Income Tax Act 2007

Chapter 3 U.K. Exemptions relating to interest on securities

678 Exemptions relating to interest on securities: preliminary U.K.

(1) This Chapter confers exemptions relating to interest on securities.

(2) Expressions used in this Chapter and in Chapter 2 have the same meaning as in that Chapter.

(3) Accordingly, for the meanings of the following expressions see the sections indicated—

• “interest” see section 671,

• “interest payment day” see section 672,

• “interest period” see section 673,

• “makes accrued income losses” see section 628(6),

• “securities” see section 619,

• “transfer with unrealised interest” see section 625(1),

• “transferee” see section 621,

• “transfer” see section 620, and

• “unrealised interest” see section 625(2).

(4) Section 666 (certain transfers by or to nominees or trustees treated as made by or to others) applies for the purposes of this Chapter as it applies for the purposes of Chapter 2.

679 Interest on securities involving accrued income losses: general U.K.

(1) This section applies if—

(a) a person is liable for income tax on interest on securities of any kind which is due at the end of an interest period of the securities,

(b) in that period accrued income losses are made as a result of transfers of those securities, and

(c) the period ends with an interest payment day.

(2) No liability to income tax arises in respect of the interest to the extent that it does not exceed the losses.

(3) If, apart from this subsection, a person would be entitled to the exemption under this section in more than one tax year, the person is so entitled only in the tax year in which the interest period ends.

(4) For cases where the interest period does not end with an interest payment day, see section 637 (accrued income losses treated as payments in next interest period).

680 Interest on securities involving accrued income losses: foreign trustees U.K.

(1) This section applies if—

(a) the trustees of a settlement are non-UK resident or domiciled outside the United Kingdom throughout a tax year in which an interest period or part of an interest period of securities falls,

(b) the trustees' income is or includes interest from those securities,

(c) the interest falls due at the end of that interest period, and

(d) had the trustees been UK resident, or domiciled in the United Kingdom, during a part of each such tax year the interest would have been wholly or partly exempt from income tax under section 679.

(2) No liability to income tax arises as a result of Chapter 5 of Part 5 of ITTOIA 2005 (settlements: amounts treated as income of settlor) in respect of so much of the interest as would have been exempt from income tax under section 679.

(3) For cases where the interest period does not end with an interest payment day, see section 637 (accrued income losses treated as payments in next interest period).

681 Unrealised interest received by transferee after transfer U.K.

(1) This section applies if—

(a) securities are transferred with unrealised interest,

(b) the transferee is not an excluded transferee in relation to the transfer for the purposes of Chapter 2 (see sections 638 to 647),

(c) the transferee receives some or all of the unrealised interest, and

(d) apart from this section, the transferee would be liable to income tax on the unrealised interest.

(2) No liability to income tax arises in respect of the unrealised interest received by the transferee, unless conditions A and B are met.

(3) Condition A is that section 660 (transfers with unrealised interest: interest in default) applies on the transfer.

(4) Condition B is that the unrealised interest received by the transferee exceeds the residual value of the interest.

(5) In this section “the residual value of the interest” means—

(a) the value on the day of the transfer of the right to receive the unrealised interest, less

(b) the total amount of any of that unrealised interest received previously by the transferee.

(6) If conditions A and B are met, no liability to income tax arises in respect of the unrealised interest to the extent that it does not exceed the residual value of the interest.

(7) Section 665 (foreign currency securities: unrealised interest payable in foreign currency) applies for the purposes of this section as it applies for the purposes of sections 660 and 661.