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PART 4 continued CHAPTER 7 continued
(1) In this Chapter “purchased life annuity” means an annuity—
(a) granted for consideration in money or money’s worth in the ordinary course of a business of granting annuities on human life, and
(b) payable for a term ending at a time ascertainable only by reference to the end of a human life.
(2) For this purpose it does not matter that the annuity may in some circumstances end before or after the life.
(1) Tax is charged under this Chapter on the full amount of the annuity payments arising in the tax year.
(2) Subsection (1) is subject to Part 8 (foreign income: special rules).
The person liable for any tax charged under this Chapter is the person receiving or entitled to the annuity payments.
Income tax deducted under either of the following sections from an annuity payment within this Chapter is treated as income tax paid by the recipient—
section 348(1)(b) of ICTA (under which income tax may be deducted from some payments by the payer), and
section 349(1)(a) of that Act (under which income tax must be deducted from some payments by the payer).
(1) Income tax is charged on profits on the disposal of deeply discounted securities.
(2) The profits are treated as income for income tax purposes if they would not otherwise be income.
(1) Tax is charged under this Chapter on the full amount of profits arising in the tax year.
(2) The profits on a disposal are to be taken to arise when the disposal occurs.
(3) If the profits arise on a disposal of securities that are outside the United Kingdom—
(a) they are treated for the purposes of section 830 (meaning of “relevant foreign income”) as arising from a source outside the United Kingdom, and
(b) subsection (1) is subject to Part 8 (foreign income: special rules).
(4) Subsection (2) needs to be read with section 438 (timing of transfers and acquisitions).
(1) The person liable for any tax charged under this Chapter is the person making the disposal.
(2) See section 437 for who that person is.
(1) The general rule is that a security is a “deeply discounted security” for the purposes of this Chapter if, as at the time it is issued, the amount payable on maturity or any other possible occasion of redemption (“A”) exceeds or may exceed the issue price by more than—
A × 0.5 % × Y,
where Y is the number of years in the redemption period or 30, whichever is the lower.
(2) If the redemption period is not a number of complete years, for the purposes of subsection (1) the incomplete year is expressed as twelfths, treating each complete month and any remaining part of a month as one-twelfth.
(3) In this section “redemption period” means the period between the date of issue and the date of the occasion of redemption in question.
(4) Interest payable on an occasion of redemption is ignored in determining for the purposes of this section the amount payable on that occasion.
(5) For the purposes of this section, in the case of an issue to which section 442 applies (securities issued in accordance with qualifying earn-out right), the issue price of the security is to be taken as the amount paid to acquire it (see section 442(2)).
(6) The general rule in subsection (1) is subject to—
section 431 (excluded occasions of redemption),
section 432 (securities which are not deeply discounted securities),
sections 434 to 436 (securities issued in separate tranches), and
section 443(1) (strips of government securities).
(1) An occasion of redemption of a security other than maturity is ignored for the purposes of section 430(1) if the third-party option conditions or the commercial protection conditions are met.
(2) The third-party option conditions are that—
(a) the security may be redeemed on the occasion at the option of a person other than its holder,
(b) the security is issued to a person who is not connected with the issuer, and
(c) the obtaining of a tax advantage by any person is not the main benefit, or one of the main benefits, that might have been expected to accrue from the provision in accordance with which the security may be redeemed on the occasion.
(3) The commercial protection conditions are that—
(a) the security may be redeemed on the occasion as the result of an exercise of an option that is exercisable only on the occurrence of—
(i) an event adversely affecting the holder (see subsection (8)), or
(ii) a default by any person, and
(b) as at the time of the security’s issue it appears unlikely that the option will be exercisable on the occasion.
(4) Subsection (1) does not apply to an occasion just because the occasion coincides or may coincide with an occasion meeting the third-party option conditions or the commercial protection conditions.
(5) If—
(a) the only reason that a security is not a deeply discounted security is that an occasion on which it may be redeemed is ignored because the third-party option conditions are met, and
(b) at some time after its issue the security is acquired by, or its holder becomes, a person connected with the issuer,
in relation to that time and later this Chapter applies as if the security were a deeply discounted security.
(6) If a person (“P”) who is not connected with the issuer acquires—
(a) a security which is only a deeply discounted security because it was issued to a person connected with the issuer and so fails to meet the condition specified in subsection (2)(b), or
(b) a security within subsection (5),
this Chapter applies in relation to P as if the security ceased to be a deeply discounted security on the acquisition.
(7) For the purposes of the application of this section to a security, the question whether persons are connected is determined without regard to the security or any other security issued under the same prospectus.
(8) In this section “event adversely affecting the holder”, in relation to a security, means an event the occurrence of which appears, as at the time of the security’s issue, likely to have an adverse effect on the interests of its holder at the time of the event if there were no provision for redemption on its occurrence.
(1) The following are not deeply discounted securities—
(a) shares in a company,
(b) gilt-edged securities that are not strips,
(c) life assurance policies, and
(d) capital redemption policies.
(2) An excluded indexed security (see section 433) is only a deeply discounted security if treated as such under section 431(5) (acquisition by a person connected with the issuer or holder becoming such a person).
(3) In this section “capital redemption policies” has the same meaning as in Chapter 9 of this Part (see section 473(2)).
(4) See also sections 434 to 436 (rules under which securities issued under the same prospectus on separate occasions may be treated as being, or as not being, deeply discounted securities).
(1) In this Chapter “excluded indexed security” means a security under the terms of which the amount payable on redemption is determined by applying to the amount for which the security was issued the percentage change (if any) over the security’s redemption period in—
(a) the value of chargeable assets of a particular description, or
(b) an index of the value of such assets.
(2) The fact that the terms under which the security is issued include a provision to the effect that the amount payable on its redemption must be at least a specified percentage of the amount for which it was issued only prevents it from falling within the definition in subsection (1) if that percentage exceeds 10%.
(3) Interest payable on redemption is ignored in determining for the purposes of this section the amount payable on redemption.
(4) In subsection (1) “redemption period” means—
(a) the period beginning with the date of issue and ending with the date of redemption, or
(b) a period which is or includes almost all that period and only differs from it for purposes connected with giving effect to a valuation in relation to rights or liabilities under the security.
(5) An asset is a chargeable asset for the purposes of subsection (1) if a gain accruing to a person on its disposal would be a chargeable gain for the purposes of TCGA 1992 on the assumptions specified in subsection (6).
(6) The assumptions are that—
(a) the asset is an asset of the person,
(b) the person is not entitled to the exemption conferred by section 100 of TCGA 1992 (exemption for authorised unit trusts etc.),
(c) disposal of the asset by the person would not be treated for income tax purposes as a disposal in the course of a trade, profession or vocation, and
(d) section 116(10) of TCGA 1992 is ignored (chargeable gains on subsequent disposals of qualifying corporate bonds acquired in reorganisations, conversions and reconstructions).
(7) For the purposes of this section—
(a) neither the retail prices index nor any similar general index of prices published by the government of a territory or by an agent of such a government is an index of the value of chargeable assets, and
(b) “redemption”, in relation to a security, does not include its redemption on an occasion which is to be ignored under section 431(1) (excluded occasions of redemption).
(1) Sections 435 and 436 set out rules under which securities issued under the same prospectus on separate occasions may be treated as being, or as not being, deeply discounted securities.
(2) If any of the securities in the original issue under the prospectus is a deeply discounted security—
(a) the rule in section 435 applies to securities in later issues under it, and
(b) the rule in section 436 does not apply to any securities issued under it.
(3) If none of the securities in the original issue under the prospectus is a deeply discounted security, the rule in section 435 applies to securities in a later issue except where the rule in section 436 applies.
(1) The rule in this section is that if securities in any of the issues made on separate occasions under the same prospectus are not deeply discounted securities, securities in any later issue under it are not deeply discounted securities, unless they are treated as such for one of the reasons specified in subsection (2).
(2) The reasons are—
(a) that the securities were issued to a person connected with the issuer and so fail to meet the condition specified in section 431(2)(b), and
(b) that such a person has acquired or become the holder of the securities and so section 431(5) applies to them.
(1) This section only applies if some of the securities in one or more later issues under the same prospectus are deeply discounted securities (or are such securities if the rule in section 435 is ignored).
(2) The rule in this section applies for any disposal or acquisition after the time when the condition specified in subsection (3) is first met.
(3) The condition is that the aggregate nominal value as at a particular time of the securities within subsection (1) exceeds the aggregate nominal value as at that time of all the other securities issued under the prospectus at any time.
(4) The rule is that all securities issued under the prospectus (including those issued after the time when the condition specified in subsection (3) is first met) are to be treated as deeply discounted securities and as having been acquired as such (whenever actually issued or acquired).
(5) Subsection (6) applies where the question is whether a security held by a person who is not connected with the issuer is a deeply discounted security as a result of the rule in this section.
(6) For the purpose of determining whether the rule in this section applies, securities that are only within subsection (1) for one of the reasons specified in section 435(2) are treated as not being within it.
(1) References in this Chapter to the disposal of a deeply discounted security are—
(a) to its redemption,
(b) to its transfer by sale, exchange, gift or otherwise, including a transfer treated as made by subsection (3), and
(c) so far as not covered by paragraph (a) or (b), to its conversion under its terms into shares in a company or other securities (including other deeply discounted securities).
(2) The person treated as making a disposal is—
(a) in the case of a disposal within subsection (1)(a), the person entitled as the security’s holder to any payment on the disposal,
(b) in the case of a disposal within subsection (1)(b), the transferor, and
(c) in the case of a disposal within subsection (1)(c), the person who would be entitled as the security’s holder to any payment on the disposal, if such a payment were made.
(3) A person who dies while entitled to a deeply discounted security is treated as transferring it immediately before death to the personal representatives.
(4) In the case of strips, further provision about occasions counting as disposals is made by section 445(2) and (6)(a).
(1) This section applies if—
(a) a transfer or acquisition of a deeply discounted security is made under an agreement, and
(b) the transferee or the person making the acquisition becomes entitled to the security at the time the agreement is made.
(2) The transfer or acquisition is treated as occurring at that time.
(3) For this purpose a conditional agreement is taken to be made when the condition is met.
(4) This section is subject to section 445(7) (exchanges for and consolidation of strips).
(1) A person’s profit on a disposal is the amount by which the amount payable on the disposal exceeds the amount paid by the person to acquire the security.
(2) No account is to be taken of any incidental expenses incurred in connection with the disposal or acquisition.
(3) Subsection (2) is subject to subsection (4) and section 455 (listed securities held since 26th March 2003: calculating the profit or loss on disposals).
(4) Incidental expenses incurred before 27th March 2003 by the person making the disposal in connection with the acquisition or disposal of the security are deducted from the person’s profit.
(5) Where a person re-acquires a security, any previous acquisition of it is ignored in determining on a subsequent disposal—
(a) the amount the person paid to acquire the security, and
(b) incidental expenses within subsection (4).
(1) On the disposal of a deeply discounted security by a transfer of a kind specified in subsection (2), for the purposes of this Chapter an amount equal to the market value at the time of the disposal is treated as payable.
(2) The transfers are—
(a) a transfer made otherwise than by a bargain at arm’s length,
(b) a transfer between connected persons,
(c) a transfer for a consideration which is not wholly in money or money’s worth,
(d) a transfer treated as made by section 437(3) (death), and
(e) a transfer by personal representatives to a legatee.
(3) Subsection (1) is subject to subsection (4).
(4) On a conversion of a deeply discounted security into shares or other securities which counts as its disposal under section 437(1), an amount equal to the market value of the shares or other securities at the time of the conversion is treated as the amount payable.
(5) Subsection (4) is subject to section 445(8) (exchanges for and consolidations of strips).
(6) In this section “legatee” includes any person taking (whether beneficially or as trustee)—
(a) on a testamentary disposition, or
(b) on an intestacy or partial intestacy.
(7) 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.
(1) A person who acquires a deeply discounted security on a disposal of a kind specified in subsection (2) is treated for the purposes of this Chapter as acquiring it by the payment of an amount equal to its market value at the time of the disposal.
(2) The disposals are—
(a) a transfer within section 440(2), and
(b) a conversion of a deeply discounted security into other deeply discounted securities which counts as its disposal under section 437(1).
(3) This section is subject to section 445(8) (exchanges for and consolidations of strips).
(1) This section applies if a security is issued to a person in accordance with the terms of a qualifying earn-out right.
(2) The amount paid by the person to acquire the security is to be taken for the purposes of this Chapter to be the total of—
(a) the market value, immediately before the issue, of the right to be issued with the security in accordance with the terms of the qualifying earn-out right, and
(b) any amount payable for the issue in accordance with those terms.
(3) In this section “qualifying earn-out right” means a right that meets conditions A to C, or so much of a right as does so.
(4) Condition A is that the right constitutes the whole or part of the consideration for—
(a) the transfer by the person on whom the right is conferred of shares in or debentures of a company, or
(b) the transfer of the whole or part of—
(i) a business carried on by that person, or by that person and others in partnership, or
(ii) an interest in such a business.
(5) Condition B is that the right is either—
(a) a right to be issued with securities of another company, or
(b) a right which is capable of being discharged in accordance with its terms by the issue of such securities.
(6) Condition C is that the right is such that the value of the consideration mentioned in condition A is unascertainable at the time when the right is conferred.
(1) All strips are treated as deeply discounted securities for the purposes of this Chapter, whether or not they would otherwise be so.
(2) This Chapter applies to strips subject to the rules in—
(a) section 445 (strips of government securities: acquisitions and disposals),
(b) section 446 (strips of government securities: relief for losses),
(c) section 447 (restriction of profits on strips by reference to original acquisition cost),
(d) section 448 (restriction of losses on strips by reference to original acquisition cost),
(e) section 449 (strips of government securities: manipulation of acquisition, transfer or redemption payments),
(f) section 450 (market value of strips etc.), and
(g) section 451 (market value of strips etc. quoted in foreign stock exchange lists).
(1) In this Chapter “strip”, in relation to any stock or bond (“the underlying security”), means a security which—
(a) meets conditions A to C,
(b) if it was acquired after 26th March 2003, was issued by or on behalf of the government of any territory, and
(c) if it was acquired on or before that date, was issued under the National Loans Act 1968 (c. 13) in a case where the underlying security was itself a gilt-edged security.
(2) Condition A is that the security is issued for the purpose of representing the right to or of securing—
(a) a payment corresponding to a payment of interest or principal remaining to be made under the underlying security, or
(b) two or more payments each corresponding to a payment to be so made.
(3) Condition B is that the security is issued in conjunction with the issue of one or more other securities which, together with that security—
(a) represent the right to, or
(b) secure,
payments corresponding to every payment remaining to be made under the underlying security.
(4) Condition C is that the security is not itself a security which—
(a) represents the right to, or
(b) secures,
payments corresponding to a part of every payment remaining to be made under the underlying security.
(5) After the balance has been struck for a dividend on any underlying security, a payment to be made in respect of that dividend is treated for the purposes of conditions A to C as not being a payment remaining to be made under the underlying security.
(1) A person who receives strips of a security (“the underlying security”) in exchange for the underlying security is treated as having acquired each strip by the payment of an amount equal to—
where—
A is the market value of the underlying security at the time of the exchange,
B is the market value of the strip at that time, and
C is the total of the market values at that time of all the strips received in the exchange.
(2) For the purposes of this Chapter—
(a) a person who holds a strip of a security on 5th April in any tax year is treated as having transferred the strip on that day, and
(b) an amount equal to its market value on that day is treated as payable on the transfer.
(3) For the purposes of this Chapter that person is also treated as having immediately re-acquired the strip for the same amount.
(4) Subsections (2) and (3) do not apply if there is any other disposal of the strip on that day.
(5) Section 439(4) (deduction of incidental expenses incurred before 27th March 2003) does not apply to transfers and reacquisitions within subsections (2) and (3).
(6) For the purposes of this Chapter—
(a) the consolidation of a strip of a security with other such strips into a single security is a disposal of the strip by the person consolidating it (whether or not it would be apart from this subsection), and
(b) an amount equal to the market value of the strip at the consolidation is treated as payable on the disposal.
(7) Section 438 (timing of transfers and acquisitions) does not apply to an exchange within subsection (1) or a consolidation within subsection (6).
(8) Subsections (1) and (6) apply instead of sections 440(4) (market value on general conversions of deeply discounted securities) and 441 (market value acquisitions).
(1) Relief from income tax may be claimed under this section for any loss made on the disposal of a strip of a security.
(2) If such a claim is made, an amount of income for the tax year in which the disposal occurs which is equal to that loss is not charged to income tax.
(3) For this purpose a person makes a loss on the disposal of a strip if—
(a) the person disposes of the strip, and
(b) the amount the person paid for the strip, ignoring any incidental expenses incurred in connection with the acquisition, exceeds the amount payable on the disposal, ignoring any incidental expenses incurred in connection with the disposal.
(4) The loss is an amount equal to the excess.
(5) A claim under this section must be made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the disposal occurs.
(6) The relief may be claimed by the person making the disposal.
(7) Relief for a loss on a disposal may not be claimed under this section if section 454 (listed securities held since 26th March 2003: relief for losses) applies in respect of the disposal.
(8) This section is subject to—
(a) section 448 (restriction of losses on strips by reference to original acquisition cost),
(b) section 449 (strips of government securities: manipulation of acquisition, sale or redemption payments), and
(c) section 458(2) (strips held by non-UK resident trustees).
(1) This section applies if—
(a) a person makes a profit on the disposal of a strip (apart from this section), and
(b) the person’s original acquisition cost for the strip (see subsection (4)) exceeds the amount that falls to be brought into account as the amount paid by the person to acquire the strip in determining the amount of the profit.
(2) If the amount that falls to be brought into account as the amount payable on the disposal in determining the amount of the profit exceeds the person’s original acquisition cost for the strip, the amount of the profit is restricted to that excess.
(3) Otherwise the person is treated as not making a profit on the disposal.
(4) For the purposes of this section and section 448, a person’s original acquisition cost for a strip is the amount that falls to be taken into account as the amount paid by the person to acquire the strip in determining whether the person makes a profit or loss on its disposal if 5th April disposals and acquisitions are ignored.
(5) In subsection (4) “5th April disposals and acquisitions” means—
(a) disposals under section 445(2) (other than the disposal in question), and
(b) acquisitions under section 445(3).
Income Tax (Trading and Other Income) Act 2005