Finance Act 2004

Section 136

SCHEDULE 24 U.K. Manufactured dividends

Amendments of sections 231AA, 231AB and 233 of the Taxes Act 1988 U.K.

F1 1 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1 Sch. 24 para. 1 repealed (with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1034(1), Sch. 3 Pt. 1 (with Sch. 2)

Amendments of paragraph 2A of Schedule 23A to the Taxes Act 1988 U.K.

F2 2 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F2 Sch. 24 para. 2 repealed (with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1034(1), Sch. 3 Pt. 1 (with Sch. 2)

Amendment of the Taxation of Chargeable Gains Act 1992 U.K.

3 (1) After section 263C of the Taxation of Chargeable Gains Act 1992 (c. 12) insert— U.K.

“263D Gains accruing to persons paying manufactured dividends

(1) This section applies where one of the following conditions is satisfied in relation to a person who—

(a) is resident in the United Kingdom, but

(b) is not a company.

(2) Condition 1 is that—

(a) the person is the interim holder under a repurchase agreement,

(b) he disposes of any United Kingdom equities transferred to him under that agreement,

(c) a chargeable gain accrues to him on that disposal, and

(d) under that agreement, he pays a manufactured dividend which is representative of a dividend on those United Kingdom equities.

(3) Condition 2 is that—

(a) the person is the borrower under a stock lending arrangement,

(b) he disposes of any United Kingdom equities transferred to him under that arrangement,

(c) a chargeable gain accrues to him on that disposal, and

(d) under that arrangement, he pays a manufactured dividend which is representative of a dividend on those United Kingdom equities.

(4) Condition 3 is that—

(a) the person is a party to a contract or other arrangements for the transfer of United Kingdom equities which is neither a repurchase agreement nor a stock lending arrangement (“the short sale transaction”),

(b) he disposes of the United Kingdom equities under the short sale transaction,

(c) a chargeable gain accrues to him on that disposal, and

(d) under that transaction, he pays a manufactured dividend which is representative of a dividend on those United Kingdom equities.

(5) For the purposes of capital gains tax, a loss shall be treated as accruing to the person on the date on which the chargeable gain mentioned in Condition 1, 2 or 3 accrued to him.

(6) The amount of that loss shall be equal to the lesser of—

(a) the amount of that chargeable gain, and

(b) the adjusted amount.

(7) In subsection (6) above “the adjusted amount” means—

where—

A is the lesser of—

• (a) the amount of the manufactured dividend paid, and

• (b) the amount of the dividend of which the manufactured dividend is representative; and

B is an amount equal to so much of the manufactured dividend paid as is allowable to the person as a deduction for the purposes of income tax under paragraph 2A of Schedule 23A to the Taxes Act.

(8) But that loss shall not be deductible except from the chargeable gain mentioned in Condition 1, 2 or 3.

(9) For the purposes of this section “manufactured dividend” has the same meaning as in paragraph 2 of Schedule 23A to the Taxes Act; and any reference to a manufactured dividend being paid—

(a) includes a reference to a payment falling by virtue of section 737A(5) of that Act to be treated for the purposes of Schedule 23A as if it were made, but

(b) does not include a reference to a payment falling by virtue of section 736B(2) of that Act to be treated for the purposes of that Schedule as if it were made.

(10) For the purposes of this section the cases where there is a repurchase agreement are the following—

(a) any case falling within subsection (1) of section 730A of the Taxes Act, and

(b) any case which would fall within that subsection if the sale price and the repurchase price were different;

and, in any such case, any reference to the interim holder shall be construed accordingly.

(11) In this section “stock lending arrangement” has the same meaning as in section 263B of this Act; and, in relation to any such arrangement, any reference to the borrower shall be construed accordingly.

(12) In this section “United Kingdom equities” has the meaning given by paragraph 1 (1) of Schedule 23A to the Taxes Act.”.

F3 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) The amendments made by sub-paragraphs (1) and (2) have effect in relation to cases where—

(a) the manufactured dividend is or was paid, or treated as paid, by the person on or after 17th March 2004, or

(b) the chargeable gain accrues or accrued to the person on or after that date.

Textual Amendments

F3 Sch. 24 para. 3(2) repealed (with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1034(1), Sch. 3 Pt. 1 (with Sch. 2)