Income and Corporation Taxes Act 1988 (c. 1)

PART XII U.K. SPECIAL CLASSES OF COMPANIES AND BUSINESSES

CHAPTER III U.K. UNIT TRUST SCHEMES, DEALERS IN SECURITIES ETC.

Dealers in securities, banks and insurance businesses U.K.

[F1 471 Exchange of securities in connection with conversion operations, nationalisation etc. U.K.

F2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1 Ss. 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

F2 S. 471 repealed (with effect in accordance with s. 101(3) of the repealing Act) by Finance Act 1998 (c. 36), s. 101(1), Sch. 27 Pt. 3(23), Note 1

472 Distribution of securities issued in connection with nationalisation etc. U.K.

F3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1 Ss. 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

F3 S. 472 repealed (with effect in accordance with s. 101(4) of the repealing Act) by Finance Act 1998 (c. 36), s. 101(2), Sch. 27 Pt. 3(23), Note 2

Valid from 22/07/2004

[F4 472A Trading profits etc. from securities: taxation of amounts taken to reserves U.K.

(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

F1 Ss. 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

F4 S. 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))

473 Conversion etc. of securities held as circulating capital. U.K.

(1) M1 Subsections (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 [F5 126 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 [F5 134] of that Act (compensation stock) as an exchange for a new holding which does not involve a disposal of the original holding;

F6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(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) F7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) In this section “securities” includes shares, any security within the meaning of section [F8 132 of the 1992 Act] and any rights, interests or options which by virtue of section [F8 136(3), 147 or 99] of that Act are treated as shares for the purposes of sections [F8 126 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 [F9 135 or 136 of the 1992] Act the reference in section [F9 137(1)] of that Act to capital gains tax shall be construed as a reference to income tax.

Textual Amendments

F5 Words 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))

F6 Words in s. 473(2) repealed (with effect in accordance with s. 101(3) of the repealing Act) by Finance Act 1998 (c. 36), Sch. 27 Pt. 3(23), Note 1

F7 S. 473(5) repealed (with effect in accordance with s. 164(5) of the repealing Act) by Finance Act 1996 (c. 8), Sch. 41 Pt. 5(24), Note

F8 Words 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))

F9 Words 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))

Modifications etc. (not altering text)

C1 S. 473 applied (with application in accordance with s. 81(12) of the amending Act) by Finance Act 1999 (c. 16), s. 81(9)

Marginal Citations

M1 Source—1977 s.46; 1979(C) Sch.7

474 Treatment of tax-free income. U.K.

(1) F10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2) F11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F12 (3) F10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]]

Textual Amendments

F1 Ss. 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

F10 S. 474(1)(3) repealed (with effect in accordance with Sch. 7 para. 32-35, Sch. 41 Pt. 5(2) Note of the repealing Act) by Finance Act 1996 (c. 8). Sch. 7 para. 18, Sch. 41 Pt. 5(2)

F11 S. 474(2) repealed (with effect in accordance with s. 154(9) of the repealing Act) by Finance Act 1996 (c. 8), Sch. 28 para. 2, Sch. 41 Pt. 5(18), Note

F12 S. 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)

475 Tax-free Treasury securities: exclusion of interest on borrowed money. U.K.

[F13 (1) This section has effect 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 computing for any of the purposes of the Tax Acts the profits arising from, or loss sustained, in the business, any amount which would otherwise be brought into account is disregarded by virtue of a condition subject to which any 3½% War Loan 1952 or after was issued;

and for this purpose insurance business includes insurance business of any category.]

(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 F14 . . . , and

[F15 (b) shall not be brought into account by way of any debit given for the purposes of Chapter II of Part IV of the Finance Act 1996 (loan relationships).]

(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 [F16 3½% War Loan 1952 or after] 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 [F17 or to be brought into account by way of a debit given for the purposes of Chapter II of Part IV of the Finance Act 1996 (loan relationships).]

(5) F18 . . . 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) F19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7) F19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8) For the purposes of this section the cost of a holding of [F16 3½% War Loan 1952 or after] 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, F20 . . . .

(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

F13 S. 475(1) substituted (with effect in accordance with s. 154(9) of the amending Act) by Finance Act 1996 (c. 8), Sch. 28 para. 3(1)

F14 Words 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

F15 S. 475(2)(b) substituted (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 14 para. 27(1) (with Sch. 15)

F16 Words in s. 475(3)(8) substituted (with effect in accordance with s. 154(9) of the amending Act) by Finance Act 1996 (c. 8), Sch. 28 para. 3(2)

F17 Words in s. 475(4) substituted (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 14 para. 27(2) (with Sch. 15)

F18 Words in s. 475(5) repealed (with effect in accordance with s. 154(9) of the repealing Act) by Finance Act 1996 (c. 8), Sch. 41 Pt. 5(18), Note

F19 S. 475(6)(7) repealed (with effect in accordance with s. 154(9) of the repealing Act) by Finance Act 1996 (c. 8), Sch. 41 Pt. 5(18), Note

F20 Words in s. 475(8) repealed (with effect in accordance with s. 154(9) of the repealing Act) by Finance Act 1996 (c. 8), Sch. 41 Pt. 5(18), Note