Section 702: Interest under certified SAYE savings arrangements
2689.This section is based on section 326 of ICTA. It introduces the key term “certified SAYE savings arrangement”. The definition of that term in section 703 introduces both the various conditions to be met by the savings schemes (and the financial institutions who provide them) and the certification machinery.
2690.Subsection (3) qualifies the exemption by reference to:
the rules in section 707 for authorisation of institutions providing arrangements; and
a provision in FA 1988 in respect of building societies.
2691.Schedule 12 to FA 1988 contains provisions which apply when the business of a building society is transferred to a company in accordance with the Building Societies Act 1986 (that is, when a building society turns itself into a bank). Paragraph 7 of Schedule 12 to FA 1988 ensures that any interest payable after the transfer continues to be eligible for exemption, notwithstanding the fact that the transfer means the savings arrangement ceases to be a certified SAYE savings arrangement.
2692.Subsection (4) defines “interest” for the purposes of the Chapter. Although section 326(1) of ICTA refers to “any terminal bonus, or interest or other sum”, in practice only bonuses and interest are payable under SAYE schemes.
2693.It is not clear why the source legislation refers to “other sum”. The only other sums involved are contributions returned to the employee. But these are deposits - capital - being returned to an investor and are not themselves taxable. The words “other sum” add nothing to the provision (indeed, they might cause confusion) and are not rewritten.
2694.All bonuses are computed by reference to the level of contribution made by the employee and to the length of the savings contract. Despite the expression “terminal bonuses”, a bonus is interest for tax purposes. A separate reference to the terminal bonus might put beyond doubt that the bonus is exempt from tax. But such a reference might also cast doubt on whether the bonus is in fact interest. That would in turn create uncertainty as to how the bonus would be taxed if the SAYE scheme should lose the status necessary for the income from it to qualify for the exemption in section 326 of ICTA. The section therefore simply uses “interest” throughout as including “bonus”.
2695.Paragraphs 184(2) and 445(3) of Schedule 1 to this Act follow suit in amending section 477A(4) of ICTA (building societies: regulations for deduction of tax) and section 271(4) of TCGA (other miscellaneous exemptions), both of which refer to the source legislation for these sections.
