(1)M1If—
(a)any securities to which a person who is carrying on a trade which consists wholly or partly in dealing in securities is beneficially entitled are exchanged for other securities; and
(b)the exchange is one to which this section applies,
then, whether or not any additional consideration is given for the exchange but subject to subsection (2) below, that person shall be treated for tax purposes (except as regards any tax payable in respect of dividends or interest), both at the time of the exchange and thereafter, as if the exchange had not taken place, and in that case the produce of any subsequent realisation of any of the securities received by him under the exchange (together with any additional consideration, or the appropriate part of any additional consideration, received by him under the exchange) shall be treated as the produce of the realisation of the corresponding securities surrendered by or transferred from him under the exchange, or of a corresponding part thereof, as the case may be.
(2)Subsection (1) above shall not apply to any person who gives notice to the inspector not later than two years after the end of the chargeable period in which the exchange takes place that he desires not to be treated as mentioned in that subsection.
(3)The exchanges to which this section applies are—
(a)any exchange effected under any arrangement carried out under section 2 of the M2National Loans Act 1939 or section 14 of the M3National Loans Act 1968 if the Treasury direct, in pursuance of that arrangement, that this section shall apply to exchanges thereunder;
(b)any exchange of securities effected by section 1 of the M4Bank of England Act 1946; and
(c)any exchange of securities effected in pursuance of any enactment passed after 5th April 1946 which provides for the compulsory acquisition of any securities and the issue of other securities in lieu thereof, if the Treasury direct that this section shall apply to exchanges of securities effected in pursuance of that enactment.
(4)In this section “securities” includes shares, stock, bonds, debentures and debenture stock.
(1)M5Where—
(a)in pursuance of any enactment passed after 5th April 1946 any securities are issued to any body corporate as, or as part of, the consideration for the compulsory acquisition of any property under that enactment; and
(b)that body corporate is wound up or the capital thereof is reduced or any bonds, debentures or debenture stock thereof are redeemed, and, in or in connection with the winding up, reduction of capital or redemption, all or any of the securities so issued are distributed to holders of securities of the body corporate (“the distributed securities”); and
(c)the Treasury direct that this section shall apply in relation to the distribution,
any person (“the dealer”) who is carrying on a trade which consists wholly or partly in dealing in securities and is beneficially entitled to any securities (“the relevant securities”) to the holders of which the distribution is made shall, in relation to that distribution, be treated for tax purposes in the manner specified in subsections (2) and (3) below, unless he gives notice to the inspector not later than two years after the end of the chargeable period in which the distribution takes place that he desires not to be so treated in relation to that distribution.
(2)If the result of the winding up, reduction of capital or redemption of bonds, debentures or debenture stock is that the relevant securities to which the dealer is beneficially entitled are wholly extinguished without his receiving anything in respect thereof except the distributed securities, he shall be treated for tax purposes (except as regards any tax payable in respect of dividends or interest), both then and thereafter, as if neither the extinction nor the distribution had taken place but as if the produce of any subsequent realisation of any of the distributed securities were the produce of the realisation of the relevant securities or a corresponding part thereof, as the case may be.
(3)In any other case—
(a)the dealer shall be treated as having acquired the distributed securities at a cost equal to such proportion of the cost to him of the relevant securities as may be specified in the direction of the Treasury referred to in subsection (1) above and the question whether he has made any, and if so what, profit or suffered any, and if so what, loss on any subsequent realisation of the distributed securities shall be determined accordingly; and
(b)in considering whether he has, either as the result of the winding up, reduction of capital or redemption of bonds, debentures or debenture stock and the distribution of the securities, or on any subsequent realisation of any of the relevant securities, made any, and if so what, profit or suffered any, and if so what, loss in connection with the relevant securities, the distributed securities shall be left out of account and the cost to him of the relevant securities shall be deemed to be reduced by the amount of the cost at which, under paragraph (a) above, he is taken to have acquired the distributed securities.
(4)In this section “securities” includes shares, stock, bonds, debentures and debenture stock.
Marginal Citations
M5Source—1970 s.327
Valid from 22/07/2004
(1)This section applies in relation to securities—
(a)which are held by a person carrying on a banking business, an insurance business or a business consisting wholly or partly in dealing in securities; and
(b)which are such that a profit on their sale would form part of the trading profits of that business.
(2)Profits and losses arising from such securities that in accordance with generally accepted accounting practice are—
(a)calculated by reference to the fair value of the securities, and
(b)recognised in that person’s statement of recognised gains and losses or statement of changes in equity,
shall be brought into account in computing the profits or losses of a business in accordance with the provisions of this Act applicable to Case I of Schedule D.
(3)Subsection (2) does not apply—
(a)to an amount to the extent that it derives from or otherwise relates to an amount brought into account under that subsection in an earlier period of account, or
(b)to an amount recognised for accounting purposes by way of correction of a fundamental error.
(4)In this section, “securities”—
(a)includes shares and any rights, interests or options that by virtue of section 99, 135(5) or 136(5) of the Taxation of Chargeable Gains Act 1992 are treated as shares for the purposes of sections 126 to 136 of that Act; but
(b)does not include a loan relationship (within the meaning of Chapter 2 of Part 4 of the Finance Act 1996).]
Textual Amendments
F1Ss. 468H-468R and cross-headings inserted (with effect in accordance with Sch. 14 para. 7 of the amending Act) by Finance Act 1994 (c. 9), Sch. 14 para. 2
F2S. 472A inserted (with effect in accordance with s. 54(2) of the amending Act) by Finance Act 2004 (c. 12), s. 54 (as amended (retrospectively) by Finance Act 2005 (c.7), Sch. 4 para. 50, Sch. 11 Pt. 2(7))
(1)M6Subsections (3) and (4) below shall have effect where a transaction to which this section applies occurs in relation to any securities (“the original holding”)—
(a)to which a person carrying on a banking business, an insurance business or a business consisting wholly or partly in dealing in securities is beneficially entitled; and
(b)which are such that a profit on their sale would form part of the trading profits of that business.
(2)This section applies to any transaction which, if the securities were not such as are mentioned in subsection (1)(b) above—
(a)would result in the original holding being equated with a new holding by virtue of sections [F3126 to 136 of the 1992] Act (capital gains tax roll-over relief in cases of conversion etc.); or
(b)would be treated by virtue of section [F3134] of that Act (compensation stock) as an exchange for a new holding which does not involve a disposal of the original holding;
but does not apply to any transaction in relation to which section 471 applies or would apply if the person concerned had not given a notice under that section.
(3)Subject to subsection (4) below, in making any computation in accordance with the provisions of this Act applicable to Case I of Schedule D of the profits or losses of the business—
(a)the transaction shall be treated as not involving any disposal of the original holding, and
(b)the new holding shall be treated as the same asset as the original holding.
(4)Where under the transaction the person concerned receives or becomes entitled to receive any consideration in addition to the new holding, subsection (3) above shall have effect as if references to the original holding were references to the proportion of it which the market value of the new holding at the time of the transaction bears to the aggregate of that value and the market value at that time (or, if it is cash, the amount) of the consideration.
(5)Subsections (3) and (4) above shall have effect with the necessary modifications in relation to any computation made for the purposes of section 76(2) in a case where securities held by the company concerned are equated with a new holding by virtue of any of sections [F3126 to 136 of the 1992]Act or are treated as not disposed of by virtue of section [F3134]of that Act.
(6)In this section “securities” includes shares, any security within the meaning of section [F4132 of the 1992 Act] and any rights, interests or options which by virtue of section [F4136(3), 147 or 99] of that Act are treated as shares for the purposes of sections [F4126 to 136] of that Act.
(7)In determining for the purposes of subsection (2)(a) above whether a transaction would result in the original holding being equated with a new holding by virtue of section [F5135 or 136 of the 1992] Act the reference in section [F5137(1)] of that Act to capital gains tax shall be construed as a reference to income tax.
Textual Amendments
F3Words in 473(2)(5) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290(1), Sch. 10 para. 14(27)(a) (with ss. 60, 101(1), 171, 201(3))
F4Words in s. 473(6) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290(1), Sch. 10 para. 14(27)(b) (with ss. 60, 101(1), 171, 201(3))
F5Words in s. 473(7) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290(1), Sch. 10 para. 14(27)(c) (with ss. 60, 101(1), 171, 201(3))
Marginal Citations
M6Source—1977 s.46; 1979(C) Sch.7
(1)M7Where a banking business, an insurance business or a business consisting wholly or partly in dealing in securities is carried on in the United Kingdom by a person not resident there, then—
(a)in computing for any of the purposes of the Tax Acts the profits arising from, or loss sustained in, the business, F6. . .
(b)F6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
all interest, dividends and other payments whatsoever to which section 48 or 123(4) extends shall be included notwithstanding the exemption from tax conferred by those sections respectively.
In this subsection “securities” includes stocks and shares.
(2)Where a banking business, an insurance business or a business consisting wholly or partly in dealing in securities—
(a)is carried on in the United Kingdom by a person not ordinarily resident there, and
(b)in making any such computation as is referred to in subsection (1) above with respect to that business, any interest on any securities issued by the Treasury is excluded by virtue of a condition of the issue thereof regulating the treatment of the interest on those securities for tax purposes,
then any expenses attributable to the acquisition or holding of, or to any transaction in, the securities (but not including in those expenses any interest on borrowed money), and any profits or losses so attributable, shall also be excluded in making that computation.
[F7(3)In this section any reference to insurance business includes a reference to insurance business of any category.]
Textual Amendments
F6S. 474(1)(b) and preceding word repealed (with effect in accordance with Sch. 8 para. 55 of the repealing Act) by Finance Act 1995 (c. 4), Sch. 8 para. 25(1)(a), Sch. 29 Pt. 8(5), Note 1
F7S. 474(3) inserted (with effect in accordance with Sch. 8 para. 55 of the amending Act) by Finance Act 1995 (c. 4), Sch. 8 para. 25(2)
Marginal Citations
M7Source—1970 s.328(1)(2); 1970(F) Sch.5 Part III 11(6)(f)
(1)M8This section has effect where paragraphs (a) and (b) of section 474(2) apply to a business for any accounting period or year of assessment.
(2)Up to the amount determined under this section (“the amount ineligible for relief”), interest on money borrowed for the purposes of the business—
(a)shall be excluded in any computation under the Tax Acts of the profits (or losses) arising from the business F8. . . , and
(b)shall be excluded from the definition of “charges on income” in section 338.
(3)Subject to subsection (4) below, in determining the amount ineligible for relief, account shall be taken of all money borrowed for the purposes of the business which is outstanding in the accounting or basis period, up to the total cost of the tax-free Treasury securities held for the purpose of the business in that period.
(4)Where the person carrying on the business is a company, account shall not be taken of any borrowed money carrying interest which, apart from subsection (2) above, does not fall to be included in the computations under paragraph (a) of that subsection, and is not to be treated as a charge on income for the purposes of the Corporation Tax Acts.
(5)Subject to subsection (6) below, the amount ineligible for relief shall be equal to a year’s interest on the amount of money borrowed which is to be taken into account under subsection (3) above at a rate equal to the average rate of interest in the accounting or basis period on money borrowed for the purposes of the business, except that in the case of a period of less than 12 months interest shall be taken for that shorter period instead of for a year.
(6)Where relief for expenses of management is to be granted to an insurance company for any accounting period, and that relief falls to be reduced under [F9paragraph 5C(2) of Schedule 19AC]( by applying the fraction which is investment income [F10attributable to basic life assurance and general annuity business] other than income from tax-free Treasury securities divided by that total investment income)—
(a)the amount ineligible for relief shall be a fraction of the amount of interest in the accounting period on money borrowed for the purposes of the business; and
(b)that fraction shall be the fraction which is income from tax-free Treasury securities divided by total investment income [F10attributable to basic life assurance and general annuity business] (that is to say, one minus the fraction to be applied under [F9paragraph 5C(2) of Schedule 19AC]).
(7)In this section “tax-free Treasury securities” means securities issued by the Treasury with a condition regulating the treatment of the interest thereon for income tax or corporation tax purposes such that interest on the securities is excluded in computing the income or profits.
(8)For the purposes of this section the cost of a holding of tax-free Treasury securities which has fluctuated in the accounting or basis period shall be the average cost of acquisition of the initial holding, and of any subsequent acquisitions in the accounting or basis period, applied to the average amount of the holding in the accounting or basis period, and this subsection shall be applied separately to securities of different classes.
(9)In this section “accounting or basis period” means the company’s accounting period or the period by reference to which the profits or gains arising in the year of assessment are to be computed.
Textual Amendments
F8Words in s. 475(2)(a) repealed (with effect in accordance with Sch. 8 para. 55 of the repealing Act) by Finance Act 1995 (c. 4), Sch. 8 para. 25(1)(b), Sch. 29 Pt. 8(5), Note 1
F9Words in s. 475(6) substituted (with effect in accordance with Sch. 8 para. 57(1) of the amending Act) by Finance Act 1995 (c. 4), Sch. 8 para. 35(4) (with Sch. 8 para. 55(2))
F10Words in s. 475(6) substituted (27.7.1993 with application in relation to accounting periods beginning on or after 31.12.1992) by 1993 c. 34, s. 100(2)(b)(3)
Marginal Citations
M8Source—1970 s.329