities by or to a person as nominee for another person ("A") are treated for the purposes of this Chapter as transfers by or to A.

(2) Transfers of securities by or to a person ("T") as trustee for another person ("B") are treated for the purposes of this Chapter as transfers by or to B if B is absolutely entitled as against T.

(3) For the purposes of subsection (2) where T is the transferor, B is absolutely entitled as against T if immediately before the transfer B has the exclusive right to direct how the securities are to be dealt with.

(4) For the purposes of subsection (2) where T is the transferee, B is absolutely entitled as against T if immediately after the transfer B has that exclusive right.

(5) For the purposes of subsections (3) and (4), a right to direct how securities are to be dealt with is treated as an exclusive right despite being subject to satisfying any outstanding charge, lien or other right of the trustee to resort to the securities for payment of duty, taxes, costs or other outgoings.

(6) Subsection (1) applies to a transfer of securities by or to a person as nominee for two or more persons as it applies to a transfer of securities by or to a person as nominee for one person, taking the references to A as references to the two or more persons.

(7) This section applies to a transfer of securities by or to a person as trustee for two or more persons as it applies to a transfer of securities as trustee for one person, taking--

(a) the references to B as references to the two or more persons, and

(b) the references to B being absolutely entitled as references to the two or more persons being jointly absolutely entitled.

(8) The fact that a person is an infant or otherwise lacks legal capacity is to be disregarded in determining for the purposes of this section whether the person is absolutely entitled as against T.

667 Trustees' accrued income profits treated as settlement income

(1) If the trustees of a settlement are treated as making qualifying accrued income profits, those profits are to be taken to be income arising under the settlement for the purposes of Chapter 5 of Part 5 of ITTOIA 2005 (settlements: amounts treated as income of settlor).

(2) Subsection (3) applies if the trustees of a settlement--

(a) are non-UK resident or domiciled outside the United Kingdom throughout a tax year in which an interest period or part of an interest period falls, and

(b) would have been treated as making an amount or an additional amount of qualifying accrued income profits in the interest period if the trustees had been UK resident or domiciled in the United Kingdom during a part of each such tax year.

(3) The amount or additional amount of qualifying accrued income profits that the trustees would have been treated as making is to be taken to be income arising under the settlement for the purposes of Chapter 5 of Part 5 of ITTOIA 2005.

(4) In this section--

(a) "qualifying accrued income profits" means accrued income profits which are treated as made--

(i) under section 628(5), or

(ii) under section 630(2) in respect of a transfer of variable rate securities, and

(b) in any case where there are no trustees of a settlement, references to such trustees are to any persons entitled to securities comprised in the settlement.

(5) In the case of qualifying accrued income profits within subsection (4)(a)(ii)--

(a) the reference in subsection (2)(a) to an interest period is to the period--

(i) beginning with the day after the last day of the only or last interest period of the securities, and

(ii) ending with the settlement day, and

(b) the reference in subsection (2)(b) to making qualifying accrued income profits in the interest period is to be read as making them in the tax year in which settlement day falls.



Relief where transfer proceeds unremittable

668 Relief for unremittable transfer proceeds: general

(1) This section applies if--

(a) a person is liable for income tax on accrued income profits,

(b) the profits are calculated by reference to payments treated as made to the person in an interest period,

(c) the payments are so treated as a result of the person making transfers of foreign securities of a particular kind, and

(d) the proceeds of the transfers are unremittable in the tax year.

(2) If the person makes a claim for relief under this section--

(a) the profits are reduced by the amount of the payments treated as made to the person, or

(b) if that amount exceeds the profits, the profits are reduced to nil.

(3) But see section 670 (withdrawal of relief).

(4) In this section and section 669 "foreign securities" means securities which are situated outside the United Kingdom.

(5) For the purposes of this section and sections 669 and 670, proceeds of transfers of foreign securities are unremittable in relation to a person if the person is prevented from transferring them to the United Kingdom because of--

(a) the laws of the territory where the securities are situated,

(b) executive action of its government, or

(c) the impossibility of obtaining there currency that could be transferred to the United Kingdom.

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

(7) Any claim under this section must be made on or before the fifth anniversary of the normal self-assessment filing date for the tax year for which the profits would be chargeable to tax if no claim were made.

(8) A person's personal representatives may make any claim under this section which the person might have made.

669 Relief for unremittable transfer proceeds: section 630 profits

(1) This section applies if--

(a) a person is liable for income tax on accrued income profits within section 630(2) (making accrued income profits: settlement day outside interest period),

(b) the person is so liable as a result of making transfers of foreign securities of a particular kind, and

(c) the proceeds of the transfers are unremittable in the tax year.

(2) If the person makes a claim for relief under this section the profits are reduced to nil.

(3) But see section 670 (withdrawal of relief).

(4) Any claim under this section must be made on or before the fifth anniversary of the normal self-assessment filing date for the tax year for which the profits would be chargeable to tax if no claim were made.

(5) A person's personal representatives may make any claim under this section which the person might have made.

670 Withdrawal of relief

(1) This section applies if--

(a) a claim under section 668(2) or 669(2) has been made in relation to profits, and

(b) the proceeds of the transfers cease to be unremittable.

(2) The claimant is treated as making accrued income profits of an amount equal to the reduction under that section.

(3) If the claimant has died, the claimant's personal representatives are so treated.



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 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, 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 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).

(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.

(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.

(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--

(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.

(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--

(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 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),

the settlement day is the day on which the securities are transferred.

(5) The provisions are--

  • section 620(1)(b) or (c) (conversion, or redemption of variable rate securities),

  • section 648(1) or (3) (exchanges relating to strips of gilt-edged securities),

  • 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.

(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

(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 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 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.

(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 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 Exemptions relating to interest on securities

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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.

(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,

  • "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

  • "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

(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

(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.

(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 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 or part of an interest period of securities falls,

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