Office of Public Sector Information
Section 52.
1 (1) Section 349 of the Taxes Act 1988 (annual interest etc.) shall be amended as follows.
(2) In subsection (2)(a), after “company” there shall be inserted “(other than a building society)”.
(3) In subsection (3), paragraph (e) shall be omitted.
(4) After subsection (3) there shall be inserted—
“(3A) Subject to subsection (3B) below and to any other provision to the contrary in the Income Tax Acts, where—
(a) any dividend or interest is paid in respect of a security issued by a building society other than a qualifying certificate of deposit, and
(b) the security was quoted, or capable of being quoted, on a recognised stock exchange at the time the dividend or interest became payable,
the person by or through whom the payment is made shall, on making the payment, deduct out of it a sum representing the amount of income tax thereon for the year in which the payment is made.
(3B) Subsection (3A) above does not apply to any payment to which section 124 applies.”
(5) In subsection (4), for “subsection (3)(e) above” there shall be substituted “this section” and for the words from “and” to the end there shall be substituted—
““qualifying certificate of deposit” means a certificate of deposit, as defined in section 56(5), under which—
(a) the amount payable by the issuing society, exclusive of interest, is not less than £50,000 (or, for a deposit denominated in foreign currency, not less than the equivalent of £50,000 at the time when the deposit is made), and
(b) the obligation of the society to pay that amount arises after a period of not more than five years beginning with the date on which the deposit is made; and
“security” includes share.”
2 (1) Section 477A of the Taxes Act 1988 (building societies: regulations for deduction of tax) shall be amended as follows.
(2) After subsection (1) there shall be inserted—
“(1A) Regulations under subsection (1) above may not make provision with respect to any dividend or interest paid or credited, on or after the day on which the Finance Act 1991 was passed, in respect of a security (other than a qualifying certificate of deposit) which was quoted, or capable of being quoted, on a recognised stock exchange at the time the dividend or interest became payable.”
(3) After subsection (9) there shall be inserted—
“(10) In this section—
“qualifying certificate of deposit” has the same meaning as in section 349, and
“security” includes share.”
3 (1) Schedule 16 to the Taxes Act 1988 (collection of income tax on company payments which are not distributions), in its application to building societies by virtue of section 350(4) of that Act, shall have effect as if for paragraph 2(2)(a) there were substituted—
“(a) each complete quarter falling within the accounting period, that is to say, each of the periods of three months ending with the last day of February, May, August and November;”.
(2) In section 350(4) of that Act, the second reference to regulations shall be treated as including a reference to sub-paragraph (1) above.
(3) Regulations under section 350(4) of that Act (power to modify Schedule 16) may repeal sub-paragraphs (1) and (2) above.
4 (1) A building society may not make more than one claim to relief under paragraph 5 of Schedule 16 to the Taxes Act 1988 (set-off of income tax borne on company income against tax payable) in respect of the same deduction.
(2) In sub-paragraph (1) above, the reference to a claim under paragraph 5 of Schedule 16 to the Taxes Act 1988 includes a reference to a claim under that paragraph as applied by regulations under section 477A(1) of that Act.
5 (1) In section 18 of the [1970 c. 9.] Taxes Management Act 1970 (information about interest payments) after subsection (3C) there shall be inserted—
“(3D) For the purposes of this section, the payment by a building society of a dividend in respect of a share in the society shall be treated as the payment of interest.”
(2) This paragraph shall have effect as regards a case where the payment is made on or after the day on which this Act is passed.
Section 54.
1 The following section shall be inserted after section 587 of the Taxes Act 1988—
(1) This section applies where—
(a) securities (old securities) of a particular kind are issued by way of the 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 person issuing 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 payable for the relevant period on so many old securities as there are new (or, 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).
(2) Anything payable or paid by way of the extra return shall be treated for the purposes of the Tax Acts as payable or paid by way of interest (to the extent that it would not be so treated apart from this subsection).
(3) But as regards any payment by way of the extra return, relief shall not be given under any provision of the Tax Acts to the person by whom the new securities are issued; and “relief” here means relief by way of deduction in computing profits or gains or deduction or set off against income or total profits.
(4) For the purposes of this section securities are of the same kind if they are treated as being of the same kind by the practice of a recognised stock exchange or would be so treated if dealt with on such a stock exchange.
(5) For the purposes of this section the relevant period is the period beginning with the day following the relevant day and ending with the day on which the new securities are issued.
(6) For the purposes of this section the relevant day is—
(a) the last (or only) interest payment day to fall in respect of the old securities before the day on which the new securities are issued, or
(b) the day on which the old securities were issued, in a case where no interest payment day fell in respect of them before the day on which the new securities are issued;
and an interest payment day, in relation to the old securities, is a day on which interest is payable under them.”
2 The following section shall be inserted after section 726 of the Taxes Act 1988—
(1) This section applies where—
(a) securities (old securities) of a particular kind are issued by way of the 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 person issuing 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 payable for the relevant period on so many old securities as there are new (or, 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).
(2) For the purposes of sections 710 to 728—
(a) the new securities shall be treated as having been issued on the relevant day;
(b) they shall be treated as transferred to the person to whom they are in fact issued (though not treated as transferred by any person);
(c) the transfer shall be treated as a transfer with accrued interest and as made on the day on which the new securities are in fact issued;
(d) that day shall be treated as the settlement day (notwithstanding section 712);
but this subsection is subject to subsection (7) below.
(3) If the new securities are in fact issued under an arrangement by virtue of which the acquirer accounts to the issuer separately for the extra return mentioned in subsection (1) above and the rest of the issue price, in relation to the transfer mentioned in subsection (2)(b) above—
(a) section 713(4) shall not apply, and
(b) for the purposes of section 713(2) the accrued amount shall be the amount found under subsection (4) or (5) below (as the case may be);
and here “the acquirer” means the person to whom the new securities are in fact issued and “the issuer” means the person by whom they are in fact issued.
(4) Subject to subsection (5) below, the amount is one equal to the amount (if any) of the extra return separately accounted for.
(5) If the interest on the new securities is payable in a currency other than sterling, the amount is the sterling equivalent on the settlement day of the amount found under subsection (4) above; and for this purpose the sterling equivalent of an amount on the settlement day is the sterling equivalent calculated by reference to the London closing rate of exchange for that day.
(6) If the new securities are in fact issued otherwise than as mentioned in subsection (3) above, section 713(4)(b) shall apply in relation to the transfer mentioned in subsection (2)(b) above.
(7) If the new securities are securities to which section 717 applies (after applying subsection (2)(a) above) subsection (2)(b) to (d) above shall not apply.
(8) For the purposes of this section the relevant period is the period beginning with the day following the relevant day and ending with the day on which the new securities are in fact issued.
(9) For the purposes of this section the relevant day is—
(a) the last (or only) interest payment day to fall in respect of the old securities before the day on which the new securities are in fact issued, or
(b) the day on which the old securities were issued, in a case where no interest payment day fell in respect of them before the day on which the new securities are in fact issued.”
3 In Schedule 4 to the Taxes Act 1988 the following shall be inserted after paragraph 11A—
11B (1) This paragraph applies where—
(a) securities (old securities) of a particular kind are issued by way of the 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 each new security, by the person issuing it, to reflect the fact that interest is accruing on the old securities,
(d) the issue price of each new security 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 payable for the relevant period on each old security.
(2) In such a case, the issue price of each new security shall be deemed for the purposes of paragraphs 1(1)(a), (e) and (h) and 11(2) and (3) above to be its actual issue price less an amount equal to the extra return payable in respect of the security.
(3) For the purposes of this paragraph securities are of the same kind if they are treated as being of the same kind by the practice of a recognised stock exchange or would be so treated if dealt with on such a stock exchange.
(4) For the purposes of this paragraph the relevant period is the period beginning with the day following the relevant day and ending with the day on which the new securities are issued.
(5) For the purposes of this paragraph the relevant day is—
(a) the last day of the last (or only) income period to end in respect of the old securities before the day on which the new securities are issued, or
(b) the day on which the old securities were issued, in a case where no income period ended in respect of them before the day on which the new securities are issued.”
4 In Schedule 11 to the [1989 c. 26.] Finance Act 1989 the following shall be inserted after paragraph 3—
3A (1) This paragraph applies where—
(a) securities (old securities) of a particular kind are issued by way of the 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 each new security, by the person issuing it, to reflect the fact that interest is accruing on the old securities,
(d) the issue price of each new security 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 payable for the relevant period on each old security.
(2) In such a case, the issue price of each new security shall be deemed for the purposes of paragraph 1(9) above to be its actual issue price less an amount equal to the extra return payable in respect of the security.
(3) For the purposes of this paragraph securities are of the same kind if they are treated as being of the same kind by the practice of a recognised stock exchange or would be so treated if dealt with on such a stock exchange.
(4) For the purposes of this paragraph the relevant period is the period beginning with the day following the relevant day and ending with the day on which the new securities are issued.
(5) For the purposes of this paragraph the relevant day is—
(a) the last (or only) interest payment day to fall in respect of the old securities before the day on which the new securities are issued, or
(b) the day on which the old securities were issued, in a case where no interest payment day fell in respect of them before the day on which the new securities are issued;
and an interest payment day, in relation to the old securities, is a day on which interest is payable under them.”
5 This Schedule applies if the new securities are issued on or after 19th March 1991 (whether the old securities are issued before or on or after that day).
Finance Act 1991