Income Tax (Trading and Other Income) Act 2005

Part 4U.K.Savings and investment income

Chapter 1U.K.Introduction

365Overview of Part 4U.K.

(1)This Part imposes charges to income tax under—

(a)Chapter 2 (interest),

(b)Chapter 3 (dividends etc. from UK resident companies etc.),

(c)Chapter 4 (dividends from non-UK resident companies),

(d)Chapter 5 (stock dividends from UK resident companies),

(e)Chapter 6 (release of loan to participator in close company),

(f)Chapter 7 (purchased life annuity payments),

(g)Chapter 8 (profits from deeply discounted securities),

(h)Chapter 9 (gains from contracts for life insurance etc.),

(i)Chapter 10 (distributions from unauthorised unit trusts),

(j)Chapter 11 (transactions in deposits),

(k)Chapter 12 (disposals of futures and options involving guaranteed returns), and

(l)Chapter 13 (sales of foreign dividend coupons).

(2)Part 6 deals with exemptions from the charges under this Part.

(3)See, in particular, any exemptions mentioned in the particular Chapters.

(4)The charges under this Part apply to non-UK residents as well as UK residents but this is subject to section 368(2) (charges on non-UK residents only on UK source income).

(5)This section needs to be read with the relevant priority rules (see sections 2 and 366).

366Provisions which must be given priority over Part 4U.K.

(1)Any income, so far as it falls within—

(a)any Chapter of this Part, and

(b)Chapter 2 of Part 2 (receipts of a trade, profession or vocation),

is dealt with under Part 2.

(2)Any income, so far as it falls within—

(a)any Chapter of this Part, and

(b)Chapter 3 of Part 3 so far as the Chapter relates to a UK property business,

is dealt with under Part 3.

(3)Any income, so far as it falls within—

(a)any Chapter of this Part other than Chapter 3 or 6, and

(b)Part 2, 9 or 10 of ITEPA 2003 (employment income, pension income or social security income),

is dealt with under the relevant Part of ITEPA 2003.

(4)Nothing in this section prevents amounts both—

(a)being counted as income for the purposes of Chapter 9 of this Part (gains from contracts for life insurance etc.), and

(b)being taken into account in calculating income, or counting as income, for the purposes of other Parts of this Act,

but see section 527 (reduction for sums taken into account otherwise than under Chapter 9).

367Priority between Chapters within Part 4U.K.

(1)Any income, so far as it falls within Chapter 2 (interest) and Chapter 8 (profits from deeply discounted securities), is dealt with under Chapter 8.

(2)Any income, so far as it falls within Chapter 3 (dividends etc. from UK resident companies etc.) and another Chapter, is dealt with under Chapter 3 (but this is subject to subsection (3)).

(3)Any income, so far as it falls within—

(a)Chapter 2 (interest) as a result of section 372 (building society dividends) [F1, 378A (offshore fund distributions)] or 379 (industrial and provident society payments), and

(b)Chapter 3 [F2or Chapter 4 (or both)],

is dealt with under Chapter 2.

368Territorial scope of Part 4 chargesU.K.

(1)Income arising to a UK resident is chargeable to tax under this Part whether or not it is from a source in the United Kingdom.

(2)Income arising to a non-UK resident is chargeable to tax under this Part only if it is from a source in the United Kingdom.

(3)References in this section to income which is from a source in the United Kingdom include, in the case of any income which does not have a source, references to income which has a comparable connection to the United Kingdom.

(4)This section is subject to any express or implied provision to the contrary in this Part (or elsewhere in the Income Tax Acts).

Chapter 2U.K.Interest

Charge to tax on interestU.K.

369Charge to tax on interestU.K.

(1)Income tax is charged on interest.

(2)The following sections extend what is treated as interest for certain purposes—

• section 372 (building society dividends),

• section 373 (open-ended investment company interest distributions),

• section 376 (authorised unit trust interest distributions),

• [F3section 378A (offshore fund distributions),]

• section 379 (industrial and provident society payments),

• section 380 (funding bonds),

• [F4section 380A (FSCS payments representing interest),] and

• section 381 (discounts).

(3)For exemptions, see in particular—

(a)Chapter 2 of Part 6 (national savings income),

(b)Chapter 3 of Part 6 (income from individual investment plans),

(c)Chapter 4 of Part 6 (SAYE interest),

(d)Chapter 6 of Part 6 (income from FOTRA securities),

(e)sections 749 to [F5756A](interest arising from repayment supplements, F6... damages for personal injury, employees' share schemes, repayments of student loans, [F7 unpaid relevant contributions, ] the redemption of funding bonds [F8, certain foreign currency securities and interest on certain deposits of victims of National-Socialist persecution)] , and

(f)sections 757 to 767 (interest and royalty payments).

(4)Subsection (1) is also subject to [F9Chapter 3 of Part 12 of ITA 2007 (exemption for interest on securities to which Chapter 2 of that Part applies)] .

[F10(5)See also Chapter 3A of Part 14 of ITA 2007 (which provides for the receipts of certain types of company being wound up to be charged to income tax under that Chapter instead of under any other provision that would otherwise apply).]

370Income chargedU.K.

(1)Tax is charged under this Chapter on the full amount of the interest arising in the tax year.

(2)Subsection (1) is subject to Part 8 (foreign income: special rules).

371Person liableU.K.

The person liable for any tax charged under this Chapter is the person receiving or entitled to the interest.

Other income taxed as interestU.K.

372Building society dividendsU.K.

(1)Any dividend paid by a building society is treated as interest for the purposes of this Act.

(2)In this section “dividend”[F11includes any distribution (whether or not described as a dividend)] .

373Open-ended investment company interest distributionsU.K.

(1)This section applies if the distribution accounts of an open-ended investment company show the total amount available for distribution to owners of shares in the company as available for distribution as yearly interest.

(2)Subsection (1) is subject to [F12subsection (7)] .

(3)For income tax purposes payments of yearly interest are treated as made to the owners of the shares by the company.

(4)F13. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5)The amount of the payment treated as made to each owner is so much of the total amount mentioned in subsection (1) as is proportionate to the owner's shares.

(6)F13. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7)This section does not apply if the open-ended investment company is an approved personal pension scheme.

(8)See section 375 for the interpretation of this section and section 374.

374Date when interest payments under section 373 madeU.K.

(1)This section applies for determining the date on which payments of interest under section 373 are treated as made.

(2)The date on which the payments are treated as made depends on whether a date is specified for any distribution for the distribution period in question by or in accordance with—

(a)the company's instrument of incorporation and its prospectus in issue for the time being (including any supplements), or

(b)in the case of an open-ended investment company which is part of an umbrella company, such parts of those documents of the umbrella company as apply to the open-ended investment company.

(3)If such a date is so specified, the payments are treated as made on that date.

(4)If no such date is so specified, the payments are treated as made on the last day of that period.

375Interpretation of sections 373 and 374U.K.

(1)In sections 373 and 374 and this section—

• “approved personal pension scheme” has the same meaning as in Chapter 4 of Part 14 of ICTA (see section 630(1) of that Act),

• “distribution” includes investment on behalf of an owner of shares in respect of the owner's accumulation shares,

• “distribution accounts” means the accounts showing how the total amount available for distribution to owners of shares is calculated,

• “distribution period” means the period by reference to which that amount is ascertained,

• “the OEIC Regulations” means the Open-ended Investment Companies (Tax) Regulations 1997 (S.I. 1997/1154),

• “open-ended investment company” has the same meaning as in Chapter 3 of Part 12 of ICTA (unit trust schemes etc.) (see section 468(10) and (11) of ICTA, as inserted by regulation 10 of the OEIC Regulations),

• “owner of shares” has the same meaning as in that Chapter (see section 468(10) and (15) of that Act, as so inserted), and

• [F14“umbrella company” has the meaning given by section 615 of CTA 2010.]

(2)In subsection (1) “accumulation share” means a share in respect of which income is credited periodically to the capital part of the company's scheme property.

(3)In subsection (2) “scheme property” has the same meaning as in Chapter 3 of Part 12 of ICTA (unit trust schemes etc.) (see section 468(10) and (13) of ICTA, as inserted by regulation 10 of the OEIC Regulations).

376Authorised unit trust interest distributionsU.K.

(1)This section applies if the distribution accounts of an authorised unit trust show the total amount available for distribution to unit holders as available for distribution as yearly interest.

(2)Subsection (1) is subject to [F15subsection (7)] .

(3)For income tax purposes payments of yearly interest are treated as made to the unit holders.

(4)F16. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5)The amount of the payment treated as made to each unit holder is so much of the total amount mentioned in subsection (1) as is proportionate to the unit holder's rights.

(6)F16. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7)This section does not apply if the authorised unit trust is an approved personal pension scheme.

(8)See section 378 for the interpretation of this section and section 377.

377Date when interest payments under section 376 madeU.K.

(1)This section applies for determining the date on which payments of interest under section 376 are treated as made.

(2)The date on which the payments are treated as made depends on whether a date is specified by or in accordance with the trust's terms for any distribution for the distribution period in question.

(3)If such a date is so specified, the payments are treated as made on that date.

(4)If no such date is so specified, the payments are treated as made on the last day of that period.

378Interpretation of sections 376 and 377U.K.

In sections 376 and 377—

• “approved personal pension scheme” has the same meaning as in Chapter 4 of Part 14 of ICTA (see section 630(1) of that Act),

• “distribution” includes investment on behalf of a unit holder in respect of the holder's accumulation units,

• “distribution accounts” means the accounts showing how the total amount available for distribution to unit holders is ascertained, and

• “distribution period” means the period by reference to which that amount is ascertained.

[F17378AOffshore fund distributionsU.K.

(1)This section applies where—

(a)a dividend is paid by an offshore fund, and

(b)the offshore fund fails to meet the qualifying investments test at any time in the relevant period.

(2)The dividend is treated as interest for income tax purposes.

(3)For the purposes of this section, an offshore fund fails to meet the qualifying investments test if the market value of the fund's qualifying investments exceeds 60% of the market value of all of the assets of the fund (excluding cash awaiting investment).

(4)“The relevant period” means—

(a)the relevant period of account of the offshore fund, or

(b)if longer, the period of 12 months ending on the last day of that period.

(5)“The relevant period of account” means—

(a)the last period of account ending before the dividend is paid, in a case in which the profits available for distribution at the end of that period (and not used since then by distribution or otherwise) equal or exceed the amount of the dividend (aggregated with any other distribution made by the offshore fund at the same time), and

(b)the period of account in which the dividend is paid, in any other case.

(6)This section applies to a manufactured overseas dividend if, and only if, it is representative of a distribution to which this section would apply.

(7)In this section—

• “dividend” includes any distribution that (but for this section) would be treated as a dividend for income tax purposes;

• “manufactured overseas dividend” has the same meaning as in Chapter 2 of Part 11 of ITA 2007 (manufactured payments);

• “offshore fund” has the same meaning as in [F18section 354 of TIOPA 2010 (see sections 355 to 363 of that Act)];

• “qualifying investments” has the meaning given in section 494 of CTA 2009.]

379Industrial and provident society paymentsU.K.

(1)Any dividend, bonus or other sum payable to a shareholder in—

(a)a registered industrial and provident society, or

(b)a UK agricultural or fishing co-operative,

is treated as interest for income tax purposes if it is payable by reference to the amount of the shareholder's holding in its share capital.

(2)In subsection (1)—

• “registered industrial and provident society” means a society registered or treated as registered under the Industrial and Provident Societies Act 1965 (c. 12) or the Industrial and Provident Societies Act (Northern Ireland) 1969 (c. 24 (N.I.)), and

• “UK agricultural or fishing co-operative” means a co-operative association—

  (a)

  which is established in the United Kingdom and UK resident, and

  (b)

  whose primary object is assisting its members in—

  (i)

  carrying on agricultural or horticultural businesses on land occupied by them in the United Kingdom, or

  (ii)

  carrying on businesses consisting in the catching or taking of fish or shellfish.

(3)In subsection (2) “co-operative association” means a body with a written constitution from which the Secretary of State considers that it is in substance a co-operative association.

(4)For the purposes of subsection (3), the Secretary of State must have regard to the way in which the body's constitution provides for its income to be applied for its members' benefit and all other relevant provisions.

(5)In Northern Ireland subsections (3) and (4) apply with the substitution for “the Secretary of State” of “ the Department of Agriculture and Rural Development” ”.

380Funding bondsU.K.

(1)This section applies to the issue of funding bonds to a creditor in respect of a liability to pay interest on a debt incurred by a government, public institution, other public authority or body corporate.

(2)The issue is treated for income tax purposes as if it were the payment of so much of that interest as equals the market value of the bonds at their issue.

(3)In this section “funding bonds” includes any bonds, stocks, shares, securities or certificates of indebtedness.

[F19380AFSCS payments representing interestU.K.

(1)Any payment representing interest which is made under the FSCS is treated as interest for the purposes of this Act.

(2)“Payment representing interest” means a payment calculated in the same way as interest which would have been paid to the recipient but for the circumstances giving rise to the making of payments under the FSCS.

(3)Where a payment representing interest is made net of an amount equal to a sum representing income tax that would have been deducted on the payment of interest, the amount treated as interest by this section is the aggregate of the payment representing interest and that sum.

(4)This section applies to payments made under the FSCS whether or not they are made (in whole or in part) on behalf of the Treasury or any other person.

(5)In this section “the FSCS” means the Financial Services Compensation Scheme (established under Part 15 of the Financial Services and Markets Act 2000).]

381DiscountsU.K.

(1)All discounts, other than discounts in deeply discounted securities, are treated as interest for the purposes of this Act.

(2)In this section “deeply discounted securities” means securities to which Chapter 8 of this Part applies (profits from deeply discounted securities).

Chapter 3U.K.Dividends etc. from UK resident companies [F20and tax credits etc. in respect of certain distributions]

IntroductionU.K.

382Contents of ChapterU.K.

(1)This Chapter—

(a)imposes a charge to income tax on dividends and other distributions of UK resident companies (see section 383),

(b)treats dividends as paid in some circumstances (see sections 386 to 391), and

(c)makes special provision where the charge is in respect of shares awarded under an approved share incentive plan (see sections 392 to 396).

(2)This Chapter also makes provision about tax credits, tax being treated as paid and reliefs available in respect of certain distributions which applies whether or not the distributions are otherwise dealt with under this Chapter (see sections 397 to 401).

(3)For exemptions from the charge under this Chapter, see in particular—

• Chapter 3 of Part 6 (income from individual investment plans),

• Chapter 5 of that Part (venture capital trust dividends),

• section 770 (amounts applied by SIP trustees acquiring dividend shares or retained for reinvestment), and

• section 498 of ITEPA 2003 (no charge on shares ceasing to be subject to SIP in certain circumstances).

(4)In this Chapter “dividends” does not include income treated as arising under section 410 (stock dividends).

Charge to tax on dividends and other distributionsU.K.

383Charge to tax on dividends and other distributionsU.K.

(1)Income tax is charged on dividends and other distributions of a UK resident company.

(2)For income tax purposes such dividends and other distributions are to be treated as income.

(3)For the purposes of subsection (2), it does not matter that those dividends and other distributions are capital apart from that subsection.

384Income chargedU.K.

(1)Tax is charged under this Chapter on the amount or value of the dividends paid and other distributions made in the tax year.

(2)Subsection (1) is subject to—

• section 393(2) and (3) (later charge where cash dividends retained in SIPs are paid over), and

• section 394(3) (distribution when dividend shares cease to be subject to SIP).

(3)See also section 398 (under which the amount or value of the dividends or other distributions is treated as increased if any person is entitled to a tax credit in respect of them).

385Person liableU.K.

(1)The person liable for any tax charged under this Chapter is—

(a)the person to whom the distribution is made or is treated as made (see Part 6 of ICTA and sections 386(3) and 389(3)), or

(b)the person receiving or entitled to the distribution.

(2)Subsection (1) is subject to—

• section 393(4) (later charge where cash dividends retained in SIPs are paid over), and

• section 394(4) (distribution when dividend shares cease to be subject to SIP).

Amounts treated as dividendsU.K.

386Open-ended investment company dividend distributionsU.K.

(1)This section applies if the distribution accounts of an open-ended investment company show the total amount available for distribution to owners of shares in the company as available for distribution as dividends.

(2)Subsection (1) is subject to subsection (5).

(3)For income tax purposes dividends are treated as paid to the owners of the shares by the company.

(4)The amount of the dividends treated as paid to each owner is so much of the total amount mentioned in subsection (1) as is proportionate to the owner's shares.

(5)This section does not apply if the open-ended investment company is an approved personal pension scheme.

(6)See section 388 for the interpretation of this section and section 387.

387Date when dividends paid under section 386U.K.

(1)This section applies for determining the date on which dividends are treated as paid under section 386.

(2)The date on which the dividends are treated as paid depends on whether a date is specified for the distribution period in question by or in accordance with—

(a)the company's instrument of incorporation and its prospectus in issue for the time being (including any supplements), or

(b)in the case of an open-ended investment company which is part of an umbrella company, such parts of those documents of the umbrella company as apply to the open-ended investment company.

(3)If such a date is so specified, the dividends are treated as paid on that date.

(4)If no such date is so specified, the dividends are treated as paid on the last day of that period.

388Interpretation of sections 386 and 387U.K.

(1)In sections 386 and 387 and this section—

• “approved personal pension scheme” has the same meaning as in Chapter 4 of Part 14 of ICTA (see section 630(1) of that Act),

• “distribution” includes investment on behalf of an owner of shares in respect of the owner's accumulation shares,

• “distribution accounts” means the accounts showing how the total amount available for distribution to owners of shares is calculated,

• “distribution period” means the period by reference to which that amount is ascertained,

• “the OEIC Regulations” means the Open-ended Investment Companies (Tax) Regulations 1997 (S.I. 1997/1154),

• “open-ended investment company” has the same meaning as in Chapter 3 of Part 12 of ICTA (unit trust schemes etc.) (see section 468(10) and (11) of ICTA, as inserted by regulation 10 of the OEIC Regulations),

• “owner of shares” has the same meaning as in that Chapter (see section 468(10) and (15) of that Act, as so inserted), and

• [F21“umbrella company” has the meaning given by section 615 of CTA 2010.]

(2)In subsection (1) “accumulation share” means a share in respect of which income is credited periodically to the capital part of the company's scheme property.

(3)In subsection (2) “scheme property” has the same meaning as in Chapter 3 of Part 12 of ICTA (unit trust schemes etc.) (see section 468(10) and (13) of ICTA, as inserted by regulation 10 of the OEIC Regulations).

389Authorised unit trust dividend distributionsU.K.

(1)This section applies if the distribution accounts of an authorised unit trust show the total amount available for distribution to unit holders as available for distribution as dividends.

(2)Subsection (1) is subject to subsection (6).

(3)For income tax purposes dividends are treated as paid to the unit holders.

(4)The amount of the dividends treated as paid to each unit holder is so much of the total amount mentioned in subsection (1) as is proportionate to the unit holder's rights.

(5)The dividends are treated as paid on the shares and by the company referred to in [F22section 617(1) of CTA 2010] (which relates to the trustees of an authorised unit trust being treated as a UK resident company in which the unit holders' rights are shares).

(6)This section does not apply if the authorised unit trust is an approved personal pension scheme.

(7)See section 391 for the interpretation of this section and section 390.

390Date when dividends paid under section 389U.K.

(1)This section applies for determining the date on which dividends are treated as paid under section 389.

(2)The date on which the dividends are treated as paid depends on whether a date is specified by or in accordance with the trust's terms for any distribution for the distribution period in question.

(3)If such a date is so specified, the dividends are treated as paid on that date.

(4)If no such date is so specified, the dividends are treated as paid on the last day of that period.

391Interpretation of sections 389 and 390U.K.

In sections 389 and 390—

• “approved personal pension scheme” has the same meaning as in Chapter 4 of Part 14 of ICTA (see section 630(1) of that Act),

• “distribution” includes investment on behalf of a unit holder in respect of the holder's accumulation units,

• “distribution accounts” means the accounts showing how the total amount available for distribution to unit holders is ascertained, and

• “distribution period” means the period by reference to which that amount is ascertained.

Shares in approved share incentive plans (“SIPs”)U.K.

392SIP shares: introductionU.K.

(1)Sections 393 to 395 contain special rules about the charge under this Chapter in respect of shares awarded to an individual under an approved share incentive plan.

(2)Those sections only apply if condition A or B was met at the time the shares in question were so awarded.

(3)Condition A is that—

(a)the earnings from the eligible employment were general earnings (see section 7(3) of ITEPA 2003) to which any of the charging provisions of Chapter 4 or 5 of Part 2 of ITEPA 2003 applied, or

(b)if there had been any earnings from it, they would have been such earnings.

(4)In subsection (3)—

(a)“the eligible employment” means the employment resulting in the individual meeting the employment requirement in relation to the plan, and

(b)the reference to any of the charging provisions of Chapter 4 or 5 of Part 2 of ITEPA 2003 has the same meaning as it has in the employment income Parts of that Act (see sections 14(3) and 20(3) of that Act).

(5)Condition B is that—

(a)the shares were awarded before 6th April 2003, and

(b)the individual was liable for tax under Schedule E in respect of the relevant employment.

(6)In subsection (5) “the relevant employment” means the employment by reference to which the individual met the requirements in paragraph 14 of Schedule 8 to FA 2000 (employee share ownership plans: the employment requirement) in relation to the plan.

(7)See section 396 for the general interpretation of this section and sections 393 to 395.

393Later charge where cash dividends retained in SIPs are paid overU.K.

(1)This section applies if a cash dividend is paid over to a participant under paragraph 68(4) of Schedule 2 to ITEPA 2003 (cash dividend paid over if not reinvested etc.).

(2)Tax charged under this Chapter is charged for the tax year in which the cash dividend is paid over instead of the tax year in which it was originally paid.

(3)Tax so charged is charged on the amount of the cash dividend paid over.

(4)The person liable for any tax so charged is the participant.

(5)For the purposes of determining—

(a)whether the participant is entitled to a tax credit under section 397 in respect of a cash dividend so charged, and

(b)the amount of that tax credit,

that section applies as it has effect for the tax year in which the cash dividend is paid over.

(6)For the purposes of this Chapter, the question whether a cash dividend paid over to a participant under paragraph 68(4) of Schedule 2 to ITEPA 2003 is a dividend paid by a company that is UK resident is determined by reference to the tax year in which the dividend was originally paid.

394Distribution when dividend shares cease to be subject to SIPU.K.

(1)This section applies if dividend shares cease to be subject to an approved share incentive plan before the end of the period of 3 years beginning with the date on which the shares were acquired on the participant's behalf.

(2)For income tax purposes a distribution is treated as made to the participant in the tax year in which the shares cease to be subject to the plan.

(3)The amount of the distribution treated as made is the amount of the cash dividend applied to acquire the shares on the participant's behalf, so far as it represents a cash dividend paid in respect of plan shares in a UK resident company.

(4)The person liable for any tax charged on the distribution as a result of this section is the participant.

(5)For the purposes of determining—

(a)whether the participant is entitled to a tax credit under section 397 in respect of a distribution so charged, and

(b)if so, the amount of that tax credit,

that section applies as it has effect for the tax year in which the shares cease to be subject to the plan.

(6)But for the purposes of this Chapter, the question whether the distribution under subsection (2) is a distribution by a company that is UK resident is determined by reference to the year in which the company paid the dividend applied to acquire the shares on the participant's behalf.

(7)For rules identifying shares ceasing to be subject to approved share incentive plans, see section 508 of ITEPA 2003.

395Reduction in tax due in cases within section 394U.K.

(1)This section applies if—

(a)a person is liable to tax as a result of section 394, and

(b)any tax is paid on any capital receipts under section 501 of ITEPA 2003 (charge on capital receipts in respect of plan shares) in respect of the shares that cease to be subject to the approved share incentive plan.

(2)The tax due is to be reduced by an amount equal to the total tax so paid.

(3)In subsection (2) “the tax due” means the amount of tax due as a result of section 394 after deduction of the tax credit determined in accordance with section 394(5).

(4)For rules identifying shares ceasing to be subject to approved share incentive plans, see section 508 of ITEPA 2003.

396Interpretation of sections 392 to 395U.K.

(1)This section and sections 392 to 395 form part of the SIP code (see section 488 of ITEPA 2003 (approved share incentive plans)).

(2)Accordingly, expressions used in this section or those sections and contained in the index in paragraph 100 of Schedule 2 to that Act (approved share incentive plans) have the meaning indicated by that index.

(3)In particular—

(a)for the meaning of “award of shares” see paragraph 5(1) of that Schedule,

(b)for the meaning of “ceasing to be subject to plan” see paragraph 97 of that Schedule,

(c)for the meaning of “dividend shares” see paragraph 62(3)(b) of that Schedule,

(d)for the meaning of “employment requirement” see paragraph 15(3) of that Schedule,

(e)for the meaning of “participant” see paragraph 5(4) of that Schedule,

(f)for the meaning of “plan shares” see paragraphs 86 to 88 and 99(1) of that Schedule, and

(g)for the meaning of “shares” see paragraphs 87(6) and 99(2) of that Schedule.

Tax credits and payment and deduction of taxU.K.

397Tax credits for qualifying distributions [F23of UK resident companies] : UK residents and eligible non-UK residentsU.K.

(1)A UK resident or eligible non-UK resident receiving a qualifying distribution made by a UK resident company is entitled to a tax credit equal to one-ninth of the amount or value of the distribution (but see subsections (3) and (6)).

(2)Such a person may claim to deduct the tax credit from—

(a)the income tax charged on the person's total income for the tax year in which the distribution is made, F24. . .

(b)F24. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3)Subsection (1) only applies so far as the distribution is brought into charge to tax, and accordingly if the person's total income is reduced by any deductions which fall to be made from the distribution, the tax credit for the distribution is reduced in the same proportion as the distribution.

(4)For the purposes of this section “eligible non-UK resident”, in relation to a qualifying distribution, means an individual who at any time in the tax year in which it is received is a non-UK resident within section 278(2) of ICTA [F25or section 56(3) of ITA 2007] (Commonwealth citizens, EEA nationals etc.).

(5)If a distribution is, or is treated under any provision of the Tax Acts as, the income of a person (“P”) other than the recipient (“R”), P (not R) is treated as receiving it for the purposes of this section (and so P (not R) is entitled to a tax credit if P falls within subsection (1)).

(6)This section is subject to the following provisions—

• [F26section 504(4) of ITA 2007 (disapplication of certain provisions for income of unauthorised unit trusts),

• section 592 of ITA 2007 (no tax credits for borrower under stock lending arrangement),

• section 593 of ITA 2007 (no tax credits for interim holder under repo),

• section 594 of ITA 2007 (no tax credits for original owner under repo),] and

• section 171(2B) of FA 1993 (no tax credit for distributions in respect of assets in Lloyd's member's premium trust fund).

[F27397ATax credits for distributions of non-UK resident companies: UK residents and eligible non-UK residentsU.K.

[F28(1)A UK resident or eligible non-UK resident receiving a relevant distribution made by a non-UK resident company is entitled to a tax credit equal to one-ninth of the amount or value of the grossed up distribution (but see subsections (3) and (6) and section 397AA).]

(3)Subsection [F29(1)] only applies so far as the distribution is brought into charge to tax, and accordingly if the person's total income is reduced by any deductions which fall to be made from the distribution, the tax credit for the distribution is reduced in the same proportion as the distribution.

(4)The person may claim to deduct the tax credit from the income tax charged on the person's total income for the tax year in which the distribution (or the part of the distribution to which the tax credit relates) is brought into charge to tax.

(5)If a distribution is, or is treated under any provision of the Tax Acts as, the income of a person (“P”) other than the recipient (“R”), P (not R) is treated as receiving it for the purposes of this section (and so P (not R) is entitled to a tax credit if P falls within subsection (1)).

(6)This section is subject to the following provisions—

• section 171(2B) of FA 1993 (no tax credit for distributions in respect of assets in Lloyd's member's premium trust fund),

• section 504(4) of ITA 2007 (disapplication of certain provisions for income of unauthorised unit trusts),

• section 592 of ITA 2007 (no tax credits for borrower under stock lending arrangement),

• section 593 of ITA 2007 (no tax credits for interim holder under repo), and

• section 594 of ITA 2007 (no tax credits for original owner under repo).

(7)In this section—

• “eligible non-UK resident”, in relation to a distribution, means an individual who, at any time in the tax year in which the distribution (or the part of the distribution to which the tax credit relates) is brought into charge to tax, is a non-UK resident who meets the condition in section 56(3) of ITA 2007 (residence etc of claimants),

• “grossed up distribution” means the distribution increased by the amount of any tax chargeable in respect of the distribution directly or by deduction under the laws of the territory in which the company is resident, including special withholding tax,

• F30. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• “relevant distribution”, in relation to a person, means—

  (a)

  a qualifying distribution arising in a relevant tax year,

  (b)

  a cash dividend paid over to the person under paragraph 68(4) of Schedule 2 of ITEPA 2003 (cash dividend paid over if not reinvested etc) in a relevant tax year, and

  (c)

  a dividend treated under section 407 as paid to the person in a relevant tax year,

• “relevant tax year” means the tax year 2008-09 or a subsequent tax year, and

• “special withholding tax” has the meaning given in [F31section 136(6) of TIOPA 2010].

(8)Section 397B makes provision about the application of this section in the case of overseas dividends arising from manufactured overseas dividends (within the meaning of Chapter 2 of Part 11 of ITA 2007).

[F32397AATax credit under section 397A: conditionsU.K.

(1)Section 397A(1) only applies if condition A, B or C is met.

(2)Condition A is that—

(a)the relevant distribution is made by a company with issued share capital, and

(b)at the time the person receives the relevant distribution, the person is a minority shareholder in the company.

(3)Condition B is that the company that makes the relevant distribution is an offshore fund.

(4)Condition C is that—

(a)the company that makes the relevant distribution is a resident of (and only of) a qualifying territory at the time that the relevant distribution is received, and

(b)if the relevant distribution is one of a series of distributions made as part of a scheme—

(i)each company that makes a distribution in the series (a “scheme distribution”) is a resident of (and only of) a qualifying territory at the time that the scheme distribution is received, or

(ii)the scheme is not a tax advantage scheme.

(5)In this section—

• “minority shareholder”, in relation to a company, has the meaning given in section 397C;

• “offshore fund” has the same meaning as in Chapter 5 of Part 17 of ICTA (see sections 756A to 756C of that Act);

• “qualifying territory” has the meaning given by or under section 397BA;

• “relevant distribution” has the same meaning as in section 397A;

• “scheme” includes any scheme, arrangements or understanding of any kind, whether or not legally enforceable and whether involving a single transaction or two or more transactions;

• “tax advantage scheme” means a scheme that, ignoring any incidental purposes, has as its only purpose or purposes either or both of the following—

  (a)

  to enable a person to obtain a tax credit under section 397A, and

  (b)

  to enable a person to obtain (in any territory) any other relief from tax on a distribution.]

397BTax credits under section 397A: manufactured overseas dividendsU.K.

(1)This section applies where, under section 581 of ITA 2007, a person is treated as receiving an overseas dividend by virtue of having received a manufactured overseas dividend which is representative of an overseas dividend.

(2)For the purposes of section 397A, the person is treated as receiving a relevant distribution made by a non-UK resident company F33... if, and only if, the manufactured overseas dividend is representative of such a distribution.

(3)References in section 397A to the grossed up distribution have effect as if they were references to the gross amount of the overseas dividend of which the manufactured overseas dividend is representative [F34(“the original dividend”)], disregarding the amount of any overseas tax credit.

[F35(3A)Section 397AA has effect as if—

(a)the references in subsections (2)(a), (3) and (4)(a) to the relevant distribution were to the original dividend, and

(b)the reference in subsection (2)(b) to the company that makes the relevant distribution were to the company that makes the original dividend.]

(4)In this section—

• “gross amount”, in relation to [F36an] overseas dividend, has the same meaning as in Chapter 2 of Part 11 of ITA 2007 (manufactured payments) (see section 589 of that Act),

• “manufactured overseas dividend” and “overseas tax credit” have the same meaning as in Chapter 2 of that Part (see sections 581 and 591 of that Act), and

• “overseas dividend” has the same meaning as in that Part (see section 567 of that Act).

[F37397BAMeaning of “qualifying territory”U.K.

(1)For the purposes of section 397AA “qualifying territory” means—

(a)the United Kingdom, or

(b)a territory within subsection (2).

(2)A territory is within this subsection if—

[F38(a)arrangements made in relation to the territory have effect under section 2(1) of TIOPA 2010 (“double taxation relief arrangements”), and]

(b)the arrangements contain a non-discrimination provision.

(3)The Treasury may by regulations—

(a)provide that a territory specified in or of a description specified in the regulations that does not satisfy subsection (2)(a) or (b) is a qualifying territory for the purpose of section 397AA, and

(b)provide that a territory so specified or described that satisfies subsection (2)(a) or (b) is not a qualifying territory for that purpose.

(4)For the purposes of section 397AA a company is a resident of a territory if, under the laws of the territory, the company is liable to tax there—

(a)by reason of its domicile, residence or place of management, but

(b)not in respect only of income from sources in that territory or capital situated there.

(5)In subsection (2) “non-discrimination provision”, in relation to double taxation relief arrangements, means a provision to the effect that nationals of a state which is a party to those arrangements (a “contracting state”) are not to be subject in any other contracting state to—

(a)any taxation, or

(b)any requirement connected with taxation,

which is other or more burdensome than the taxation and connected requirements to which nationals of that other state in the same circumstances (in particular with respect to residence) are or may be subjected.

(6)In subsection (5) “national”, in relation to a contracting state, includes—

(a)an individual possessing the nationality or citizenship of the contracting state, and

(b)a legal person, partnership or association deriving its status as such from the laws in force in that contracting state.

(7)Regulations under this section may—

(a)describe a territory by reference to the double taxation relief arrangements for the time being in force in relation to the territory,

(b)make different provision in relation to different descriptions of company, and

(c)make provision having effect in relation to the tax year current on the day on which the regulations are made.

(8)No regulations may be made under this section unless a draft of the instrument containing them has been laid before, and approved by a resolution of, the House of Commons.]

397CMeaning of “minority shareholder”U.K.

(1)In section [F39397AA] “minority shareholder”, in relation to a F40... company, means a person whose shareholding in the company is less than 10% of the company's issued share capital.

[F41(1A)Where the company has more than one class of share, the reference in subsection (1) to the company's issued share capital is to issued share capital of the same class as the share in respect of which the distribution is made.]

(2)Subsections (3) to (6) make provision about the circumstances in which shares form part of a person's shareholding in a company for the purposes of this section.

(3)Shares form part of a person's shareholding in a company to the extent that the person is beneficially entitled to the shares or to a distribution arising in respect of the shares (or both).

(4)Shares form part of a person's shareholding in the company where—

(a)a person is a settlor in relation to a settlement, and

(b)income arising from shares comprised in the settlement is treated for income tax purposes as the income of that person and of that person alone.

(5)Shares form part of the shareholding in a company of a person (“P”) if—

(a)they form part of the shareholding in the company of a person connected with P,

(b)P transferred the shares to the connected person or arranged for the connected person to acquire the shares, and

(c)the purpose of the transfer or arrangement was wholly or mainly to enable P to avoid tax.

(6)Shares form part of a person's shareholding in a company if that person has transferred the shares to another person under a repo or stock lending arrangement.

(7)In this section—

• “repo” has the same meaning as in Part 11 of ITA 2007 (see section 569 of that Act),

• “settlement” and “settlor” have the same meaning as in Chapter 5 of Part 5 of this Act, and

• “stock lending arrangement” has the same meaning as in Part 11 of ITA 2007 (see section 568 of that Act).

[F42(8)For the purposes of this section, shares are not of the same class if the amounts paid up on them (otherwise than by way of premium) are different.]]

398Increase in amount or value of dividends where tax credit availableU.K.

(1)If a person is entitled to a tax credit [F43under section 397 or 397A] in respect of a dividend or other distribution, the amount or value of the dividend or other distribution is treated as increased by the amount of the tax credit for all income tax purposes (except [F44sections 397(1) and [F45397A(1)]] ).

(2)Subsection (1) does not apply if the distribution is dealt with under Chapter 2 of Part 2 unless the trade consists of the underwriting business of a member of Lloyd's.

399Qualifying distributions received by persons not entitled to tax creditsU.K.

(1)This section applies if a person is not entitled to a tax credit [F46under section 397 or 397A] for a qualifying distribution included in the person's income for a tax year.

(2)The person is treated as having paid income tax at the dividend ordinary rate on the amount or value of the distribution (but see subsection (7)).

(3)For the purposes of subsection (2), if the person is non-UK resident the amount or value of the distribution is treated as the grossed up amount, unless the person is a company which is beneficially entitled to the income.

(4)If the person is non-UK resident [F47, the amount or value of the distribution is treated for the purposes of Chapters 3, 4 and 6 of Part 9 of ITA 2007 (special rates for trustees' income)] as the grossed up amount.

(5)In this section “the grossed up amount” means the actual amount or value of the distribution, grossed up by reference to the dividend ordinary rate for the tax year.

(6)The income tax treated as paid under subsection (2) is not repayable.

(7)Subsection (2) is subject to the following provisions—

• [F48section 504(4) of ITA 2007 (disapplication of certain provisions for income of unauthorised unit trusts),

• section 592 of ITA 2007 (no tax credits for borrower under stock lending arrangement),

• section 593 of ITA 2007 (no tax credits for interim holder under repo), and

• section 594 of ITA 2007 (no tax credits for original owner under repo).]

400Non-qualifying distributionsU.K.

(1)This section applies if a person's income in a tax year includes a non-qualifying distribution.

(2)The person is treated as having paid income tax at the dividend ordinary rate on the amount or value of the distribution.

(3)The income tax treated as paid under subsection (2) is not repayable.

(4)If the distribution is [F49assessed (in whole or in part) at the dividend trust rate by virtue of Chapter 3 of Part 9 of ITA 2007 (trustees' accumulated or discretionary income to be charged at special rates), the trustees' liability for income tax at that rate is reduced]

(5)The amount of the reduction is equal to income tax at the dividend ordinary rate on so much of the distribution as is assessed at the dividend trust rate.

(6)In this section and section 401 “non-qualifying distribution” means a distribution which is not a qualifying distribution.

[F50(7)Subsection (2) is subject to section 504(4) of ITA 2007 (disapplication of certain provisions for income of unauthorised unit trusts).]

401Relief: qualifying distribution after linked non-qualifying distributionU.K.

(1)Where a person pays an amount in respect of extra liability for a non-qualifying distribution, the person's extra liability for a subsequent qualifying distribution is reduced by that amount if conditions A and B are met.

(2)Condition A is that the non-qualifying distribution consists of the issue of share capital or security.

(3)Condition B is that the qualifying distribution consists of a repayment of the share capital or the principal of the security.

(4)A person's extra liability for a distribution charged to tax for the tax year 1999-2000 or a later tax year is the amount by which the person's liability to income tax on the distribution exceeds the amount it would be if it were charged only at the dividend ordinary rate.

(5)A person's extra liability for a distribution charged to tax for a tax year after the tax year 1992-93 and before the tax year 1999-2000 is the amount by which the person's liability to income tax on the distribution exceeds the amount it would be if it were charged only at the lower rate.

(6)A person's extra liability for a distribution charged to tax for a tax year before the tax year 1993-94 is the amount by which the person's liability to income tax on the distribution exceeds the amount it would be if it were charged only at the basic rate.

[F51(6A)The reduction under this section is given effect at Step 6 of the calculation in section 23 of ITA 2007.]

(7)In this section “security” has the meaning given in [F52section 1117(1) of CTA 2010].

[F53401ARecovery of overpaid tax credit etcU.K.

(1)If an officer of Revenue and Customs discovers that a payment or set-off of tax credit should not have been made or is excessive, the officer may act in accordance with subsection (3) or (4).

(2)For the purposes of subsection (1) it does not matter whether the payment or set-off was excessive when made or became so later.

(3)The officer may make any assessment that in the officer’s judgement is needed to recover—

(a)any income tax that should have been paid, or

(b)any payment of tax credit that should not have been made.

(4)More generally, the officer may make any assessment that in the officer’s judgement is needed to secure that the liabilities to income tax (and any liabilities to interest on income tax) of the persons concerned are what they would have been if only the correct set-offs and payments had been made.

(5)TMA 1970 applies to an assessment under this section for recovering a payment of tax credit, or of interest on a tax credit—

(a)as if it were an assessment to income tax for the tax year in respect of which the payment was claimed, and

(b)as if the payment represented a loss of tax to the Crown.

(6)Any sum charged by an assessment such as is mentioned in subsection (5) is due within 14 days after the notice of assessment is issued.

(7)The duty to comply with subsection (6) is subject to any appeal against the assessment.]

[F54401BPower to obtain informationU.K.

(1)An officer of Revenue and Customs may, for the purposes of section 397, by notice require any person in whose name any shares or loan capital are registered—

(a)to state whether or not that person is the beneficial owner of the shares or loan capital, and

(b)if that person is not the beneficial owner of the shares or loan capital, to provide the name and address of the person on whose behalf the shares or loan capital are registered in that person's name.

(2)Subsections (3) and (4) apply if a company (“the issuing company”) appears to an officer of Revenue and Customs to be a close company.

(3)The officer may, for the purposes of section 397, by notice require the issuing company to provide the officer with—

(a)particulars of any bearer securities issued by the company,

(b)the names and addresses of the persons to whom the securities were issued, and

(c)details of the amounts issued to each person.

(4)The officer may, for the purposes of section 397, by notice require—

(a)any person to whom bearer securities were issued by the company, or

(b)any person to or through whom bearer securities issued by the company were subsequently sold or transferred,

to provide any further information that the officer reasonably requires with a view to enabling the officer to find out the names and addresses of the persons beneficially interested in the securities.

(5)In this section—

• “loan creditor” has the meaning given by section 453 of CTA 2010, and

• “securities” includes—

  (a)

  shares, stocks, bonds, debentures and debenture stock, and

  (b)

  any promissory note or other instrument evidencing indebtedness to a loan creditor of the company.]

Chapter 4U.K.Dividends from non-UK resident companies

Charge to tax on dividends from non-UK resident companiesU.K.

402Charge to tax on dividends from non-UK resident companiesU.K.

(1)Income tax is charged on dividends of a non-UK resident company.

(2)For exemptions, see in particular section 770 (amounts applied by SIP trustees acquiring dividend shares or retained for reinvestment).

(3)Subsection (1) is also subject to section 498 of ITEPA 2003 (no charge on shares ceasing to be subject to SIP in certain circumstances).

(4)In this Chapter “dividends” does not include dividends of a capital nature.

403Income chargedU.K.

(1)Tax is charged under this Chapter on the F55... amount of the dividends arising in the tax year.

(2)Subsection (1) is subject to—

• section 406(2) and (3) (later charge where cash dividends retained in SIPs are paid over),

• section 407(3) (dividend payment when dividend shares cease to be subject to SIP), and

• Part 8 (foreign income: special rules).

404Person liableU.K.

(1)The person liable for any tax charged under this Chapter is the person receiving or entitled to the dividends.

(2)Subsection (1) is subject to—

• section 406(4) (later charge where cash dividends retained in SIPs are paid over), and

• section 407(4) (dividend payment when dividend shares cease to be subject to SIP).

Shares in approved share incentive plans (“SIPs”)U.K.

405SIP shares: introductionU.K.

(1)Sections 406 to 408 contain special rules about the charge under this Chapter in respect of shares awarded to an individual under an approved share incentive plan.

(2)Those sections only apply if the condition in section 392(3) or (5) was met at the time the shares in question were so awarded (earnings within ITEPA 2003).

(3)This section and sections 406 to 408 form part of the SIP code (see section 488 of ITEPA 2003 (approved share incentive plans)).

(4)Accordingly, expressions used in this section or those sections and contained in the index in paragraph 100 of Schedule 2 to that Act (approved share incentive plans) have the meaning indicated by that index.

(5)In particular—

(a)for the meaning of “award of shares” see paragraph 5(1) of that Schedule,

(b)for the meaning of “ceasing to be subject to plan” see paragraph 97 of that Schedule,

(c)for the meaning of “dividend shares” see paragraph 62(3)(b) of that Schedule,

(d)for the meaning of “participant” see paragraph 5(4) of that Schedule,

(e)for the meaning of “plan shares” see paragraphs 86 to 88 and 99(1) of that Schedule, and

(f)for the meaning of “shares” see paragraphs 87(6) and 99(2) of that Schedule.

406Later charge where cash dividends retained in SIPs are paid overU.K.

(1)This section applies if a cash dividend is paid over to a participant under paragraph 68(4) of Schedule 2 to ITEPA 2003 (cash dividend paid over if not reinvested etc.).

(2)Tax charged under this Chapter is charged for the tax year in which the cash dividend is paid over instead of the tax year in which in which it was originally paid.

(3)Tax so charged is charged on the amount of the cash dividend paid over.

(4)The person liable for any tax so charged is the participant.

[F56(4A)For the purposes of determining—

(a)whether the participant is entitled to a tax credit under section 397A in respect of a cash dividend so charged, and

(b)the amount of that tax credit,

that section applies as it has effect for the tax year in which the cash dividend is paid over.]

(5)For the purposes of this Chapter, the question whether a cash dividend so paid over is a dividend paid by a company that is non-UK resident is determined by reference to the tax year in which the dividend was originally paid.

407Dividend payment when dividend shares cease to be subject to SIPU.K.

(1)This section applies if dividend shares cease to be subject to an approved share incentive plan before the end of the period of 3 years beginning with the date on which the shares were acquired on the participant's behalf.

(2)For income tax purposes a dividend is treated as paid to the participant in the tax year in which the shares cease to be subject to the plan.

(3)The amount of the dividend treated as paid is the amount of the cash dividend applied to acquire the shares on the participant's behalf, so far as it represents a cash dividend paid in respect of plan shares in a non-UK resident company.

(4)The person liable for any tax charged as a result of this section is the participant.

[F57(4A)For the purposes of determining—

(a)whether the participant is entitled to a tax credit under section 397A in respect of a dividend so charged, and

(b)the amount of that tax credit,

that section applies as it has effect for the tax year in which the shares cease to be subject to the plan.]

(5)For rules identifying shares ceasing to be subject to approved share incentive plans, see section 508 of ITEPA 2003.

408Reduction in tax due in cases within section 407U.K.

(1)This section applies if—

(a)a person is liable for tax as a result of section 407, and

(b)any tax is paid on any capital receipts under section 501 of ITEPA 2003 (charge on capital receipts in respect of plan shares) in respect of the shares that cease to be subject to the approved share incentive plan.

(2)The tax due as a result of section 407 is to be reduced by an amount equal to the total tax so paid.

[F58(2A)In subsection (2) “the tax due” means the amount of tax due as a result of section 407 after deduction of the tax credit determined in accordance with section 407(4A).]

(3)For rules identifying shares ceasing to be subject to approved share incentive plans, see section 508 of ITEPA 2003.

Chapter 5U.K.Stock dividends from UK resident companies

409Charge to tax on stock dividend incomeU.K.

(1)Income tax is charged on stock dividend income.

(2)In this Chapter “stock dividend income” means the income that is treated as arising under section 410.

410When stock dividend income arisesU.K.

[F59(1)This section applies to—

(a)share capital issued by a UK resident company in lieu of a cash dividend, and

(b)bonus share capital issued by a UK resident company in respect of shares in the company of a qualifying class.

(1A)For the purposes of subsection (1)(b), shares are of a qualifying class if—

(a)shares of that class carry the right to receive bonus share capital in the company (of the same or a different class), and

(b)that right is conferred by the terms on which shares of that class were originally issued or by those terms as subsequently extended or otherwise varied.]

(2)If an individual is beneficially entitled to that share capital, income is treated as arising to the individual.

(3)If—

(a)the share capital is issued to trustees in respect of shares they hold in the company (alone or with others), and

(b)a cash dividend paid to them in respect of the shares would have been to any extent [F60accumulated or discretionary income (as defined in section 480 of ITA 2007 but excluding income arising under a [F61 charitable trust ] or an unauthorised unit trust in relation to which section 504 of that Act applies)] ,

income is treated as arising to the trustees.

(4)If the share capital is issued to personal representatives during the administration period, income is treated as arising (but see section 413(4)).

(5)In subsection (4) “administration period” has the meaning given by section 653.

(6)Income within this section is treated as arising on the earliest date on which the company is required to issue the share capital in question.

(7)See section 413(5) (apportionment) if two or more persons are entitled to the share capital.

[F62(8)There are special rules in paragraph 78A of Schedule 2 for share capital issued in respect of shares issued before 6 April 1975.]

[F63410AConversion etc of bonus share capitalU.K.

(1)This section applies if bonus share capital falling within section 410(1)(b) is converted into, or exchanged for, shares in the company of a different class.

(2)Section 410 does not apply to any shares in the company issued—

(a)in connection with the conversion or exchange, and

(b)in consideration of the cancellation, extinguishment or acquisition by the company of the bonus share capital.]

411Income chargedU.K.

(1)Tax is charged under this Chapter on the amount of stock dividend income treated for income tax purposes as arising in the tax year.

(2)That amount is the cash equivalent of the share capital on the issue of which the stock dividend income arises (see section 412), grossed up by reference to the dividend ordinary rate for the tax year.

412Cash equivalent of share capitalU.K.

(1)The cash equivalent of share capital [F64issued as mentioned in section 410(1)(a) is the amount of the cash dividend alternative (see section 414A(2))].

(2)But if the difference between the cash dividend alternative and the share capital's market value equals or exceeds 15% of that market value—

(a)subsection (1) does not apply, and

(b)the cash equivalent of the share capital is its market value.

(3)The cash equivalent of share capital [F65issued as mentioned in section 410(1)(b)] is its market value.

(4)For the purposes of this section, market value is determined—

(a)in the case of listed share capital, on the date of first dealing, and

(b)in the case of other share capital, on the earliest date on which the company is required to issue it.

(5)In this section—

• “listed” means listed in the Stock Exchange Daily Official List, and

• “market value” has the same meaning as in sections 272(1) and (3) and 273(3) of TCGA 1992.

413Person liableU.K.

(1)The person liable for any tax charged under this Chapter is the person indicated by this section.

(2)If section 410(2) applies, the individual is liable for the tax.

(3)If section 410(3) applies, the trustees are liable for the tax.

(4)If section 410(4) applies, tax is not charged under this Chapter, but see—

(a)section 664 (under which the income treated as arising to the personal representatives under section 410 is treated as part of the aggregate income of the estate for the purposes of Chapter 6 of Part 5), and

[F66(b)section 947 of CTA 2009 (under which similar provision is made for the purposes of Chapter 3 of Part 10 of that Act)].

(5)If two or more persons are entitled to the share capital on the issue of which the stock dividend income arises, this Chapter applies as if the company issuing it had issued to each of those persons a proportionate part of the share capital.

(6)In subsection (5) “proportionate part” means a part proportionate to the person's interest on the earliest date on which the company is required to issue the share capital.

414Income tax treated as paidU.K.

(1)A person liable to tax under this Chapter is treated as having paid income tax at the dividend ordinary rate on the income charged, and where trustees are so liable (because a cash dividend paid to them in respect of the shares would have been to any extent [F67accumulated or discretionary income (as defined in section 480 of ITA 2007)]) the income is treated as if it had been chargeable to tax at that rate.

(2)The income tax treated as paid under subsection (1) is not repayable.

(3)The amount on which an individual is treated under subsection (1) as having paid income tax is reduced if subsection (4) applies.

(4)This subsection applies if the individual's total income is reduced by any deductions which fall to be made [F68at Step 2 or 3 of the calculation in section 23 of ITA 2007 (calculation of income tax liability)] from the part of the income charged to tax under this Chapter.

(5)The reduction under subsection (3) is equal to the amount of those deductions.

[F69414AInterpretation of ChapterU.K.

(1)In this Chapter “bonus share capital” means—

(a)share capital issued otherwise than wholly for new consideration, or

(b)the part (if there is such a part) of any share capital so issued that is not properly referable to new consideration.

(2)For the purposes of this Chapter share capital is issued by a company in lieu of a cash dividend if—

(a)it is issued in consequence of the exercise by any person of an option conferred on the person, and

(b)that option is an option to receive, in respect of shares in the company, either a dividend in cash or additional share capital.

(3)For the purposes of subsection (2), an option to receive either a dividend in cash or additional share capital is conferred on a person not only—

(a)if the person is required to choose one or the other, but also

(b)if the person is offered the one subject to a right, however expressed, to choose the other instead.

(4)The reference in subsection (2) to a person's exercise of an option includes a person's abandonment of, or failure to exercise, a right such as is mentioned in subsection (3)(b).

(5)In this Chapter “share” includes stock, and any other interest of a member in a company.

(6)If two or more companies enter into arrangements to make distributions to each other's members, all parties concerned (however many) may, for the purposes of this Chapter, be treated as if anything done by any one of those companies had been done by any one of the others.

(7)The following apply in relation to this Chapter as they apply in relation to Part 23 of CTA 2010—

(a)section 1113 (“in respect of shares”) of CTA 2010,

(b)section 1115 (“new consideration”) of CTA 2010.]

Chapter 6U.K.Release of loan to participator in close company

415Charge to tax under Chapter 6U.K.

(1)Income tax is charged if—

(a)a company [F70is or was chargeable to tax under section 455 of CTA 2010] (loans to participators in close companies etc.) in respect of a loan or advance, and

(b)the company releases or writes off the whole or part of the debt in respect of the loan or advance.

(2)Subsection (1) is subject to section 418 (relief where borrowers liable as settlors).

(3)Subsection (4) applies if[F71, as a result of section 460 of CTA 2010, sections 455 to 459 of that Act have effect] as if a loan or advance had been made by a company (“A”), rather than the company (“B”) which—

(a)actually made it,

(b)is regarded as having made it under [F72section 455(4) of that Act] (deemed loans where debt incurred or assigned to close company), or

(c)would be so regarded if it were a close company.

(4)If the whole or part of the debt is released or written off by B, for the purposes of subsection (1), A rather than B is treated as releasing it or writing it off.

(5)Expressions used in this Chapter have the same meanings as if they were in section 419 of ICTA.

416Income chargedU.K.

(1)Tax is charged under this Chapter on the gross amount of the debt released or written off in the tax year.

(2)The “gross amount” is the amount released or written off, grossed up by reference to the dividend ordinary rate for that year.

(3)For the purposes of calculating the total income of the person liable for the tax, the amount charged is treated as income.

(4)This section is subject to section 418 (relief where borrowers liable as settlors).

417Person liableU.K.

(1)The person liable for any tax charged under this Chapter is the person to whom the loan or advance was made.

(2)This is subject to—

• section 419 (loans and advances to persons who die), and

• section 420 (loans and advances to trustees of trusts that have ended).

418Relief where borrowers liable as settlorsU.K.

(1)Relief is given under this section if the person to whom the loan or advance was made—

(a)is liable for the tax year for income tax on a sum in respect of it under Chapter 5 of Part 5 as a result of section 633 (capital sums paid to settlor by trustees of settlement), or

(b)has been so liable for any previous tax year.

(2)If the total amount previously charged (see subsection (4)) equals or exceeds the total amount released (see subsection (6)), tax is not charged under this Chapter.

(3)If the total amount released exceeds the total amount previously charged, tax is charged under this Chapter on the excess, grossed up by reference to the dividend ordinary rate.

(4)In this section “the total amount previously charged” means the total of—

(a)the sums included in the person's income under section 633 in respect of the loan or advance for the tax year or for previous tax years, and

(b)the amounts charged under this Chapter in respect of the loan or advance for previous tax years.

(5)For the purposes of subsection (4)(a), section 640(1) (which requires the grossing up of the sums treated as paid to the settlor by reference to the [F73trust rate]) is ignored.

(6)In this section “the total amount released” means the total amount released or written off in respect of the loan or advance in the tax year and previous tax years.

419Loans and advances to persons who dieU.K.

(1)This section applies if—

(a)a loan or advance is made to a person who dies,

(b)a company [F74is or was chargeable to tax under section 455 of CTA 2010 (charge to tax in case of loan to participator)] in respect of the loan or advance, and

(c)after the death the company releases or writes off the whole or part of the debt in respect of the loan or advance.

(2)Tax is not charged under this Chapter if at the time of the release or writing off the debt is due from the person's personal representatives in that capacity, but see—

(a)section 664 (under which the amount that would be so charged is treated as part of the aggregate income of the estate for the purposes of Chapter 6 of Part 5), and

[F75(b)section 947 of CTA 2009 (under which similar provision is made for the purposes of Chapter 3 of Part 10 of that Act)].

(3)If subsection (2) does not apply, tax is charged under this Chapter on the person from whom the debt is due at the time of release or writing off.

420Loans and advances to trustees of trusts that have endedU.K.

(1)This section applies if—

(a)a loan or advance is made to trustees of a trust,

(b)a company [F76is or was chargeable to tax under section 455 of CTA 2010 (charge to tax in case of loan to participator)] in respect of the loan or advance, and

(c)after the trust has ended the company releases or writes off the whole or part of the debt in respect of the loan or advance.

(2)Tax is charged under this Chapter on the person from whom the debt is due at the time of release or writing off.

421Income tax treated as paidU.K.

(1)A person liable to income tax under this Chapter is treated as having paid income tax at the dividend ordinary rate on the amount charged under this Chapter.

(2)The income tax treated as paid under subsection (1) is not repayable.

(3)The amount on which an individual is treated under subsection (1) as having paid income tax is reduced if subsection (4) applies.

(4)This subsection applies if the individual's total income is reduced by any deductions which fall to be made [F77at Step 2 or 3 of the calculation in section 23 of ITA 2007 (calculation of income tax liability)] from the part of the income charged under this Chapter.

(5)The reduction is equal to the total amount of those deductions.

[F78421APower to obtain informationU.K.

(1)An officer of Revenue and Customs may, for the purposes of this Chapter, by notice require any person in whose name any shares or loan capital are registered—

(a)to state whether or not that person is the beneficial owner of the shares or loan capital, and

(b)if that person is not the beneficial owner of the shares or loan capital, to provide the name and address of the person on whose behalf the shares or loan capital are registered in that person's name.

(2)Subsections (3) and (4) apply if a company (“the issuing company”) appears to an officer of Revenue and Customs to be a close company.

(3)The officer may, for the purposes of this Chapter, by notice require the issuing company to provide the officer with—

(a)particulars of any bearer securities issued by the company,

(b)the names and addresses of the persons to whom the securities were issued, and

(c)details of the amounts issued to each person.

(4)The officer may, for the purposes of this Chapter, by notice require—

(a)any person to whom bearer securities were issued by the company, or

(b)any person to or through whom bearer securities issued by the company were subsequently sold or transferred,

to provide any further information that the officer reasonably requires with a view to enabling the officer to find out the names and addresses of the persons beneficially interested in the securities.

(5)In this section—

• “loan creditor” has the meaning given by section 453 of CTA 2010, and

• “securities” includes—

  (a)

  shares, stocks, bonds, debentures and debenture stock, and

  (b)

  any promissory note or other instrument evidencing indebtedness to a loan creditor of the company.]

Chapter 7U.K.Purchased life annuity payments

422Charge to tax on purchased life annuity paymentsU.K.

(1)Income tax is charged on annuity payments made under a purchased life annuity.

(2)For exemptions, see in particular—

(a)section 717 (exemption for part of purchased life annuity payments),

(b)section 725 (annual payments under immediate needs annuities),

(c)section 731 (periodical payments of personal injury damages), and

(d)section 732 (compensation awards).

423Meaning of “purchased life annuity”U.K.

(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.

424Income chargedU.K.

(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).

425Person liableU.K.

The person liable for any tax charged under this Chapter is the person receiving or entitled to the annuity payments.

426Annuity payments received after deduction of taxU.K.

[F79In accordance with section 848 of ITA 2007 a sum representing income tax deducted under section 901 of that Act] from an annuity payment within this Chapter is treated as income tax paid by the recipient F80. . . .

Chapter 8U.K.Profits from deeply discounted securities

Charge to tax under Chapter 8U.K.

427Charge to tax on profits from deeply discounted securitiesU.K.

(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.

428Income chargedU.K.

(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).

429Person liableU.K.

(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.

Deeply discounted securitiesU.K.

430Meaning of “deeply discounted security”U.K.

(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—

(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),F81. . .

• section 443(1) (strips of government securities) [F82, and

• section 452A(1) (corporate strips).]

431Excluded occasions of redemptionU.K.

(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.

432Securities which are not deeply discounted securitiesU.K.

(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).

433Meaning of “excluded indexed security”U.K.

(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).

434Securities issued in separate tranches: preliminaryU.K.

(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.

435Securities issued in separate tranches: basic ruleU.K.

(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.

436Deeply discounted securities issued in separate tranches: nominal value ruleU.K.

(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.

DisposalsU.K.

437Transactions which are disposalsU.K.

(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).

[F83(5)In the case of interest-bearing corporate securities, further provision about occasions counting as disposals is made by section 452F(2)(a).

(6)In the case of corporate strips, further provision about occasions counting as disposals is made by section 452F(2)(a) and (3)(a).]

438Timing of transfers and acquisitionsU.K.

(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.

[F84(4)This section is subject to—

• section 445(7) (exchanges for and consolidations of strips);

• section 452F(4) (conversion into and consolidations of corporate strips).]

Calculating profitsU.K.

439Calculating the profit from disposalsU.K.

(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).

440Market value disposalsU.K.

(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.

[F85(5)Subsection (4) is subject to—

• section 445(8) (exchanges for and consolidations of strips);

• section 452F(5) (conversion into and consolidations of corporate 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.

441Market value acquisitionsU.K.

(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).

[F86(3)Subsection (2) is subject to—

• section 445(8) (exchanges for and consolidations of strips);

• section 452F(5) (conversion into and consolidations of corporate strips).]

442Securities issued in accordance with qualifying earn-out rightU.K.

(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.

Special rules for strips of government securitiesU.K.

443Application of this Chapter to strips of government securitiesU.K.

(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), [F87and]

(f)section 450 (market value of strips etc.), and

(g)F88. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

444Meaning of “strip” in Chapter 8U.K.

(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.

[F89(6)Nothing in this section affects the meaning of the expression “corporate strip” in this Chapter (see section 452E).]

445Strips of government securities: acquisitions and disposalsU.K.

(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—

(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).

446Strips of government securities: relief for lossesU.K.

(1)Relief from income tax may be claimed under this section for any loss made on the disposal of a strip of a security.

[F90(2)If a person makes a claim under this section, the relief is given by deducting the loss in calculating the person's net income for the tax year in which the disposal occurs (see Step 2 of the calculation in section 23 of ITA 2007).]

(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).

447Restriction of profits on strips by reference to original acquisition costU.K.

(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).

448Restriction of losses on strips by reference to original acquisition costU.K.

(1)This section applies if—

(a)a person makes a loss on the disposal of a strip (apart from this section), and

(b)the person's original acquisition cost for the strip exceeds the amount that falls to be brought into account as the amount payable on the disposal of the strip in determining the amount of the loss.

(2)If 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 loss exceeds the person's original acquisition cost for the strip, the amount of the loss is reduced.

(3)The amount of the reduction is A – B where—

• A is the person's original acquisition cost for the strip, and

• B is the amount that falls to be brought into account as the amount payable on the disposal of the strip in determining the amount of the loss.

(4)If subsection (2) does not apply, the person is treated as not making a loss on the disposal.

(5)In this section any reference to making a loss on the disposal of a strip has the meaning given in section 446(3) and (4).

449Strips of government securities: manipulation of acquisition, transfer or redemption paymentsU.K.

(1)This section applies if—

(a)as a result of a scheme or arrangement an amount referred to in subsection (2)(a), (b) or (c) differs from the market value of a strip in a way specified in that subsection, and

(b)the obtaining of a tax advantage by any person is the main benefit, or one of the main benefits, that might have been expected to accrue from, or from any provision of, the scheme or arrangement.

(2)The ways are that—

(a)the amount paid by a person in respect of the acquisition of the strip is or was more than the market value at the time of the acquisition,

(b)the amount payable to a person on transferring the strip is less than the market value at the time of the transfer, or

(c)on redemption of the strip the amount payable to a person, as the person holding the strip, is less than the market value on the day before redemption.

(3)In a case within subsection (2)(a), for the purposes of sections 439(1) and 446(3) on transferring the strip the person is treated as if the person had paid to acquire the strip an amount equal to the market value of the strip at the time of the acquisition.

(4)In a case within subsection (2)(b), for those purposes the person is treated as if the amount payable to the person on the transfer were an amount equal to the market value of the strip at the time of the transfer.

(5)In a case within subsection (2)(c), for those purposes the person is treated as if the amount payable to the person on redemption were an amount equal to the market value of the strip on the day before redemption.

(6)For the purposes of this section, no account is to be taken of any incidental expenses incurred in connection with any disposal or acquisition of a strip.

[F91450Market value of strips etc.U.K.

(1)The Treasury may make regulations as to the manner for determining—

(a)the market value at any time of a strip for the purposes of this Chapter, and

(b)the market value at any time of a security exchanged for strips of that security for the purposes of section 445(1).

(2)The regulations may—

(a)make different provision for different cases, and

(b)contain incidental, supplemental, consequential and transitional provision and savings.]

F92451. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

452Power to modify this Chapter for stripsU.K.

(1)The Treasury may by regulations provide that this Chapter is to apply to a strip with such modifications as they consider appropriate.

(2)This section is without prejudice to the general power to make regulations under section 202 of FA 1996 (gilt stripping).

[F93Special rules for corporate stripsU.K.

[F94452AApplication of this Chapter to corporate stripsU.K.

(1)All corporate 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 corporate strips subject to the rules in—

(a)section 452F (corporate strips: acquisitions and disposals), and

(b)section 452G (corporate strips: manipulation of acquisition, transfer or redemption payments).]

[F95452BMeaning of “interest-bearing corporate security” in Chapter 8U.K.

(1)In this Chapter “interest-bearing corporate security” means any interest-bearing security other than—

(a)a security issued by the government of a territory, or

(b)a share in a company.

(2)In this section “interest-bearing security” includes any loan stock or similar security.

(3)Section 452D(4)(a) gives an extended meaning to references to converting an interest-bearing corporate security into corporate strips (and related expressions).]

[F96452CConversion of interest-bearing corporate securities into corporate stripsU.K.

(1)For the purposes of this Chapter a person converts an interest-bearing corporate security into corporate strips of the security if he has an interest-bearing corporate security (“the converted corporate security”) but—

(a)as a result of any scheme or arrangements, he acquires two or more separate assets in place of the converted corporate security,

(b)each of those separate assets satisfies condition A,

(c)those separate assets, taken together, satisfy condition B, and

(d)at least one of those separate assets is not prevented from being a corporate strip by section 452E(2) or (3),

and related expressions shall be construed accordingly.

(2)Condition A is that the asset—

(a)represents the right to, or

(b)secures,

one or more stripped payments.

(3)For the purposes of this section, a “stripped payment” is—

(a)the payment of, or

(b)a payment corresponding to,

the whole or a part of one or more payments (whether of interest or principal) remaining to be made under the converted corporate security.

(4)Condition B is that the assets, taken together,—

(a)represent the right to, or

(b)secure,

every payment (whether of interest or principal) remaining to be made under the converted corporate security (or payments corresponding to every such payment).

(5)Where a person—

(a)has an interest-bearing corporate security, but

(b)sells or transfers the right to one or more payments remaining to be made under it (so that, as a result, there are two or more separate assets which, taken together, satisfy condition B),

this Chapter has effect as if, as a result of a scheme or arrangements, the person had acquired the separate assets in place of the security immediately before the sale or transfer.

(6)After a balance has been struck for a dividend on an interest-bearing corporate security, any payment to be made in respect of that dividend shall, at times falling after that balance has been struck, be treated for the purposes of this paragraph as not being a payment remaining to be made under the security.]

[F97452DConversion into corporate strips: lower level conversionsU.K.

(1)For the purposes of this Chapter, section 452C also has effect in relation to each of the separate assets mentioned in subsection (1) of that section as if that separate asset were itself an interest-bearing corporate security (if that is not in fact the case).

(2)In subsection (1), the reference to section 452C includes a reference to that section as it has effect by virtue of this section.

(3)In the application of section 452C by virtue of this section, references to payments the right to which a separate asset represents or secures shall be construed in accordance with subsection (6) of that section.

(4)Where section 452C has effect by virtue of subsection (1)—

(a)any reference in this Chapter to converting an interest-bearing corporate security into corporate strips of the security shall be construed accordingly, and

(b)section 452E (meaning of “corporate strip”) has effect accordingly.]

[F98452EMeaning of “corporate strip” in Chapter 8U.K.

(1)In this Chapter “corporate strip” means any asset—

(a)which is, or has at any time been, one of the separate assets mentioned in section 452C(1), and

(b)which is not prevented from being a corporate strip by subsection (2) or (3).

(2)An asset is not a corporate strip if it—

(a)represents the right to, or

(b)secures,

payments of, or corresponding to, a part of every payment remaining to be made under an interest-bearing corporate security or a corporate strip.

(3)An asset is a corporate strip in the case of any person only if he acquired it—

(a)on or after 2nd December 2004, and

(b)otherwise than in pursuance of an agreement entered into before that date.]

[F99452FCorporate strips: acquisitions and disposalsU.K.

(1)A person who converts an interest-bearing corporate security into corporate strips of the security is treated as having acquired each corporate strip by the payment of an amount equal to—

(2)If the converted corporate security is a deeply discounted security—

(a)its conversion into corporate strips is to be treated for the purposes of this Chapter as a transfer of the security, but

(b)the amount payable on the transfer is taken to be an amount equal to the acquisition cost of the converted corporate security.

(3)For the purposes of this Chapter—

(a)the consolidation of a corporate strip with other corporate strips into a single security is a disposal of the corporate 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 corporate strip at the consolidation is treated as payable on the disposal.

(4)Section 438 (timing of transfers and acquisitions) does not apply to a conversion within subsection (1) or a consolidation within subsection (3).

(5)Subsections (1) to (3) apply instead of sections 440(4) (market value on general conversions of deeply discounted securities) and 441 (market value acquisitions).

(6)For the purposes of this section, the acquisition cost of the converted corporate security is the amount paid in respect of his acquisition of the security by the person who has it immediately before the conversion (no account being taken of any costs incurred in connection with that acquisition).

(7)References in this section to the market value of a security given or received in exchange for, or otherwise converted into, another are references to its market value at the time of the exchange or conversion.]

[F100452GCorporate strips: manipulation of acquisition, transfer or redemption paymentsU.K.

(1)This section applies if—

(a)as a result of any scheme or arrangement, an amount referred to in subsection (2)(a), (b) or (c) differs from the market value of the corporate strip in a way specified in that subsection, and

(b)the obtaining of a tax advantage by any person is the main benefit, or one of the main benefits, that might have been expected to accrue from, or from any provision of, the scheme or arrangement.

(2)The ways are that—

(a)the amount paid by a person in respect of the acquisition of the corporate strip is or was more than the market value of the corporate strip at the time of that acquisition,

(b)the amount payable to a person on transferring the corporate strip is less than the market value at the time of the transfer, or

(c)on redemption of the corporate strip the amount payable to a person, as the person holding the corporate strip, is less than the market value on the day before redemption.

(3)In a case within subsection (2)(a), for the purposes of section 439(1) on transferring the corporate strip the person is treated as if the person had paid to acquire the corporate strip an amount equal to the market value of the corporate strip at the time of the acquisition.

(4)In a case falling within subsection (2)(b), for those purposes the person is treated as if the amount payable to the person on the transfer were an amount equal to the market value of the corporate strip at the time of the transfer.

(5)In a case falling within subsection (2)(c), for those purposes the person is treated as if the amount payable to the person on redemption were an amount equal to the market value of the corporate strip on the day before redemption.

(6)The market value of a corporate strip at any time is to be determined for the purposes of this section without regard to any increase or diminution in the value of the corporate strip as a result of the scheme or arrangement mentioned in subsection (1).

(7)For the purposes of this section, no account is to be taken of any incidental expenses incurred in connection with any disposal or acquisition of a corporate strip.]]

Special rules for listed securities held since 26th March 2003U.K.

453Application of sections 454 to 456U.K.

(1)In the case of a disposal of a deeply discounted security that meets conditions A and B, the rules in sections 454 to 456 apply for—

(a)providing for relief for losses on the disposal, and

(b)calculating the amount of profits chargeable under this Chapter on the disposal or the losses for which such relief may be given.

(2)Condition A is that the person making the disposal has held the security continuously since a time before 27th March 2003.

(3)Condition B is that the security was listed on a recognised stock exchange at any time before 27th March 2003.

454Listed securities held since 26th March 2003: relief for lossesU.K.

(1)A person may claim relief from income tax under this section for a loss the person has made on disposing of deeply discounted securities.

(2)For this purpose a person makes such a loss only if A exceeds B, where—

• A is the amount the person paid for the securities, excluding any incidental expenses incurred in connection with the acquisition, and

• B is the amount payable on the disposal, excluding any incidental expenses incurred in connection with the disposal.

(3)For the calculation of the amount of the loss, see section 455(2) to (4) (under which those expenses are taken into account).

[F101(4)If a claim under this section is made by a person other than a trustee, the relief is given by deducting the loss in calculating the person's net income for the tax year in which the disposal occurs (see Step 2 of the calculation in section 23 of ITA 2007).]

(5)If such a claim is made by a trustee, the amount of profits arising in the tax year in which the disposal occurs that is charged under this Chapter is reduced by the amount of the loss.

(6)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.

(7)This section is subject to section 458(2) (securities held by non-UK resident trustees).

455Listed securities held since 26th March 2003: calculating the profit or loss on disposalsU.K.

(1)A person's profit on a disposal, as calculated under section 439, is reduced by any incidental expenses incurred [F102 before 6 April 2015 ] by that person in connection with the disposal or the acquisition of the security that have not been deducted under section 439(4).

(2)A person's loss on a disposal for the purposes of section 454 (relief for losses) is the amount by which the deductible costs exceed the amount payable on the disposal.

(3)In this section the “deductible costs” means—

(a)the amount paid by the person to acquire the security, and

(b)the incidental expenses incurred [F103 before 6 April 2015 ] by that person in connection with the disposal or the acquisition.

(4)Where a person re-acquires a security, any previous acquisition of it is ignored in determining the person's incidental expenses within subsection (1) or deductible costs on a subsequent disposal.

(5)For the purposes of this section, no incidental expenses are treated as incurred in connection with transfers and reacquisitions within section 445(2) and (3) (transfer and immediate reacquisition of strips on 5th April).

456Securities issued to connected persons etc. at excessive price: subsequent transfers to connected personsU.K.

(1)No loss is taken to occur for the purposes of section 454 on a transfer of a deeply discounted security to a person connected with the transferor if conditions A and B and either condition C or conditions D and E are met.

(2)Condition A is that the transferor acquired the security on its issue.

(3)Condition B is that the amount paid by the transferor to acquire the security exceeded the market value of the security at the time of its issue.

(4)Condition C is that at that time the transferor was connected with the issuer.

(5)Condition D is that at that time the issuer was a close company.

(6)Condition E is that at that time the transferor controlled that company with other persons to whom securities of the same kind were also issued.

[F104(7)Chapter 2 of Part 10 of CTA 2010 (meaning of “close company”) applies for the purposes of this section but with the omission of section 442(a) (exclusion of non-UK resident companies).]

(8)In this section “control” has the meaning given by [F105sections 450 and 451 of CTA 2010].

TrusteesU.K.

457TrusteesU.K.

(1)This section applies if profits are taken to arise on a disposal of a deeply discounted security by trustees.

(2)For the purposes of Chapter 5 of Part 5 (settlements: amounts treated as income of settlor), the profits are to be taken to be income arising under the settlement from the security.

F106(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F107(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F108(5)If the trustees are trustees of a scheme in relation to which section 504 of ITA 2007 applies, subsection (2) does not apply to profits which are shown in the scheme's accounts as income available for payment to unit holders or for investment.]

458Non-UK resident trusteesU.K.

(1)Tax is not charged under this Chapter if the disposal is made by the trustees of a settlement and they are non-UK resident.

(2)The following provisions do not apply if the disposal falls within subsection (1)—

• section 446 (strips of government securities: relief for losses), and

• section 454 (listed securities held since 26th March 2003: relief for losses).

(3)In this section “settlement” has the same meaning as in Chapter 5 of Part 5 (see section 620).

Miscellaneous and supplementaryU.K.

459Transfer of assets abroadU.K.

(1)This section applies if profits are taken to arise on the disposal of a deeply discounted security by a person resident or domiciled outside the United Kingdom (“A”).

(2)For the purpose of determining whether an individual ordinarily UK resident is liable for income tax in respect of the profits, [F109Chapter 2 of Part 13 of ITA 2007 (transfer of assets abroad) has] effect as if the profits, when arising, constituted income becoming payable to A.

(3)For this purpose it does not matter if A is not liable to income tax under this Chapter because of section 458 (non-UK resident trustees).

460Minor definitionsU.K.

(1)In this Chapter “share”, in the case of a share in a company, means any share under which an entitlement to receive distributions may arise, but does not include a share in a building society.

(2)In this Chapter “tax advantage” has the meaning given by [F110section 1139 of CTA 2010].

(3)In this Chapter “market value” has the same meaning as in TCGA 1992 (see sections 272 to 274 of that Act), except as provided in section 450 F111. . . (market value of strips etc.).

Chapter 9U.K.Gains from contracts for life insurance etc.

Charge to tax under Chapter 9U.K.

461Charge to tax under Chapter 9U.K.

(1)Income tax is charged on gains treated as arising from policies and contracts to which this Chapter applies.

(2)For the policies and contracts to which this Chapter applies, see sections 473 to 483.

(3)See also sections 530 to 538 (provisions relating to tax treated as paid on gains and to reliefs).

(4)For exemptions, see in particular Chapter 3 of Part 6 (income from individual investment plans).

(5)For the application of this Chapter where corresponding provision for corporation tax purposes is also relevant, see section 544 (application of Chapter to policies and contracts in which companies interested).

462When gains arise from policies and contractsU.K.

(1)For the purposes of this Chapter, a gain from a policy or contract arises when a chargeable event occurs in relation to the policy or contract (see section 484).

(2)But certain chargeable events are only treated as occurring because a calculation required to be made as at a particular time shows that the gain has arisen.

(3)See, in particular—

(a)section 509(1) (under which a chargeable event is treated as occurring where a periodic calculation following a part surrender or assignment shows a gain),

(b)section 514(1) (under which a part surrender or assignment is treated as a chargeable event where a calculation related to it shows a gain), and

(c)section 525(2) (under which a chargeable event is treated as occurring where an annual personal portfolio bond calculation shows a gain).

463Income chargedU.K.

(1)Tax is charged under this Chapter on the amount of the gains arising in the tax year.

(2)Subsection (1) is subject to section 514(4) (under which certain gains are charged for a later tax year).

(3)See section 469(3) for the apportionment of gains where two or more persons are interested in a policy or contract.

(4)See sections 491 to 497, 507, 508, 511 to 513, 522 to 524 and 527 to 529 for the rules as to how the gains are calculated.

Person liable etc.U.K.

464Person liable for tax: introductionU.K.

(1)The person liable for any tax charged under this Chapter is the person indicated by—

• section 465 (person liable: individuals),

• section 466 (person liable: personal representatives), and

• section 467 (person liable: UK resident trustees),

according to how the rights under the policy or contract are owned or held immediately before the chargeable event in question occurs.

(2)References in those sections to the ownership or holding of those rights are references to their ownership or holding at that time.

(3)If there has been a surrender or assignment of only a part of or share in rights under the policy or contract, the references in this section and those sections to the rights are references to that part or share.

(4)For cases where such surrenders or assignments are taken to occur, see—

• section 500 (events treated as part surrenders), and

• section 505 (assignments etc. involving co-ownership).

(5)This section and sections 470 to 472 are subject to section 469(4) (application of this section and those sections where two or more persons are interested in the policy or contract in question).

(6)See also—

• section 468 (non-UK resident trustees and foreign institutions),

• section 471 (determination of shares etc.), and

• section 472 (trusts created by two or more persons).

465Person liable: individualsU.K.

(1)An individual is liable for tax under this Chapter if the individual is UK resident in the tax year in which the gain arises and condition A, B or C is met.

(2)Condition A is that the individual beneficially owns the rights under the policy or contract in question.

(3)Condition B is that those rights are held on non-charitable trusts which the individual created.

(4)Condition C is that those rights are held as security for the individual's debt.

(5)For the purposes of calculating the total income of an individual liable for tax under this Chapter, the amount charged is treated as income.

(6)References in this Chapter to trusts which an individual created include references to trusts arising under any of the following provisions (and references to a settlor or to a person creating trusts are to be read accordingly)—

(a)section 11 of the Married Women's Property Act 1882 (c. 75),

(b)section 2 of the Married Women's Policies of Assurance (Scotland) Act 1880 (c. 26), and

(c)section 4 of the Law Reform (Husband and Wife) Act (Northern Ireland) 1964 (c. 23 (N.I.)).

(7)For the right of an individual to recover certain amounts from the trustees of non-charitable trusts, see section 538 (recovery of tax from trustees).

[F112465AAmounts for which individuals liable to be treated as highest part of total incomeU.K.

(1)This section applies if—

(a)an individual is liable for tax under this Chapter in respect of an amount, and

(b)the individual is treated by section 530 as having paid income tax at the [F113 basic rate ] on the amount.

(2)The amount is treated as the highest part of the individual's total income.

(3)Subsection (2) has effect for all income tax purposes except the purposes of sections 535 to 537 (gains from contracts for life insurance etc: top slicing relief).

(4)See section 1012 of ITA 2007 (relationship between highest part rules) for the relationship between—

(a)the rule in subsection (2), and

(b)other rules requiring particular income to be treated as the highest part of a person's total income.]

466Person liable: personal representativesU.K.

(1)Personal representatives are liable for tax under this Chapter if the rights under the policy or contract are held by them and the condition in subsection (2) is met (and accordingly the gain is treated for income tax purposes as income of the personal representatives in that capacity).

(2)The condition is that if an individual were liable for tax on a gain in respect of the policy or contract, section 530(1) (individual treated as having paid tax at the [F114basic rate]) would be disapplied as a result of—

(a)section 531(1) (exceptions from section 530 for policies and contracts specified in section 531(3)), or

(b)paragraph 109(2) of Schedule 2 (contracts in accounting periods beginning before 1st January 1992).

(3)For cases where the condition in subsection (2) is not met, see section 664 of this Act and [F115section 947 of CTA 2009] (under which the gain is treated as part of the aggregate income of the estate for the purposes of Chapter 6 of Part 5 of this Act and [F115Chapter 3 of Part 10 of CTA 2009] respectively).

467Person liable: UK resident trusteesU.K.

(1)Trustees are liable for tax under this Chapter if immediately before the chargeable event in question occurs they are UK resident and condition A, B, C or D is met.

[F116(1A)If trustees are liable for tax under this Chapter, the gain is treated for income tax purposes as income of the trustees.]

(2)Condition A is that the rights under the policy or contract are held by the trustees on charitable trusts.

(3)Condition B is that—

(a)those rights are held by the trustees on non-charitable trusts, and

(b)one or more of the absent settlor conditions is met.

(4)The absent settlor conditions are that the person who created the trusts—

(a)is non-UK resident,

(b)has died, or

(c)in the case of a company or foreign institution (see section 468(5)), has been dissolved or wound up or has otherwise come to an end.

(5)Condition C is that—

(a)the rights under the policy or contract are held by the trustees on non-charitable trusts,

(b)condition B does not apply, and

[F117(c)neither section 465 nor section 466 applies.]

(6)Condition D is that the rights under the policy or contract are held as security for a debt owed by the trustees.

[F118(7)If trustees are liable for tax under this Chapter, it is charged at the [F119basic rate] if—

(a)condition A is met, or

(b)condition D is met and the trustees are trustees of a charitable trust.]

468Non-UK resident trustees and foreign institutionsU.K.

(1)This section applies if a gain is treated as arising under this Chapter and either—

(a)trustees who are non-UK resident would be liable for tax in respect of the gain as a result of section 467 if the trustees were UK resident immediately before the chargeable event in question occurs, or

(b)immediately before that event occurs—

(i)a foreign institution beneficially owns a share in the rights,

(ii)the rights are held for the purposes of a foreign institution, or

(iii)a share in them is held as security for a foreign institution's debt.

(2)[F120Chapter 2 of Part 13 of ITA 2007] of ICTA (which [F121prevents] avoidance of tax where an individual who is ordinarily UK resident benefits from a transfer of assets) [F122applies] with the modifications specified in subsection (3) or (4).

(3)In a case within subsection (1)(a), [F123Chapter 2 of Part 13 of ITA 2007 applies] as if—

(a)the gain were income becoming payable to the trustees, and

(b)that income arose to the trustees in the tax year in which the gain arises.

(4)In a case within subsection (1)(b), [F123Chapter 2 of Part 13 of ITA 2007 applies] as if—

(a)the gain were income becoming payable to the institution, and

(b)that income arose to the institution in the tax year in which the gain arises.

(5)In this Chapter “foreign institution” means a company or other institution resident or domiciled outside the United Kingdom.

(6)If there has been a surrender or assignment of only a part of or share in rights under the policy or contract, the references in this section to those rights are references to that part or share.

469Two or more persons interested in policy or contractU.K.

(1)This section applies if immediately before a chargeable event two or more persons have material interests in the rights under the policy or contract.

(2)Section 470 sets out the circumstances in which persons have such interests for the purposes of this section (which correspond to the circumstances referred to in sections 465 to 468 F124...).

(3)Section 463 (income charged) applies in the case of any of the persons with such interests as if the amount of the gain arising when the event occurs were such part of it as is proportionate to the share of the rights to which the person's interest relates.

(4)Sections 464 to 468 (persons liable for tax etc.) apply in relation to each of those persons as if that person were the only person with such an interest at that time.

(5)Section 539(1) (relief for deficiencies) applies in relation to each of those persons as if the amount of deficiency arising when that event occurs were such part of it as is proportionate to the share of the rights to which that person's interest relates.