Income and Corporation Taxes Act 1970 (repealed 6.4.1992)

• (ii) the highest total of premiums payable thereunder for any period of twelve months expiring before that time is less than one half of the highest total paid for any period of twelve months under the old policy, or under any related policy issued less than ten years before the issue of the new policy ("related policy" meaning any policy in relation to which the old policy was a new policy within the meaning of this paragraph, any policy in relation to which that policy was such a policy, and so on);

• (c) if the new policy would not apart from this paragraph be a qualifying policy, and would fail to be so by reason only of paragraph 1(2) or 1(3) above or of paragraph (a), (b) or (c) of paragraph 2(1), it is nevertheless a qualifying policy if the old policy was a qualifying policy and—

• (i) the old policy was issued in respect of an insurance made more than ten years before the taking effect of the new policy, and the premiums payable for any period of twelve months under the new policy do not exceed the smallest total paid for any such period under the old policy, or

• (ii) the old policy was issued outside the United Kingdom, and the circumstances are as specified in sub-paragraph (3) below.

• (3) The said circumstances are—

• (a) that the person in respect of whom the new insurance is made became resident in the United Kingdom during the twelve months ending with the date of its issue,

• (b) that the issuing company certify that the new policy is in substitution for the old, and that the old was issued either by a branch or agency of theirs outside the United Kingdom or by a company outside the United Kingdom with whom they have arrangements for the issue of policies in substitution for ones held by persons coming to the United Kingdom, and

• (c) that the new policy confers on the holder benefits which are substantially equivalent to those which he would have enjoyed if the old policy had continued in force.

10

• (1) Subject to the provisions of this paragraph, where the terms of a policy are varied, the question whether the policy after the variation is a qualifying policy shall be determined in accordance with the rules in paragraph 9 above, with references in those rules to the new policy and the old policy construed for that purpose as. references respectively to the policy after the variation and the policy before the variation, and with any other necessary modifications.

• (2) In applying any of those rules by virtue of this paragraph, the question whether a policy after a variation would be a qualifying policy apart from the rule shall be determined as if any reference in paragraphs 1 to 7 of this Schedule to the making of an insurance, or to a policy's term, were a reference to the taking effect of the variation or, as the case may be, to the term of the policy as from the variation.

• (3) This paragraph does not apply by reason of—

• (a) any variation which, whether or not of a purely formal character, does not affect the terms of a policy in any significant respect, or

• (b) any variation effected before the end of the year 1968 for the sole purpose of converting into a qualifying policy any policy issued (but not one treated by virtue of section 19(5) of this Act as issued) in respect of an insurance made after 19th March 1968.

PART II — Certification of Qualifying Policies

11

• (1) Subject to sub-paragraph (3) below, a body issuing any policy of life insurance which is in its opinion a qualifying policy within the meaning of Part I of this Schedule shall, within three months of the date of issue, give to the policy holder a duly authenticated certificate to that effect, specifying in the certificate the name of the policy holder, the name of the person whose life is assured, the reference number or other means of identification allocated to the policy, the capital sum or sums assured, and the amounts and dates for payment of the premiums.

• (2) Subject to the said sub-paragraph (3), where a policy of life insurance is varied, and is in the opinion of the body by whom it was issued a qualifying policy after the variation, that body shall, within three months of the making of the variation, give to the policy holder a like certificate with respect to the policy as varied.

• (3) Where, in the case of any policy, or any policy after a variation, the total premiums payable in any period of twelve months do not exceed £26, a certificate need be given under sub-paragraph (1) or (2) above only if requested in writing by the policy holder, and, if so requested, shall be given within three months of receipt of the request; and sub-paragraph (2) above shall not apply by reason of—

• (a) any variation which, whether or not of a purely formal character, does not affect the terms of a policy in any significant respect, or

• (b) any variation of a policy issued in respect of an insurance made on or before 19th March 1968, other than a variation by virtue of which the policy falls, under section 19(5) of this Act, to be treated as issued in respect of an insurance made after that date.

SCHEDULE 2

Expenditure before 1964-65: deductions from rents

1

• (1) Except as provided by sub-paragraphs (2) and (3) below, no payment shall be deductible under sections 72 and 73 of this Act if made before the beginning of the year 1964-65.

• (2) Where, by virtue of paragraph 11 of Schedule 4 to the Finance Act 1963 as amended by section 16(2) of the Finance Act 1965 (excess of maintenance etc. costs during five years ending 5th April 1964 over available reliefs), any amount fell to be treated as a payment in relation to premises made by a person in the year 1964-65 in respect of dilapidation attributable to that year, the amount shall be similarly treated for the purposes of the said sections 72 and 73.

• (3) If, in respect of any payment such as is mentioned in subsection (1) of the said section 72 made by a person in relation to any premises before the beginning of the year 1964-65, a loss was carried forward to that year by virtue of section 346 of the Income Tax Act 1952 (relief in respect of losses under Case VI of Schedule D) the amount of the loss shall be treated for the purposes of the said sections 72 and 73 as if it were a like payment made by that person in respect of the premises in, and in respect of, that year.

• (4) A deduction falling to be made by virtue of sub-paragraph (3) above shall be made notwithstanding anything in section 176(3) or 179(1) of this Act (Case VI losses for income tax and corporation tax respectively: relief to be given as far as possible from the first subsequent Case VI assessment); and relief shall not be given under either of those sections in respect of the loss insofar as a deduction in respect of it is made under this paragraph.

Expenditure before 1964-65: deductions from other receipts

2

• (1) Subject to sub-paragraph (2) below, no payment shall be deductible under section 74 of this Act if made before the beginning of the year 1964-65.

• (2) Sub-paragraph (1) above shall not prevent the deduction of a payment in so far as a loss in respect thereof was carried forward to the year 1964-65 by virtue of section 346 of the Income Tax Act 1952 (relief in respect of losses under Case VI of Schedule D).

• (3) Paragraph 1(4) above shall apply in the case of a deduction falling to be made by virtue of sub-paragraph (2) above as it applies in the case of one falling to be made by virtue of sub-paragraph (3) of that paragraph.

Expenditure before 1964-65: sea walk

3

• (1) Section 76 of this Act shall apply in relation to expenditure in respect of which an allowance under section 94(1)(c) of the Income Tax Act 1952 would, but for its repeal, have fallen to be made in respect of any premises for the year 1964-65 as if the expenditure had been incurred in the year of assessment following that in which it was actually incurred and, so far as it was incurred in repairing an embankment, had been incurred in making it:

Provided that if, by reason of a claim made under the proviso to paragraph 16(3) of Schedule 4 to the Finance Act 1963, any expenditure incurred before the beginning of the year 1964-65 in repairing an embankment fell to be treated for the purposes of that Schedule as if it had been an amount paid by the claimant, in and in respect of that year, in respect of the maintenance of the premises preserved or protected by the embankment, the expenditure shall be similarly treated for the purposes of sections 71 to 77 of this Act.

• (2) Subject as aforesaid, the said section 76 shall not apply to expenditure incurred before the beginning of the year 1964-65.

Tithe redemption annuities

4

No part of any payment made as an instalment, or part of an instalment, of an annuity within the meaning of the Tithe Acts 1936 and 1951 shall be included among the deductions allowable under sections 71 to 77 of this Act.

SCHEDULE 3

1

A claim for relief under this Schedule shall be made to the Board if it relates to surtax, or if the claimant is not resident in the United Kingdom.

2

The relief shall be computed in accordance with paragraphs 3 to 6 below, and in those paragraphs—

• " chargeable sum " means an amount to which, under subsection (1), (2), (3) or (4) of section 80 of this Act, the claimant is treated as becoming entitled in the year of assessment, or in respect of which he is by virtue of subsection (5) of that section, or section 81 or 82 of this Act, chargeable to income tax for the year under Case VI of Schedule D ;

• " relevant period ", in relation to any chargeable sum, means the period treated in computing the amount of the sum as being the duration of the lease in respect of which it arises or, where it arises (by virtue of the said section 82) in connection with the sale of an estate or interest in land, means the period mentioned in subsection (1) of that section;

• " yearly equivalent ", in relation to any chargeable sum, means the amount which bears to that sum the same proportion as one bears to the number of years and fractions of years in the relevant period.

3

There shall be computed—

• (a) the amount of the tax which, in respect of the chargeable sum or the aggregate of the chargeable sums, as the case may be, would be chargeable if—

• (i) the relief were not given, and

• (ii) that sum or aggregate were treated as the highest part of the claimant's total income, and

• (iii) amounts deductible in computing the tax were so far as possible deducted from other sums from which they are deductible in the year rather than from that sum or aggregate, and

• (b) the amount of the tax which, in respect of that sum or aggregate, would be chargeable if calculated, in accordance with paragraph 4 below, by reference to the yearly equivalent of that sum, or, as the case may be, of each sum comprised in that aggregate,

and the relief shall consist of a reduction or repayment of tax equal to the difference between those amounts.

4

• (1) Where the relief is to be given in respect of one chargeable sum only, the tax shall be calculated for the purposes of paragraph 3(b) above as follows—

• (a) from the yearly equivalent of that sum there shall be deducted such amounts as, following the principle set out in paragraph 3(a)(iii) above, are deductible from that sum,

• (b) if any balance of the yearly equivalent remains, the tax in respect of the chargeable sum shall be calculated at the rate which, apart from the relief, would apply if the amount of the sum were reduced to the amount of that balance and were then treated as the highest part of the claimant's total income or, if two or more rates would then apply, at those rates in corresponding proportions,

• (c) if no such balance remains, the tax shall be calculated at the rate applicable to the highest part of the remainder of the claimant's total income for the year of assessment,

and, whether or not any such balance remains, the tax shall be arrived at by applying the said rate or rates to so much of the chargeable sum as remains after deducting such amounts as, following the principle set out in the said paragraph 3(a)(iii), are deductible from that sum.

• (2) Where the relief is to be given in respect of two or more chargeable sums, the tax for each shall be calculated for the said purposes as provided by sub-paragraph (1) above, but so that—

• (a) the rate of tax on a sum arising in respect of any relevant period shall be calculated before the rate of tax on any sum arising in respect of a shorter relevant period, and

• (b) in calculating the rate of tax on a sum arising in respect of any relevant period and the deductions from that sum, an amount deducted in respect of a sum tax for which has already been calculated shall not again be deducted, and, in calculating a rate of tax—

• (i) any chargeable sum tax for which has not already been calculated, or in respect of which no balance of the yearly equivalent remains, shall be disregarded, and

• (ii) as respects any other chargeable sum, the total income of the claimant shall be taken to include the sum, but on the assumption that the amount of it was only that of the balance remaining of the yearly equivalent.

• (3) Where two or more chargeable sums arise in respect of relevant periods of equal duration, they shall be treated for the purposes of this paragraph as a single chargeable sum of an amount equal to the aggregate of those sums and arising in respect of a relevant period of like duration.

5

A provision of paragraph 3 or 4 above requiring tax to be calculated as if an amount were treated as the highest part of the claimant's total income shall apply notwithstanding any provision of the Income Tax Acts directing other income to be treated as the highest part of his total income, but for the purposes of those paragraphs his total income shall be deemed—

• (a) not to include any amount in respect of which he is chargeable to tax under section 187 of this Act (payments on retirement or removal from office or employment), and

• (b) to include, in respect of any amount which would otherwise be included therein by virtue of section 399 (1)(a) of this Act (gains arising in connection with life policies etc.), no greater amount than the appropriate fraction thereof within the meaning of section 400 of this Act.

6

A provision of paragraph 3 or 4 above shall apply in relation to any part of the claimant's total income (as computed for the purposes of that provision) as respects which he would be entitled under Chapter II of Part I of this Act (personal and other reliefs) to a deduction equal to tax at the standard rate on that part as if that part were subject to a nil rate of tax, and shall apply in relation to any part thereof as respects which he would be entitled under section 22 of this Act (reduced rate relief) to a deduction equal to tax at any other rate on that part as if that part were subject to a rate of tax equal to the difference between the standard rate and that other rate.

SCHEDULE 4

PART I — Premiums etc.

1

• (1) Subject to paragraph 5 of this Schedule, for the purposes of section 80(1) of this Act (taxation of premium on grant of lease), the amount of any premium payable to the landlord shall be reduced by the amount of any betterment levy charged on the premium, and that reduction shall be made before the reduction under the said section 80(1) depending upon the length of the lease.

• (2) In applying subsection (6) of the said section 80 (premiums payable by instalments: claim for treatment as rent) to a premium which falls to be reduced under sub-paragraph (1) above (looking at the fraction by which it is reduced before any reduction depending on the length of the lease), a reduction by that fraction shall be made in the amount of each instalment.

• (3) For the purposes of sub-paragraph (1) above, the amount of betterment levy charged- on a premium is the principal amount of the betterment levy under Case B charged in respect of the grant of the lease, reduced by applying the fraction $AB$ (if less than unity) where—

• A is the capital value of the premium payable to the landlord as brought into account under paragraph 7 of Schedule 4 to the Land Commission Act 1967, and

• B is the aggregate amount of consideration as computed for the purposes of charging betterment levy.

• (4) Sub-paragraphs (1) and (3) above shall also apply as respects any amounts brought into section 80(1) of this Act as a premium by subsection (2) of that section (landlord's benefit from tenant's obligation to carry out work on premises) so far as the benefit to the landlord is brought into account under the said paragraph 7 of Schedule 4 to the Land Commission Act 1967 ; and references to premiums in this paragraph shall be construed accordingly.

• (5) For the purposes of sub-paragraph (1) above, the amount of betterment levy charged on any sum brought into the said section 80(1) as a premium by subsection (4) of that section (consideration for the variation or waiver of the terms of a lease) is the principal amount of the betterment levy under Case E or Case F charged in respect of the disposition for which that sum is consideration, but subject to a proportionate reduction as under sub-paragraph (3) above where the sum forms part only of the consideration brought into account in assessing the betterment levy in respect of the disposition, and where the levy is under Case F, subject to such adjustments of the consideration so brought into account as may be appropriate ; and references to a premium in this paragraph shall be construed accordingly.

2

Subject to paragraph 5 of this Schedule, any taxable amount under section 81 or 82 of this Act (assignment of lease at undervalue, and sale with right to reconveyance) shall be reduced by so much of the principal amount of any betterment levy under Case A charged on the assignment or sale on which the charge to tax arises as is attributable to the said taxable amount, and that reduction shall be made before any reduction under the said section 81 depending on the length of the lease, or any reduction under the said section 82 depending on the time between the sale and a subsequent reconveyance.

3

Any reduction to be effected under any of the provisions of paragraphs 1 and 2 above shall be disregarded in arriving at "the amount chargeable on the superior interest" in section 83 of this Act (premiums paid, etc: deduction from premiums and rents received) and " the amount chargeable " in section 134 of this Act (allowance of trading deduction where premium etc. paid).

4

• (1) Where for the purposes of Part III of the Land Commission Act 1967 a notice of assessment of betterment levy results in an operative assessment of levy, it shall become final and conclusive for the purposes of this Part of this Schedule, but subject to any adjustment under section 54 or 55 of that Act (mistake of fact and further notice of assessment of levy), or under any other provision of that Act.

• (2) Where betterment levy is chargeable in respect of land part only of which is the relevant land for the purposes of the charge to tax under Schedule A or Case VI of Schedule D, or where part of the consideration for a disposition is payable to a person other than the grantor in the circumstances mentioned in section 36(3) of the Land Commission Act 1967, the levy shall be apportioned in such manner as may be appropriate in the circumstances.

• (3) Any question arising in any appeal against an assessment to tax as to the application of the preceding provisions of this Part of this Schedule shall be determined on a reference to the Lands Tribunal.

• (4) The Land Commission shall afford to the inspector and to the Lands Tribunal such information as they may require for the purpose of this Part of this Schedule.

• (5) In relation to land in Scotland, for any reference in this paragraph to the Lands Tribunal there shall be substituted a reference to the Lands Tribunal for Scotland:

Provided that until sections 1 to 3 of the Lands Tribunal Act 1949 come into force as regards Scotland, this sub-paragraph shall have effect as if for the reference to the Lands Tribunal for Scotland there were substituted a reference to a person selected from the panel of referees appointed under Part I of the Finance (1909-1910) Act 1910.

PART II — Mining Leases

5

Part I of this Schedule shall not apply to betterment levy which is charged on any payment in accordance with regulations made in accordance with section 40(2) of the Finance Act 1968 (rents, royalties and other payments, including premiums, under mining leases).

6

Where betterment levy is charged as mentioned in paragraph 5 above on a payment which is charged to tax under Schedule A, the amount of betterment levy so charged shall for the purposes of Schedule A be treated as a payment made by the landlord in respect of management of the property in the chargeable period in which he becomes entitled to the payment:

7

Where betterment levy is charged as mentioned in paragraph 5 above on any payment which is charged to tax under Schedule D by virtue of section 156 of this Act (rent etc. payable in connection with mines, quarries and similar concerns), the amount of betterment levy so charged shall be treated—

• (a) for the purposes of section 158(1) of this Act (income tax: management expenses of owner of mineral rights), as a sum disbursed as an expense of management in the year of assessment for which the tax is charged, and

• (b) for the purposes of subsection (2) of the said section 158 (corresponding provision for corporation tax), as a sum so disbursed in the accounting period in which the payment falls to be taken into account for corporation tax.

8

The Land Commission shall afford to any officer of the Board such information as he may require for the purposes of this Part of this Schedule.

SCHEDULE 5

PART I — Public Revenue Dividends, etc., payable to the Bank of England and the Bank of Ireland, or entrusted for payment to the Bank of England, the Bank of Ireland or the National Debt Commissioners

1

The Bank of England and the Bank of Ireland, as respects the dividends and the profits attached thereto payable to them out of the public revenue of the United Kingdom, or payable out of any public revenue and entrusted to them for payment and distribution, and the National Debt Commissioners, as respects the dividends payable by them or of which they have the distribution, shall, when any payment becomes due, deliver to the Board true accounts, in books provided for the purpose, of—

• (a) the amounts of the dividends and profits attached thereto payable to the Bank, and

• (b) all dividends entrusted to the Bank or to the National Debt Commissioners for payment to the persons entitled thereto, and

• (c) the amount of income tax chargeable thereon at the standard rate in force at the time of payment, without any other deduction than is allowed by the Income Tax Acts.

2

• (1) In the case of dividends and profits attached thereto payable to the Bank of England out of the public revenue of the United Kingdom, the Bank of England shall set apart the income tax in respect of the amount payable to them.

• (2) In the case of dividends and profits attached thereto entrusted to the Bank of England for payment and distribution, dividends payable by the Bank of Ireland at its principal office in Belfast, and dividends payable by the National Debt Commissioners or of which the National Debt Commissioners have the distribution—

• (a) the Bank of England, the Bank of Ireland and the National Debt Commissioners respectively shall, before any payment is made by them, retain the amount of the income tax for the purposes of the Income Tax Acts, and

• (b) the retaining of the amount shall be deemed to be a payment of the income tax by the persons entitled to the dividends, and shall be allowed by them on the receipt of the residue thereof, and

• (c) the Bank of England, the Bank of Ireland and the National Debt Commissioners respectively shall be acquitted and discharged of a sum equal to the amount retained as though that sum had been actually paid.

• (3) In relation to dividends payable to the Bank of Ireland out of the public revenue of the United Kingdom, and public revenue dividends which are entrusted to the Bank of Ireland for payment and distribution and are not payable by that Bank at its principal office in Belfast, the following provisions shall have effect—

• (a) the money which, but for the provisions of this subparagraph, would be issuable to the Bank of Ireland under section 14 of the National Debt Act 1870, or otherwise payable to the Bank of Ireland for the purpose of dividends on securities of the United Kingdom Government entered in the register of the Bank of Ireland in Dublin, shall be issued and paid to the Bank of England, and

• (b) the Bank of England shall set apart and retain out of moneys so issued and paid to them the amount of the income tax on the dividends payable to the Bank of Ireland, and on the dividends on the securities of the United Kingdom Government entered in the register of the Bank of Ireland in Dublin, and

• (c) the Bank of England shall pay to the Bank of Ireland the residue of the moneys so issued and paid to them, to be applied by the Bank of Ireland to the payment of the dividends, and

• (d) the retaining of the amount shall be deemed to be a payment of the income tax by the persons entitled to the dividends, and shall be allowed by them on the receipt of the residue thereof, and the Bank of England and the Bank of Ireland shall be acquitted and discharged of a sum equal to the amount retained as though that sum had been actually paid.

3

Money set apart or retained under paragraph 2 above, and the amount of any tax charged on the trading profits of the Bank of England or the Bank of Ireland, shall be paid into the general account of the Board at the Bank of England or the Bank of Ireland.

4

No deduction of income tax under this Part of this Schedule shall be made from any dividends payable in respect of stock, securities or annuities standing in the name of the official custodian for charities, nor from any dividends in respect of which there is given to the Bank of England a certificate from the Charity Commissioners that the dividends are subject only to charitable trusts and are exempt from tax.

PART II — Public Revenue Dividends payable by Public Offices and Departments

5

Where any payment is made of public revenue dividends payable by any public office or department of the Crown, the appropriate officer shall retain the income tax charged and pay the same into the general account of the Board at the Bank of England or the Bank of Ireland.

PART III — Other Public Revenue Dividends, Foreign Dividends, and Proceeds of Coupons

6

The following persons are chargeable persons for the purposes of this Part of this Schedule—

• (a) every person (other than the National Debt Commissioners or the Bank of England or the Bank of Ireland) who is entrusted with the payment of any dividends which are payable out of the public revenue of Northern Ireland, or which are payable to any persons in the United Kingdom out of any public revenue other than that of the United Kingdom or Northern Ireland,

• (b) every person in the United Kingdom who is entrusted with the payment of any foreign dividends within the meaning of section 159 of this Act,

• (c) every banker or other person in the United Kingdom who obtains payment of any dividends in such circumstances that the dividends are chargeable to tax under Schedule C, or, in the case of foreign dividends as above defined, under Schedule D, and

• (d) every banker in the United Kingdom who sells or otherwise realises coupons, and every dealer in coupons in the United Kingdom who purchases coupons, in such manner that the proceeds of the sale or realisation are chargeable to tax under Schedule C, or, in the case of foreign dividends as above defined, under Schedule D ;

and every such person shall deliver to the Board—

• (i) on demand by the Board, true and perfect accounts of the amount of all such dividends or proceeds, and

• (ii) not later than twelve months after paying any dividends or effecting any other transaction in respect of which he is a chargeable person, and unless within that time he delivers an account with respect to the dividends or proceeds in question under paragraph (i) above, a written statement specifying his name and address and describing those dividends or proceeds.

7

The Board shall have all necessary powers in relation to the examining, auditing, checking and clearing of the books and accounts of dividends or proceeds delivered under paragraph 6 above, and shall assess and charge the dividends or proceeds at the standard rate of tax in force at the time of payment, but reduced by the amount of the exemptions (if any) allowed by them, and shall give notice of the amount so assessed and charged to the chargeable person.

8

The chargeable person shall out of moneys in his hands pay the income tax on the dividends or proceeds on behalf of the persons entitled thereto, and shall be acquitted in respect of all such payments, and the provisions of the Income Tax Acts shall apply as in the case of dividends payable out of the public revenue of the United Kingdom and entrusted to the Bank of England for payment and distribution.

9

The chargeable person shall pay the income tax into the general account of the Board at the Bank of England or the Bank of Ireland, and, in default of payment, it shall be recovered from him in the same manner as other tax assessed and charged upon him may be recovered.

10

A chargeable person who does all such things as are necessary to enable the tax to be assessed and paid shall receive as remuneration an allowance, to be calculated by reference to the amount of the dividends or proceeds paid from which tax has been deducted, and to be fixed by the Treasury at a rate not being less than thirteen shillings and sixpence for every £1,000 of that amount:

11

Nothing in the preceding provisions of this Part of this Schedule shall impose on any banker the obligation to disclose any particulars relating to the affairs of any person on whose behalf he may be acting.

12

Where income tax in respect of the proceeds of the sale or realisation of any coupon has been accounted for under this Part of this Schedule by any banker or dealer, and the coupon has been subsequently paid in such manner that income tax has been deducted from the payment under any of the provisions of this Schedule, the tax so deducted shall be repaid. A claim under this paragraph shall be made to the Board.

13

• (1) Without prejudice to the generality of paragraph 7 above, the Board may, by notice in writing served on any chargeable person, require that person, within such time as may be specified in the notice, to make available at his premises for inspection by an officer authorised by the Board all such books and other documents in the possession or control of that person as the officer may reasonably require for the purpose of determining whether any accounts delivered by that person under paragraph 6 above are correct and complete.

• (2) The Board may grant a certificate exempting any chargeable person from the provisions of sub-paragraph (1) above, and while the certificate is in force the powers conferred by that sub-paragraph shall not be exercisable in relation to that person; and any such certificate may be revoked at any time by the Board, and may contain such terms and conditions as they think proper.

PART IV — Interpretation of Parts I to III above

14

Section 107 of this Act (which defines, amongst other expressions, " dividends ", " public revenue ", " public revenue dividends ", " banker" and " coupons ") shall apply for the interpretation of Parts I to III of this Schedule as it applies for the interpretation of Part V of this Act:

SCHEDULE 6

Farming: the general rule

1

• (1) Subject to the provisions of this Schedule, in computing profits or gains under Case I of Schedule D, animals kept by a fanner for the purposes of his fanning shall be treated as trading stock.

• (2) Animals forming part of production herds with respect to which an election under paragraph 2 below has effect shall not be so treated, but shall be treated instead in accordance with the rules set out in paragraph 3 below.

• (3) An election under the said paragraph 2 is in this Schedule referred to as " an election for the herd basis ".

Farming: election for the herd basis

2

• (1) An election for the herd basis shall apply to all production herds of a particular class kept by the farmer making the election, including herds which he has ceased to keep before the making of the election, or first begins to keep after the making thereof.

• (2) An election for the herd basis must be made in writing to the inspector, and must specify the class of herds to which it relates.

• (3) Subject to paragraph 6 below, an election for the herd basis shall be valid only if it is made not later than two years after the end of the first chargeable period for which the farmer making the election is chargeable under Case I of Schedule D to tax in respect of the profits or gains of his farming, or is given relief under section 168 or 177(2) of this Act (set off of trading losses against general income) in respect of his farming, being profits or gains or relief the amount of which is computed by reference to the facts of a period during the whole or some part of which the farmer kept a production herd of the class in question.

• (4) An election for the herd basis shall be irrevocable and, subject to paragraph 6 below, shall have effect for the said first chargeable period and all subsequent chargeable periods.

3

• (1) Where an election for the herd basis has effect, the consequences for the purpose of computing profits or gains under Case I of Schedule D shall be as provided by this paragraph.

• (2) The initial cost of the herd and, subject to the provisions of this paragraph as to replacements, the cost of any animal added to the herd shall not be deducted as an expense, and the value of the herd shall not be brought into account.

• (3) Where an animal which has theretofore been treated as part of the farmer's trading stock is added to the herd otherwise than by way of replacement, there shall be included as a trading receipt—

• (a) in the case of an animal bred by the farmer, a sum equal to the cost of breeding it and rearing it to maturity, and

• (b) in any other case, a sum equal to the initial cost to the farmer of acquiring the animal, together with any cost incurred by him in rearing it to maturity.

• (4) Where an animal forming part of the herd dies, or ceases to form part thereof, and is replaced therein by another animal—

• (a) any proceeds of sale of the animal which dies or ceases to form part of the herd shall be included as a trading receipt, and

• (b) the cost of the animal which replaces it, except in so far as that cost consists of such costs as are allowable apart from the provisions of this Schedule as deductions in computing profits or gains of farming under Case I of Schedule D, shall be deducted as an expense:

Provided that—

• (i) where the second-mentioned animal is of better quality than the animal which it replaces, the amount deducted shall not exceed the amount which it would have been necessary to expend in order to acquire an animal of the same quality as the one replaced, and

• (ii) where the animal which is replaced was slaughtered by the order of any Ministry, government department or local or public authority under the law relating to diseases of animals, and the animal which replaces it is of worse quality, the amount included as a trading receipt shall not exceed the amount allowable as a deduction.

• (5) Where the herd is sold as a whole, and another production herd of the same class is acquired, sub-paragraphs (1) to (4) above shall apply as though there had been sold from the original herd, and replaced therein, a number of animals equal to the number in the original herd or in the newly acquired herd, whichever is the less.

• (6) If (either all at once or over a period not exceeding twelve months) either—

• (a) the whole of a herd is sold in circumstances in which subparagraph (5) above does not apply, or

• (b) a part of a herd is sold on a substantial reduction being made in the number of animals in the herd,

any profit or loss arising from the transaction shall not be taken into account:

Provided that where, within five years of the sale, the seller acquires or begins to acquire another production herd of the class in question or, as the case may be, acquires or begins to acquire animals to replace the part of the herd in question—

• (i) sub-paragraphs (4) and (5) above shall apply to the acquisition or replacement, except that, if the sale was one which the seller was compelled to effect by causes wholly beyond his control, the amount included as a trading receipt in respect of any animal sold which is replaced by an animal of worse quality shall not exceed the amount allowable as a deduction in respect of that animal of worse quality, and

• (ii) for the purposes of the application of those sub-paragraphs, the proceeds of sale of the animals comprised in the original herd or part of a herd shall be brought into account as if they had been respectively received at the times of the corresponding acquisitions.

• (7) If an animal forming part of the herd is sold, and neither sub-paragraph (4) nor (5) nor (6) above applies, any profit or loss arising from the transaction shall be included or deducted, as the case may be ; and for the purposes of this sub-paragraph, the said profit or loss shall be computed by comparing with the proceeds of sale—

• (a) in the case of an animal bred by the farmer, the cost of breeding it and rearing it to maturity, and

• (b) in any other case, a sum equal to the initial cost to the farmer of acquiring the animal (or, in the case of an animal acquired otherwise than for valuable consideration, its market value when the farmer acquired it) together, in both cases, with any cost incurred by him in rearing it to maturity.

• (8) Where the herd is sold as a whole, and another production herd of the same class is acquired, and the number of animals in the newly acquired herd is less than the number in the original herd, then, if the difference is not substantial, sub-paragraph (6) above shall not apply, and sub-paragraph (7) above shall apply to a number of animals in the original herd equal to the difference.

• (9) The preceding provisions of this paragraph shall apply in relation to the death or destruction of animals as they apply in relation to their sale, as if any insurance or compensation moneys received by reason of the death or destruction were proceeds of sale, and any reference in this paragraph to the proceeds of sale of an animal includes a reference to any proceeds of sale of its carcase or any part thereof.

Farming : provisions applicable to special cases

4

A farmer who, having kept a production herd of a particular class, ceases altogether to keep herds of that class for a period of at least five years shall, as respects production herds kept by him after the end of that period, be treated as if he had never kept any production herds of that class before the end of that period.

5

• (1) Where a farmer transfers to another person all or any of the animals which form part of a production herd otherwise than by way of sale, or by way of sale but for a price other than that which they would have fetched if sold in the open market, and either—

• (a) the transferor is a body of persons over whom the transferee has control, or the transferee is a body of persons over whom the transferor has control, or both the transferor and the transferee are bodies of persons and some other person has control over both of them, or

• (b) it appears with respect to the transfer, or with respect to transactions of which the transfer is one, that the sole or main benefit, or one of the main benefits, which (apart from the provisions of this paragraph) might have been expected to accrue to the parties or any of them was a benefit resulting from the obtaining of a right to make an election for the herd basis, or from such an election having effect or ceasing to have effect, or from such an election having a greater effect or a less effect,

the like consequences shall ensue, in relation to all persons concerned, for the purpose of computing profits or gains under Case I of Schedule D as would have ensued if the animals had been sold for the price which they would have fetched if sold in the open market.

• (2) In this paragraph " body of persons " includes a partnership, and " control" has the meaning given by section 534 of this Act.

6

• (1) Where the whole or a substantial part of a production herd kept by a farmer for the purposes of his fanning is slaughtered by the order of any Ministry, government department or local or public authority under the law relating to diseases of animals in such circumstances that compensation is payable in respect of it, an election for the herd basis thereupon made by the farmer in relation to that herd and any other production herds of the same class so kept by him shall, subject to sub-paragraph (2) below, be valid notwithstanding that it is not made within the time required by paragraph 2(3) of this Schedule.

• (2) An election for the herd basis made by virtue of sub-paragraph (1) above shall only be valid if made not later than two years after the end of the first chargeable period for which the tax chargeable on the farmer in respect of the profits or gains of his farming finally falls to be computed by reference to the facts of a period in which the compensation is relevant:

Provided that, for income tax (but not corporation tax) purposes, if that chargeable period is the second year of assessment within the meaning of section 117 of this Act (basis of assessment for second and third years after commencement), and notice is given under subsection (2) of that section, the election shall be valid if made not later than the giving of that notice.

• (3) An election for the herd basis made by virtue of sub-paragraph (1) above shall, notwithstanding paragraph 2(4) of this Schedule, have effect only for the chargeable period mentioned in sub-paragraph (2) above and subsequent chargeable periods:

Provided that, for income tax (but not corporation tax) purposes, the election shall have effect for earlier chargeable periods for the purposes of any claim under section 168 of this Act (set off of trading losses against general income) which is made by the farmer for relief in respect of his farming, if the relief falls to be computed wholly or partly by reference to the facts of a period in which the compensation is relevant.

• (4) For the purposes of this paragraph, compensation shall be deemed to be relevant in any period if, but only if, it falls (or would but for an election under this paragraph fall) to be taken into account as a trading receipt in computing the profits or gains or losses of that or an earlier period.

Exclusion of working animals, and interpretation of preceding provisions

7

Nothing in this Schedule applies to any animals kept wholly or mainly for the work they do in connection with the carrying on of the farming.

8

• (1) In this Schedule " herd " includes a flock, and any other collection of animals, however named.

• (2) For the purposes of this Schedule, immature animals kept in a herd shall not be treated as forming part of the herd unless—

• (a) the land on which the herd is kept is such that animals which die or cease to form part of the herd cannot be replaced except by animals bred and reared on that land, and

• (b) the immature animals in question are bred in the herd, are maintained therein for the purpose of replacement, and are necessarily maintained for that purpose,

and references in this Schedule to herds shall be construed accordingly, and references therein to an animal being added to a herd include references to an immature animal which is kept in the herd becoming a mature animal:

Provided that not more immature animals shall in any case be treated as forming part of a herd than are required to prevent a fall in the numbers of the herd.

Female animals shall be treated for the purposes of this Schedule as becoming mature when they produce their first young.

• (3) In this Schedule " a production herd" means, in relation to a farmer, a herd of animals of the same species (irrespective of breed) kept by him wholly or mainly for the sake of the products which they produce for him to sell, being products obtainable from the living animal.

In this sub-paragraph "product obtainable from the living animal" means—

• (a) the young of the animal, or

• (b) any other product obtainable from the animal, not being a product obtainable only by slaughtering the animal itself.

• (4) For the purposes of this Schedule, production herds kept by a fanner shall be deemed to be of the same class if, and only if, all the animals kept in the herds are of the same species (irrespective of breed) and the products produced for him to sell for the sake of which (either wholly or mainly) the herds are kept by him are of the same kinds in the case of all the herds ; and elections for the herd basis shall be framed accordingly.

• (5) Any reference in this Schedule to profits or gains chargeable to tax under Schedule D includes a reference to profits or gains which would be so chargeable if there were any such profits or gains for the chargeable period in question.

Application of preceding provisions to trades other than farming, creatures other than animals, and animals and creatures kept singly

9

• (1) The preceding provisions of this Schedule shall, with the necessary adaptations, apply in relation to trades other than farming, and trades consisting only in part of farming, as they apply in relation to fanning, and references to fanners shall be construed accordingly.

• (2) The said provisions (both in relation to farming and in relation to other trades) shall apply in relation to living creatures other than animals as they apply in relation to animals.

Laying birds shall be treated for the purposes of this Schedule as becoming mature when they first lay.

• (3) The provisions of this Schedule shall (both in relation to farming and in relation to other trades) apply, with the necessary adaptations, in relation to animals or other creatures kept singly as they apply in relation to herds.

• (4) Nothing in this Schedule shall apply in relation to any animal or other creature kept wholly or mainly for public exhibition, or for racing or other competitive purposes.

Supplemental

10

Where an election for the herd basis is made, every person carrying on any farming or other trade affected by the election shall, if required to do so by notice from the inspector, make and deliver to the inspector, within the time specified in the notice, such returns as to, and as to the products of, the animals or other creatures kept by him for the purposes of the trade as may be required by the notice.

11

Where an election for the herd basis has effect for any chargeable period after an assessment for that period has become final and conclusive, any such assessment or, on a claim therefor, repayment of tax shall be made as may be necessary to give effect to the election

SCHEDULE 7

Discharge and assignment of contracts; options and other conditional contracts, etc.

1

• (1) Save as provided by paragraph 2 below, a person's acquisition or disposal of an asset by a contract in that behalf shall be disregarded for the purposes of Case VII if—

• (a) the contract is discharged by mutual consent or by operation of law, or

• (b) default is made in carrying out the contract and, by reason of that default, there is no conveyance or transfer to implement the contract, whether by or to the person originally making the contract or another, or

• (c) the contract is conditional and the condition is not satisfied.

• (2) Where a person disposes of an asset, and the whole or part of the consideration is irrecoverable, the amount irrecoverable shall be disregarded in so far as it is not realised by the disposal in whole or in part of the right to the consideration ; and if the consideration is abated for any error in or default under the contract, Chapter VIII of Part VI of this Act shall apply as if the abated consideration had originally been contracted for.

• (3) If, in the case of a conditional contract to acquire or dispose of an asset, the condition is satisfied (and, in particular, if in the case of a contract conferring an option the option is exercised), then, subject to sub-paragraphs (4) to (6) below, the acquisition or disposal of the asset by the contract shall be treated as taking place at the time when the condition is satisfied.

• (4) If the disposal of an asset by a conditional contract is made for a consideration not depending wholly or mainly on the value of the asset at the time the condition is satisfied, the contract shall in relation to the disposal be treated (on the condition being satisfied) as if it had never been conditional.

• (5) Where a contract for the disposal of an asset is discharged by mutual consent, but is replaced by a new contract for its disposal to the same person or to another in his place, the disposal by the new contract shall be treated as if it had taken place at the time when the disposal by the previous contract is to be treated as having taken place, and, if the previous contract was a conditional contract, the condition shall for that purpose be treated as satisfied by the making of the new contract.

• (6) Nothing in sub-paragraphs (3) to (5) above shall apply in relation to a contract entered into before 10th April 1962.

2

• (1) Subject to paragraph 21 of this Schedule, a person acquiring a right under a subsisting contract to acquire or dispose of an asset shall be treated as thereby acquiring or disposing of the asset to the like extent as if he had then entered into a new contract conferring that right (his undertaking the obligations under the subsisting contract not being treated as consideration given by him for the acquisition of the right, but any consideration so given being treated, in relation to his acquisition and disposal of the asset, as an expense of acquiring or disposing of it).

• (2) Notwithstanding anything in section 162(1) of this Act, a person disposing of the right under a subsisting contract to acquire or dispose of an asset shall not be treated as thereby disposing of the asset nor, in a case not within sub-paragraph (3) below, as having acquired or disposed of it by that contract.

• (3) Subject to paragraph 21 of this Schedule, where a person disposes of an asset to another subject to and with the benefit of any subsisting contract for its disposal to a third person, then, if the contract is not conditional or the condition is satisfied at the time of the later disposal—

• (a) he shall not be treated as thereby making any new disposal of the asset except to the extent to which it was not disposed of by that contract, and so much of the consideration for the later disposal as is attributable to the right to receive the consideration under that contract shall be disregarded, and

• (b) he shall be treated as thereby completing the disposal by that contract, and that disposal shall not under paragraph 1 above be treated as affected by any subsequent discharge of or default under the contract or abatement of the consideration.

• (4) A person's right under a contract entered into by him to acquire or dispose of an asset shall, in relation to any disposal by him of that right, be treated as having been acquired by him on the making of the contract for any consideration given by him for having that right (other than his agreement to acquire or dispose of the asset); and where a person gives any consideration to be discharged from a contract to acquire or dispose of an asset, the person to whom it is given shall be treated as disposing for that consideration of his right under the contract to dispose of or acquire the asset.

• (5) Where a person dies after entering into a conditional contract for the acquisition or disposal of an asset (the condition not being satisfied at the time of his death), then—

• (a) in the case of a contract to acquire the asset, nothing in this paragraph shall apply so as to treat any other person as acquiring the asset by reason of that contract on the condition being satisfied, except that sub-paragraph (1) shall apply in relation to any person acquiring from the personal representatives or legatee the right under the contract to acquire the asset, and

• (b) in the case of a contract to dispose of the asset, nothing in this paragraph or paragraph 1 above shall apply so as to treat him as disposing of the asset under the contract on the condition being satisfied.

Gifts, settled property and bargains not at arm's length

3

• (1) Where a person resident and ordinarily resident in the United Kingdom either—

• (a) disposes by way of gift of an asset previously acquired by him, but does so without there being, within the meaning of Case VII, an acquisition and disposal by him, or

• (b) disposes by way of gift of an asset acquired by him only as legatee,

then, so far as relates to the interest taken by the donee, the donee shall be treated as if the donor's acquisition of the asset had been his acquisition of it.

• (2) Where, in a case not falling within sub-paragraph (1)(a) or (1)(b) above, a person resident and ordinarily resident in the United Kingdom disposes by way of gift of an asset acquired or to be acquired by him, and the donee is also resident and ordinarily resident in the United Kingdom, then, on an election being made in that behalf—

• (a) the donor shall not be chargeable under Case VII in respect of any acquisition and disposal by reference to that disposal, and

• (b) the donee shall be treated as if the donor's acquisition of the asset had been his acquisition of it, but so that the amount of the consideration for which he is treated as acquiring the asset shall not by virtue of this sub-paragraph be increased.

• (3) An election under sub-paragraph (2) above shall be made by the donor and donee jointly, except that it may be made by the donee alone if the donor would not, apart from that sub-paragraph, be chargeable to tax under Case VII in respect of the gain (if any) treated as accruing to him from his acquisition and disposal of the asset.

• (4) A person shall not be chargeable under Case VII in respect of any acquisition and disposal by reference to a disposal made to any charity if the disposal is by way of gift for the purposes of the charity.

In this sub-paragraph "charity" means any body of persons or trust established for charitable purposes only.

4

• (1) Section 162(4) of this Act and paragraph 3 above shall apply in relation to a gift in settlement as a gift to the trustees of the settlement, and shall so apply notwithstanding that the settlor is one of the trustees, or the sole trustee, of the settlement; but if the settlor or the settlor's wife or husband has, or can by any means (whether or not requiring any consent or concurrence) obtain for the settlor or for the settlor's wife or husband any beneficial interest in the settled property or the income from it, no loss treated as accruing to the settlor by reason of the gift in settlement shall be allowable under Case VII.

• (2) Subject to sub-paragraph (3) below, where under a settlement a person becomes absolutely entitled as against the trustee to settled property (whether alone or jointly with another), he shall be chargeable by reference to any subsequent disposal of the property by him as if its acquisition by the trustees had been his acquisition of it.

• (3) Where for a consideration in money or money's worth a person becomes absolutely entitled as against the trustee to settled property, or two or more persons jointly become so entitled, either by the exercise of a power of appointment under the settlement or by acquiring the interests of persons who were together so entitled and acted in concert in disposing of their interests to him or them, then, notwithstanding anything in section 163(4) of this Act—

• (a) the person or persons becoming so entitled shall, on disposing of the property, be chargeable under Case VII by reference to that acquisition of it, if there is an acquisition and disposal by him or them, and

• (b) the person exercising the power, or persons disposing of their interests under the settlement, shall be chargeable under that Case by reference to that disposal of the property, as if its acquisition by the trustees had been his or their acquisition of it.

5

• (1) Subject to sub-paragraph (4) below, where a person resident and ordinarily resident in the United Kingdom disposes otherwise than by way of bargain at arm's length (but not by way of gift) of an asset acquired or to be acquired by him so that there is an acquisition and disposal of the asset by him, and the person acquiring the asset on that disposal is also resident and ordinarily resident in the United Kingdom, then, on an election being made in that behalf, the person disposing of the asset and the person acquiring it on that disposal shall be treated as doing so for a consideration equal to whichever is the higher of—

• (a) the actual consideration, and

• (b) such amount as will secure that neither a gain nor a loss accrues to the person disposing of the asset from his acquisition and disposal of it:

Provided that this sub-paragraph shall not apply so as to increase the amount of the consideration for which those persons are respectively treated as disposing of and acquiring the asset.

• (2) An election under this paragraph shall be made jointly by the person disposing of the asset and the person acquiring it, except that an election may be made by the person disposing of the asset alone if the person acquiring it would not, on disposing of it, be chargeable to tax under Case VII in respect of the gain (if any) accruing to him from his acquisition and disposal of it.

• (3) In a case falling within section 162(4)(b) of this Act, the amount referred to in paragraph (b) of sub-paragraph (1) above shall be taken to be higher than the actual consideration referred to in paragraph (a) of that sub-paragraph.

• (4) This paragraph shall not apply to a disposal of assets by a company by way of distribution in respect of shares in the company.

6

• (1) Where, in the case of a man and his wife living with him, the man disposes of an asset acquired or to be acquired by him to the wife, or the wife disposes of an asset acquired or to be acquired by her to the man, then—

• (a) the one making the disposal shall not be chargeable under Case VII in respect of an acquisition and disposal by reference to that disposal, and

• (b) the one to whom the disposal is made shall be treated as if the other's acquisition of the asset had been his or her acquisition of it:

Provided that this sub-paragraph shall not apply in relation to a disposal of an asset if, until the disposal, the asset formed part of the trading stock of a trade carried on by the one making the disposal, or if the asset is acquired as trading stock for the purposes of a trade carried on by the one acquiring it.

• (2) Where a person disposes of an asset to a company of which he has control, no loss accruing to him from the acquisition and disposal of the asset shall be allowable under Case VII otherwise than by deduction from any gain accruing on the disposal of assets to the company while he has control of it; and, for the purposes of this sub-paragraph, an individual shall be treated as having control of a company if the individual's wife or husband has control of it, or if they together have control of it.

Appropriations to and from stock in trade

7

• (1) Subject to sub-paragraph (3) below, where an asset acquired by a person otherwise than as trading stock of a trade carried on by him is appropriated by him for the purposes of the trade as trading stock (whether on the commencement of the trade or otherwise) and, if he had then sold the asset for its market value, a gain or loss chargeable or allowable under Case VII would have accrued to him, he shall be treated as having thereby disposed of the asset by selling it for its then market value.

• (2) Where an asset forming part of the trading stock of a person's trade is appropriated by him for any other purpose, or is retained by him on his ceasing to carry on the trade, he shall be treated as having acquired it for a consideration equal to the amount brought into the accounts of the trade in respect of it for tax purposes on the appropriation or on his ceasing to carry on the trade, as the case may be.

• (3) Sub-paragraph (1) above shall not apply in relation to a person's appropriation of an asset for the purposes of a trade if he is chargeable to tax in respect of the profits of the trade under Case I of Schedule D and elects that, instead, the market value of the asset at the time of the appropriation shall, in computing the profits of the trade for the purposes of tax, be treated as reduced by the amount of the gain, or increased by the amount of the loss, referred to in that sub-paragraph; and where that sub-paragraph does not apply by reason of such an election, the profits of the trade shall be computed accordingly:

Provided that if a person making an election under this sub-paragraph is at the time of the appropriation carrying on the trade in partnership with others, the election shall not have effect unless concurred in by the others.

Identification of shares etc. disposed of

8

• (1) Subject to paragraph 9 below, where a person disposes of shares, the shares disposed of shall be identified in accordance with the rules contained in this paragraph with the shares acquired by him which could be comprised in that disposal, and shall be so identified notwithstanding that they are otherwise identified by the disposal, or by a transfer or delivery giving effect to the disposal (but so that, where a person disposes of shares in one capacity, they shall not be identified with shares which he holds or can dispose of only in some other capacity).

• (2) The identification under this paragraph of the shares disposed of on any occasion shall have effect not only for determining the gain or loss accruing by reason of that disposal, but for all the purposes of Case VII, including its operation in relation to other disposals by the same person and, in a case where that person's acquisition of the shares is or may be relevant to the person acquiring from him, its operation in relation to the last-mentioned person.

• (3) Shares disposed of on an earlier date shall be identified before shares disposed of on a later, and the identification of the shares first disposed of shall accordingly determine the shares which could be comprised in the later disposal.

• (4) Shares disposed of for transfer or delivery on a particular date, or in a particular period—

• (a) shall not be identified with shares acquired for transfer or delivery on a later date, or in a later period, and

• (b) shall be identified with shares acquired for transfer or delivery on or before that date, or in or before that period, but on or after the date of the disposal, rather than with shares not so acquired.

• (5) The shares disposed of shall be identified with shares not acquired as legatee rather than with shares acquired as legatee.

• (6) The shares disposed of shall be identified—

• (a) with shares acquired within the twelve months preceding the disposal rather than with shares not so acquired, and with shares so acquired on an earlier date rather than with shares so acquired on a later, and

• (b) subject to paragraph (a) above, with shares acquired on a later date rather than with shares acquired on an earlier, and

• (c) with shares acquired at different times on any one day in as nearly as may be equal proportions.

• (7) The preceding rules shall have priority according to the order in which they are stated.

• (8) Notwithstanding anything in sub-paragraphs (3) to (6) above, where, under arrangements designed to postpone the transfer or delivery of shares disposed of, a person by a single bargain acquires shares for transfer or delivery on a particular date, or in a particular period, and disposes of them for transfer or delivery on a later date, or in a later period, then—

• (a) the shares disposed of by that bargain shall be identified with the shares thereby acquired, and

• (b) shares previously disposed of which, but for the operation of paragraph (a) above in relation to acquisitions for transfer or delivery on the earlier date or in the earlier period, would have been identified with the shares acquired by that bargain—

• (i) shall, subject to sub-paragraph (3) above, be identified with any available shares acquired for such transfer or delivery (that is to say, any shares so acquired other than shares to which paragraph (a) above applies, and other than shares with which shares disposed of for such transfer or delivery would be identified apart from this sub-paragraph), and

• (ii) in so far as they cannot be so identified, shall be treated as disposed of for transfer or delivery on the later date, or in the later period, above-mentioned.

• (9) This paragraph, and paragraph 9 below, shall apply in relation to a disposal of any assets as they apply in relation to a disposal of shares, where the assets are of a nature to be dealt in without identifying the particular assets disposed of or acquired.

9

• (1) Where, in the case of a man and his wife living with him, one of them—

• (a) disposes of shares to his wife or her husband after 10th April 1968, and

• (b) disposes of other shares, of the same kind as those disposed of to the wife or husband, to another person (in this paragraph called " a third party "),

the provisions of this paragraph shall have effect as respects any shares acquired by the person making those disposals which, but for the provisions of paragraph 8 above, could have been comprised in either of those disposals.

• (2) If, but for the provisions of this sub-paragraph, shares disposed of to a third party—

• (a) would not be taxable shares, and

• (b) but for the disposal to the wife or husband would be taxable shares,

the identification shall be reversed so that the shares disposed of to the third party (or, if the quantity disposed of to the third party was greater than the quantity disposed of to the wife or husband, a part of them equal to the quantity disposed of to the wife or husband) shall be taxable shares.

• (3) If there is more than one disposal to the wife or husband, or more than one disposal to a third party, the provisions of this paragraph shall be applied to shares disposed of on an earlier date before being applied to shares disposed of on a later date, and the re-identification of the shares first disposed of shall accordingly determine the way in which this paragraph applies to the shares comprised in the later disposal.

• (4) In this paragraph " taxable shares " are shares the disposal of which, together with their acquisition, constitutes an acquisition and disposal within the meaning of Case VII.

Re-acquisition of shares etc. after sale at a loss

10

• (1) Subject to sub-paragraph (3) below, where a loss accrues to a person from his acquisition and disposal of any shares, and he re-acquires the same shares within one month after the disposal or, in the case of a re-acquisition otherwise than through a stock exchange, within six months after it, that loss shall not be allowable under Case VII otherwise than by deduction from any gain accruing to him from an acquisition and disposal of the shares beginning with the re-acquisition.

For the purposes of this sub-paragraph, shares acquired for transfer or delivery after the date of transfer or delivery of the shares sold shall be deemed to have been acquired after the disposal of the shares sold.

• (2) Subject to sub-paragraph (3) below, where a person disposes of shares and afterwards acquires the like shares within the period referred to in sub-paragraph (1) above, he is to be treated for the purposes of this paragraph as re-acquiring the shares disposed of (or, if the quantity disposed of was greater than the quantity acquired, a part of them equal to the quantity acquired), but so that—

• (a) there cannot be in relation to the same disposal more than one re-acquisition of the same share, nor be by the same acquisition of a share a re-acquisition in relation to more than one disposal, and

• (b) an acquisition of shares shall, where there has been more than one relevant disposal, be treated as a re-acquisition of shares disposed of on an earlier date rather than of shares disposed of on a later, and as a re-acquisition of shares disposed of at different times on the same date in as nearly as may be equal proportions, and

• (c) where there is more than one acquisition of shares relevant to a previous disposal, shares acquired on an earlier date shall be treated in relation to that disposal as the shares re-acquired rather than shares acquired on a later date, and, as between shares acquired on any one date, those subsequently disposed of on an earlier date shall be so treated rather than those subsequently disposed of on a later date, and those subsequently disposed of on any one day shall be so treated in as nearly as may be equal proportions, and

• (d) where a person disposes of shares in one capacity, shares which he acquires in some other capacity shall be disregarded.

• (3) Where a person acquires shares and, under paragraph 8 above, shares previously disposed of by him are identified with those shares, then—

• (a) this paragraph shall not apply in relation to any loss accruing from that acquisition and disposal, and

• (b) that acquisition shall not be treated for the purposes of this paragraph as a re-acquisition of any shares.

• (4) Where, under paragraph 8(8) above, shares disposed of are identified with shares acquired by the same bargain, sub-paragraph (3) of this paragraph shall apply as if the disposal had preceded the acquisition.

• (5) Where—

• (a) under arrangements designed to postpone the acceptance of shares acquired, a person by a single bargain disposes of shares for transfer or delivery on a particular date, or in a particular period, and acquires them for transfer or delivery on a later date, or in a later period, and

• (b) under paragraph 8 above—

• (i) the shares disposed of by that bargain are identified with shares previously acquired for transfer or delivery on the earlier date, or in the earlier period, and

• (ii) shares disposed of afterwards, but within six months of the date of that bargain, are identified with the shares acquired by that bargain,

then, subject to sub-paragraph (6) below, sub-paragraph (3) of this paragraph shall apply as if the disposal by that bargain had preceded the acquisition of the shares so identified with those disposed of.

• (6) Where an acquisition of shares is more than once continued by such a bargain as is referred to in paragraph (a) of sub-paragraph (5) above, that sub-paragraph shall apply in relation to each bargain continuing the acquisition, but so that, in relation to each such bargain, paragraph (b)(ii) of that sub-paragraph shall have effect as if the references to the date of the bargain and the shares thereby acquired were references to the date of the last of the bargains and the shares thereby acquired; and, for the purposes of this sub-paragraph, an acquisition continued by one bargain shall be treated as further continued by a later bargain in so far as the shares disposed of by the later bargain are identified under paragraph 8 above with the shares acquired by the earlier.

• (7) This paragraph, and paragraph 11 below, shall apply in relation to acquisitions or disposals of any assets as they apply in relation to acquisitions or disposals of shares, where the assets are of a nature to be dealt in without identifying the particular assets disposed of or acquired.

11

• (1) Where, in the case of a man and his wife living with him, a loss accrues to one of them from his or her acquisition and disposal of any shares, and the other of them is to be treated in accordance with this paragraph as acquiring the same shares within the prescribed period after the disposal, that loss shall be allowable under Case VII by deduction from any gain accruing to the other (that is to say, the wife or husband of the person to whom the loss accrued) from an acquisition and disposal of the shares beginning with that acquisition by the other, but shall not be so allowable by deduction from any other gain accruing to either of them.

• (2) Shares disposed of by the husband or wife shall not for the purposes of this paragraph be treated as the same as shares acquired by the other if, for the purposes of paragraph 10 above—

• (a) the person disposing of the shares is to be treated as having re-acquired the same shares, or

• (b) the person acquiring the shares is to be treated as thereby re-acquiring shares disposed of,

or if the person acquiring the shares acquires them from her husband or his wife.

• (3) Subject to sub-paragraph (2) above, where the husband or wife disposes of shares and the other afterwards acquires the like shares within the prescribed period from the disposal, the other is to be treated for the purposes of this paragraph as acquiring the same shares as those disposed of (or, if the quantity disposed of was greater than the quantity acquired, a part equal to the quantity acquired) and, so far as necessary, the rules in paragraphs (a) to (d) of paragraph 10(2) above shall apply for the purpose of determining which are the same shares, as if the husband and wife were one person, and disregarding all shares excluded by sub-paragraph (2) above.

• (4) For the purposes of this paragraph, shares acquired by the wife or husband for transfer or delivery after the date of transfer or delivery of the shares sold by the other shall be deemed to have been acquired after the disposal of the shares sold.

• (5) Where the husband or wife acquires shares and, under paragraph 8 above, shares previously disposed of by him or her are identified with those shares, then—

• (a) this paragraph shall not apply in relation to any loss accruing from that acquisition and disposal, and

• (b) that acquisition shall not be treated for the purposes of this paragraph as an acquisition of the same shares as any shares disposed of by the other,

and sub-paragraphs (4) to (6) of paragraph 10 above shall apply as if references in those sub-paragraphs to sub-paragraph (3) of the said paragraph 10 included references to this sub-paragraph.

• (6) In this paragraph " the prescribed period " means—

• (a) in the case of an acquisition of shares through a stock exchange, one month, and

• (b) in the case of an acquisition of shares otherwise than through a stock exchange, or in the case of an acquisition of some other kind of asset, six months.

Reorganisation or reduction of share capital

12

• (1) This paragraph shall apply in relation to any reorganisation or reduction of a company's share capital; and for the purposes of this paragraph—

• (a) references to a reorganisation of a company's share capital include—

• (i) any case where persons are, whether for payment or not, allotted shares in or debentures of the company in respect of and in proportion to (or as nearly as may be in proportion (a) their holdings of shares in the company or of any class of shares in the company, and

• (ii) any case where there are more than one class of share and the rights attached to shares of any class are altered, and

• (b) " original shares " means shares held before and concerned in the reorganisation or reduction of capital, and " new holding" means, in relation to any original shares, the shares in and debentures of the company which, as a result of the reorganisation or reduction of capital, represent the original shares (including such, if any, of the original shares as remain).

• (2) Subject to the following sub-paragraphs, a reorganisation or reduction of a company's share capital shall not be treated as involving any disposal of the original shares, or any acquisition of the new holding or any part of it, but the original shares and the new holding shall be treated as the same asset acquired as the original shares were acquired.

• (3) Where, on a reorganisation or reduction of a company's share capital, a person gives or becomes liable to give any consideration for his new holding or any part of it, that consideration shall, in relation to any disposal of the new holding or any part of it, be treated as having been given for the original shares, and, if the new holding or part of it is disposed of with a liability attaching to it in respect of that consideration, the consideration given for the disposal shall be adjusted accordingly:

Provided that there shall not be treated as consideration given for the new holding or any part of it any surrender, cancellation or other alteration of the original shares or of the rights attached thereto, or any consideration consisting of any application in paying up the new holding or any part of it of assets of the company or of any dividend or other distribution declared out of those assets but not made.

Notwithstanding the above proviso, in applying this sub-paragraph in relation to the issue of share capital to which subsection (1) of section 236 of this Act (stock dividend options) applies (as involving a reorganisation of the company's share capital) there shall be allowed, as consideration given for the new holding which includes that share capital, the sum referred to in that subsection less income tax at the standard rate.

• (4) Where, on a reorganisation or reduction of a company's share capital, a person receives or becomes entitled to receive in respect of his original shares any capital distribution from the company not forming part of the new holding, he shall be treated as if the new holding resulted from his having, in consideration of that distribution, disposed of an interest in the original shares of a market value equal to that of the distribution (but without prejudice to the original shares and the new holding being treated in accordance with sub-paragraph (2) above as the same asset).

References in this sub-paragraph to any capital distribution from the company include references to any consideration given by any person other than the company in respect of the original shares.

• (5) Subject to paragraph 13 below, where, for the purpose of computing the gain or loss accruing to a person from the acquisition and disposal of any part of the new holding, it is necessary to apportion the cost of acquisition of any of the original shares between what is disposed of and what is retained, the apportionment shall be made by reference to market value at the date of the disposal (with such adjustment of the market value of any part of the new holding as may be required to offset any liability attaching thereto but forming part of the cost to be apportioned); and any corresponding apportionment for the purposes of sub-paragraph (4) above shall be made in like manner.

• (6) Where, on a reorganisation of a company's share capital, a person receives, or becomes entitled to receive, in respect of any shares a provisional allotment of shares in or debentures of the company, then, unless he neither accepts the allotment nor disposes of his rights before or after the making of the allotment, those rights shall be treated in relation to him and any person acquiring them directly or indirectly from him as if they were the shares or debentures to which they relate, and as if the consideration to be given for the shares or debentures were a liability attaching to the rights.

• (7) References in this paragraph to a reduction of share capital do not include the paying off of redeemable share capital, and where shares in a company are redeemed by a company otherwise than by the issue of shares or debentures (with or without other consideration) and otherwise than in a liquidation, the shareholder shall be treated as disposing of the shares at the time of the redemption.

13

• (1) This paragraph applies to a new holding, as defined in paragraph 12(1)(b) above—

• (a) if it consists of more than one class of shares in or debentures of the company, and one or more of those classes is of shares or debentures which, at any time not later than the end of the period of three months beginning with the date on which the reorganisation or reduction of capital took effect, or of such longer period as the Board may by notice in writing allow, had quoted market values on a recognised stock exchange in the United Kingdom or elsewhere, or

• (b) (in a case where the operation of that paragraph is extended by section 167(3) of this Act) if it consists of more than one class of rights of unit holders, and one or more of those classes is of rights the prices of which were published daily by the managers of the scheme at any time not later than the end of that period of three months (or longer if so allowed).

• (2) Where, for the purpose of computing the gain or loss accruing to a person from the acquisition and disposal of the whole or any part of any class of shares or securities or rights of unit holders forming part of a new holding to which this paragraph applies, it is necessary to apportion costs of acquisition between what is disposed of and what is retained, the cost of acquisition of the new holding shall first be apportioned between the entire classes of shares or debentures or rights of which it consists by reference to market value on the first day (whether that day fell before the reorganisation or reduction of capital took effect or later) on which market values or prices were quoted or published for the shares, debentures or rights as mentioned in sub-paragraph (1)(a) or (1)(b) above (with such adjustment of the market value of any class as may be required to offset any liability attaching thereto but forming part of the cost to be apportioned); and this sub-paragraph shall have effect notwithstanding sub-paragraph (5) of the said paragraph 12.

• (3) Sub-paragraphs (1) and (2) above shall have effect as if contained in the said paragraph 12.

• (4) For the purposes of this paragraph, the day on which a reorganisation of share capital involving the allotment of shares or debentures or unit holders' rights takes effect is the day following the day on which the right to renounce any allotment expires.

Conversion of securities

14

• (1) Subject to sub-paragraph (2) below, paragraphs 12 and 13 of this Schedule shall apply with any necessary adaptations in relation to the conversion of securities as they apply in relation to the reorganisation or reduction of a company's share capital.

• (2) Where securities are converted on an exchange effected under any arrangement which is being carried out under section 2 of the National Loans Act 1939, or section 14 of the National Loans Act 1968, and any additional consideration is given to the holder of the securities, paragraph 12(4) above shall not apply to the additional consideration, but it shall, in relation to any disposal of the new holding or any part of it, be treated as reducing the consideration given for the original securities.

• (3) For the purposes of this paragraph—

• (a) " conversion of securities " includes—

• (i) a conversion of securities of a company into shares in the company, and

• (ii) a conversion at the option of the holder of the securities converted as an alternative to the redemption of those securities for cash, and

• (iii) any exchange of securities effected in pursuance of the Iron and Steel Act 1967, or any other enactment (whenever passed) which provides for the compulsory acquisition of any shares or securities and the issue of securities or other securities instead, and

• (b) " security" includes any loan stock or similar security, whether of the Government of the United Kingdom or of any other government, or of any public or local authority in the United Kingdom or elsewhere, or of any company, and whether secured or unsecured.

Company amalgamations

15

• (1) Subject to sub-paragraph (2) below, where a company issues snares or debentures to a person in exchange for shares in or debentures of another company, paragraphs 12 and 13 of this Schedule shall apply with any necessary adaptations as if the two companies were the same company and the exchange were a reorganisation of its share capital.

• (2) This paragraph shall apply only where the company issuing the shares or debentures has, or in consequence of the exchange will have, control of the other company, or where the first-mentioned company issues the shares or debentures in exchange for shares as the result of a general offer made to members of the other company or any class of them (with or without exceptions for persons who are, within the terms of section 533 of this Act, connected with the first-mentioned company), the offer being made in the first instance on a condition such that if it were satisfied the first-mentioned company would have control of the other company.

16

• (1) Where under any arrangement between a company and the persons holding shares in or debentures of the company, or any class of such shares or debentures, being an arrangement entered into for the purposes of or in connection with a scheme of reconstruction or amalgamation—

• (a) another company issues shares or debentures to those persons in respect of and in proportion to (or as nearly as may be in proportion (a) their holdings of the first-mentioned shares or debentures, but

• (b) the first-mentioned shares or debentures are either retained by those persons or cancelled,

then those persons shall be treated as exchanging the first-mentioned shares or debentures for those held by them in consequence of the arrangement (any shares or debentures retained being for this purpose regarded as if they had been cancelled and replaced by a new issue):

Provided that paragraph 15(2) above shall not apply.

• (2) Sub-paragraph (1) above shall apply in relation to a company which has no share capital as if references to shares in or debentures of a company included references to any interests in the company possessed by members of the company, and paragraphs 12 and 15 of this Schedule shall apply accordingly.

• (3) Where any scheme of reconstruction or amalgamation involves the transfer of the whole or part of a company's business to another company, and the first-mentioned company receives no part of the consideration for the transfer (otherwise than by the other company taking over the whole or part of the liabilities of the business), then the first-mentioned company shall not be chargeable under Case VII by reference to the transfer in respect of its acquisition and disposal of any assets included in the transfer.

• (4) In this paragraph " scheme of reconstruction or amalgamation " means a scheme for the reconstruction of any company or companies, or for the amalgamation of any two or more companies, and references to shares or debentures being retained include then-being retained with altered rights, or in an altered form, whether as the result of reduction, consolidation, division or otherwise.

Debts

17

• (1) Subject to paragraph 18 below, where a person incurs a debt to another, the creditor shall not be treated as thereby acquiring the debt, except in the case of the debt on a security as defined in paragraph 14 of this Schedule.

• (2) In the case of the debt on a security as defined in paragraph 14 of this Schedule, or of a debt acquired by the creditor from a previous creditor, the satisfaction of the debt or part of it shall, subject to paragraphs 14 and 15 of this Schedule, be treated as a disposal of the debt or of that part by the creditor made at the time when the debt or that part is satisfied.

• (3) Where property is acquired by a creditor in satisfaction of his debt or part of it, then, subject to the said paragraphs 14 and 15, the property shall not be treated as disposed of by the debtor or acquired by the creditor for a consideration greater than its market value at the time of the creditor's acquisition of it; but if (in a case not falling within either of those paragraphs) the satisfaction of the debt or that part of it is not to be treated as a disposal of it by the creditor, and he becomes chargeable under Case VII in respect of gains accruing from his acquisition and disposal of the property, the amount on which tax is chargeable shall (where necessary) be reduced so as not to exceed the amount on which tax would have been chargeable if he had acquired the property for a consideration equal to the amount of the debt or that part of it.

18

• (1) Subject to sub-paragraph (2) below, paragraph 17(1) above shall not apply to a debt owed by a bank which is not in sterling and which is represented by a sum standing to the credit of a person in an account in the bank, and accordingly the satisfaction of the debt or part of it shall be treated as a disposal of the debt or of that part by the creditor (that is, the bank's customer) made at the time when the debt or that part is satisfied.

• (2) Sub-paragraph (1) above shall not apply to a sum in an individual's bank account representing currency acquired by the holder for the personal expenditure outside the United Kingdom of himself or his family or dependants (including expenditure on the provision or maintenance of any residence outside the United Kingdom).

Disposals of land to authorities with compulsory powers

19

• (1) A person shall not be chargeable under Case VII in respect of an acquisition and disposal of land by reference to a disposal to an authority exercising or having compulsory powers if that person had neither—

• (a) acquired the land at a time when he knew, or might reasonably have known, that it was likely to be acquired by the authority, nor

• (b) taken any steps by advertisement or otherwise to dispose of the land, or to make his willingness to dispose of it known to the authority or others.