Finance Act 1985

Section 76.

SCHEDULE 22 Deemed Interest on Certain Securities

Introduction

1 (1) In this Schedule " the first date " means 28th February 1985, " the second date " means 27th February 1986, and " the year " means the period beginning with the first date and ending with the second date.

(2) In this Schedule—

• " chargeable securities" means the securities held by a person at any time in the year which fall within paragraph 3 below, and

• " deemed interest" means the interest he would have received in the year in respect of the chargeable securities if he were entitled to receive interest accruing in the period in which he held them in the year and interest had accrued from day to day and been apportioned accordingly.

The charge

2 (1) This paragraph applies where the person has been served with a notice under paragraph 6 below.

(2) If no interest was received by the person in the year in respect of the chargeable securities, he shall be treated as receiving on the second date annual profits or gains whose amount is equal to the deemed interest.

(3) If interest was received by the person in the year in respect of the chargeable securities, and the amount of the deemed interest exceeds an amount equal to 110 per cent, of the amount so received, he shall be treated as receiving on the second date annual profits or gains whose amount is equal to the excess.

(4) Profits or gains treated as received under sub-paragraph (2) or (3) above shall be chargeable to tax under Case VI of Schedule D for the chargeable period in which they are treated as received.

Chargeable securities

3 (1) If the aggregate nominal value of securities held by the person on the second date is not more than the aggregate nominal value of securities held by him on the first date, the securities which fall within this paragraph are all the securities held by him at any time in the year other than those held by him throughout the year.

(2) If the aggregate nominal value of securities held by the person on the second date (value A) exceeds the aggregate nominal value of securities held by him on the first date (value B) the securities which fall within this paragraph are those mentioned in sub-paragraph (5) below (for the purposes of which sub-paragraphs (3) and (4) below apply).

(3) If the aggregate nominal value of securities of a particular kind held by the person on the second date exceeds the aggregate nominal value of securities of that kind held by him on the first date, securities which are of that kind, which are of a total nominal value equal to the excess and which were acquired by him in the year shall be taken into account for the purposes of sub-paragraph (4) below.

(4) Securities (of one or more kinds) which are to be taken into account for the purposes of this sub-paragraph and which are of a total nominal value equal to the excess of value A over value B are excluded securities for the purposes of sub-paragraph (5) below.

(5) The securities which fall within this paragraph are all the securities held by the person at any time in the year other than—

(a) those which are excluded securities, and

(b) those held by him throughout the year.

(6) This is how to ascertain what securities are held by a person throughout the year—

(a) find, for securities of each kind held by him at any time in the year, the lowest nominal value held in the year (value Q ;

(b) take securities of that kind of a total nominal value equal to value C;

(c) the securities so ascertained (of one or more kinds) are for the purposes of this paragraph held by him throughout the year.

(7) In determining under sub-paragraph (3) or (4) above which securities to take into account or (as the case may be) which securities are excluded securities*—

(a) those the person acquired later must be chosen before those he acquired earlier, and

(b) as between those acquired on the same day those whose choice produces a smaller charge under paragraph 2 above must be chosen before those whose choice produces a greater charge.

(8) In determining under sub-paragraph (6)(b) above which securities to take, those which the person acquired on terms entitling him to receive all interest payable on them on or after the first date must be chosen before others.

Charge eliminated or reduced

4 (1) if the person makes a claim under this paragraph, then—

(a) if amount E exceeds or is equal to amount D, he shall not be treated as receiving annual profits or gains under paragraph 2 above;

(b) if amount D exceeds amount E, the amount of annual profits or gains he is treated as receiving under paragraph 2(2) or (3) above (as the case may be) shall be, instead of the amount there mentioned, the amount by which amount D exceeds amount E ;

and amounts D and E shall be determined as mentioned in the following provisions of this paragraph.

(2) Amount D is the amount the person is treated as receiving under paragraph 2(2) above or (if paragraph 2(3) applies) the amount he would be treated as receiving under paragraph 2(3) if "110" were " 100 ".

(3) Amount E is to be found by applying the formula—

.

(4) Y is the amount of annual profits or gains the person would be treated as having received under this Schedule (ignoring this paragraph) if—

(a) the references in paragraph 1(1) above to 28th February 1985 and 27th February 1986 were (respectively) to the appropriate day and 27th February 1985, and "the year" were construed accordingly,

(b) paragraph 2(1) above were omitted,

(c) in paragraph 2(3) above (where it would apply) " 110 " were " 100 ", and

(d) in paragraph 5(5) below " 1985-86 " were " 1984-85 ".

(5) Z is the number of days beginning with the appropriate day and ending with 27th February 1985.

(6) " The appropriate day " means—

(a) if the person held no securities on 28th February 1982, the first day (falling after 28th February 1982 and before 28th February 1985) on which he acquired securities, and

(b) in any other case, 28th February 1982.

Exceptions

5 (1) For the purposes of this Schedule a person is to be treated as not entitled to securities on a day if he carries on a trade on the day and if, were he to transfer them on that day, that transfer would fall to be taken into account for the purposes of the Tax Acts in computing the profits or losses of that trade.

(2) Paragraph 2(2) or (3) above (as the case may be) does not apply if—

(a) the person is an individual and on no day in the year the nominal value of securities held byhimexceeded £5,000,

(b) the person is a personal representative and on no day in the year the nominal value of securities held by him as the deceased's personal representative exceeded £5,000,

(c) the person is trustee of a settlement of property held on a disabled person's trusts and on no day m the year the nominal value of securities held by him as trustee of the settlement exceeded £5,000, or

(d) the person does not fulfil the residence requirement for the year and is not a non-resident United Kingdom trader in the year.

(3) For the purposes of this Schedule a person is to be treated as not entitled to securities if he is not ordinarily resident in the United Kingdom during the year and, if he became entitled in the year to any interest on the securities, it would not be liable to income tax by virtue of section 99 of the Taxes Act (securities free of income tax for residents abroad).

(4) For the purposes of this Schedule a person who is not domiciled in the United Kingdom at any time in the year, and is either not ordinarily resident in the United Kingdom during the year or a non-resident United Kingdom trader in the year, is to be treated as not entitled to securities which are FOTRA securities.

(5) For the purposes of this Schedule a person who is an individual is to be treated as not entitled to securities in the case of which, if he became entitled in the year of assessment 1985-86 to any interest on them, he would be liable, in respect of the interest, to tax chargeable under Case IV or Case V of Schedule D and computed on the amount of sums received in the United Kingdom.

(6) Paragraph 2(2) or (3) above (as the case may be) does not apply if the person is an individual who dies in the year.

(7) Paragraph 2(2) or (3) above (as the case may be) applies, in a case where the person is a company and the second date does not fall within an accounting period of the company, as if the reference to the second date were to the last day which does so fall.

(8) For the purposes of this paragraph a person fulfils the residence requirement for the year if he is resident in the United Kingdom during any part of the year or is ordinarily resident in the United Kingdom during the year.

(9) For the purposes of this paragraph a person is a non-resident United Kingdom trader in the year if during any part of it he is (though neither resident during any part of it nor ordinarily resident during it) carrying on a trade in the United Kingdom through a branch or agency.

(10) But if (apart from this sub-paragraph) a person who is a non-resident United Kingdom trader in the year would for the purposes of this Schedule be treated as entitled to securities at a time in the year, he is not to be treated as so entitled for those purposes unless the securities were at some time in the year used or held for the purposes of the branch or agency and (except where the person concerned is a company) situated in the United Kingdom.

(11) For the purposes of this paragraph " disabled person's trusts " means trusts falling within paragraph 5(1) of Schedule 1 to the Capital Gains Tax Act 1979, " branch or agency " has the meaning given by section 12(3) of that Act, and the place where securities are situated shall be determined in accordance with section 18(4) of that Act.

(12) For the purposes of this paragraph " FOTRA securities " means securities issued with the condition mentioned in section 22(1) of the [1931 c. 49.] Finance (No. 2) Act 1931 (securities free of tax for residents abroad) as modified by virtue of section 60(1) of the [1940 c. 29.] Finance Act 1940.

Information etc.

6 (1) Any person upon whom notice is served by an inspector, requiring the person to furnish a statement of and particulars relating to any securities held by the person at any time in the year, shall furnish such a statement and such particulars in the form and within the time (not being less than 28 days) required by the notice ; and an inspector may serve further notices whenever he considers it necessary for the purposes of this Schedule until complete particulars have been furnished to his satisfaction.

(2) If a person fails to furnish any statement or particulars required under this paragraph, or if an inspector is not satisfied with any statement or particulars furnished under this paragraph, he may make an estimate of the amount of the annual profits or gains which the person is to be treated as receiving under the preceding provisions of this Schedule.

(3) In the Table in section 98 of the [1970 c. 9.] Taxes Management Act 1970 (penalties for failure to comply with notices etc.) at the end of the first column there shall be inserted—

“Paragraph 6(1) of Schedule 22 to the Finance Act 1985”.

Offshore funds

7 (1) Any amount which, on the assumptions mentioned in subparagraph (2) below, an offshore fund would be treated as receiving as annual profits or gains by virtue of paragraph 2(2) or (3) above (as the case may be) shall for the purposes of Schedule 19 to the [1984 c. 43.] Finance Act 1984 be taken to be part of the United Kingdom equivalent profits of the fund for the account period of the fund in which 27th February 1986 falls.

(2) The assumptions are—

(a) that the offshore fund is a company which is resident in the United Kingdom during the period beginning with the appropriate day and ending with 27th February 1986,

(b) that a notice is served on the fund under paragraph 6(1) above, and

(c) that the fund makes a claim under paragraph 4 above.

(3) In this paragraph " offshore fund ", " United Kingdom equivalent profits " and " account period " have the meanings they have in Schedule 19 to the Finance Act 1984 ; and " the appropriate day " shall be construed in accordance with paragraph 4(6) above.