Legalize / United Kingdom / Public General Act

Finance Act 1985

Type Public General Act

Publication 1985-07-25

Last updated 2022-04-06

State In force

Department Statute Law Database

Source legislation.gov.uk

articles Not indexed

Reform history JSON API

(a) after the word " claimed ", in the first place where it occurs, there shall be inserted " or is disclaimed under subsection (2A) of that section"; and

(b) after the words " proviso to subsection (2) of that section " there shall be inserted " or under subsection (2A) of that section"; and

(c) for the words from "claimed", in the last place where it occurs, onwards there shall be substituted " claimed or as disclaimed or, as the case may require, as proportionately reduced".

(3) In subsection (4) of that section, for the words from "cease" onwards there shall be substituted " begin to be used wholly or partly for purposes other than those of the actual trade".

15

In section 71(1) of that Act (expenditure on quarantine premises) the words "and had been in use for the purposes of the trade " shall be omitted.

The Finance Act 1984

16

In Schedule 16 to the Finance Act 1984 (assumptions for certain calculations relating to foreign companies) in paragraph 10 (capital allowances) for the words from " section 44 " to " balancing adjustments), not" there shall be substituted " Chapter I of Part JJl of the Finance Act 1971 to have been provided for purposes wholly other than those of the trade and not

SCHEDULE 22. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

Ships.

2

Any vehicle which is of such a description that section 43 of the Finance Act 1971 (exclusion of certain road vehicles) precludes the making of a first-year allowance in respect of capital expenditure incurred on its provision.

3

Machinery or plant to which section 46 of that Act applies (machinery or plant let by any person otherwise than in the course of a trade).

4

Machinery or plant falling within paragraph 5(2) of Schedule 8 to that Act (machinery or plant used partly for trade purposes and partly for other purposes).

5

Machinery or plant where the capital expenditure on its provision is expenditure to which paragraph 6 of that Schedule applies (subsidies towards wear and tear).

6

Machinery or plant falling within paragraph 7(1)(a) or paragraph 7(1)(b) of that Schedule (user after user not attracting capital allowances or after receipt by way of gift).

7

Motor cars falling within paragraph 10 of that Schedule.

8

Machinery or plant which is used in such a way that section 64 of the Finance Act 1980 (leased assets) precludes the making of a first-year allowance in respect of expenditure incurred on the provision of it for leasing.

9

Machinery or plant which is leased to two or more persons jointly in such circumstances that section 68 of the Finance Act 1980 precludes the making of a first-year allowance in respect of the whole or part of the capital expenditure incurred on its provision.

10

Television sets in respect of which the amount of a first-year allowance falls to be determined in accordance with paragraph 8 of Schedule 12 to the Finance Act 1980.

11

Machinery or plant in respect of expenditure on which section 70 of the Finance Act 1982 (assets leased outside the United Kingdom) provides for only a 10 per cent, writing-down allowance.

12

Machinery or plant in respect of which first-year allowances continue to be available by virtue of paragraph 2(2) of Schedule 12 to the Finance Act 1984 (contracts entered into on or before 13th March 1984) or paragraph 4 of that Schedule (expenditure qualifying for regional development grants etc.)

SCHEDULE 23. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 17

Interpretation

1

(1) In this Schedule—

" allowance " means an allowance under Chapter I of Part III of the Finance Act 1971 ;

" fixture " means any such machinery or plant as is referred to in section 59(1) of this Act;

" interest in land " and " lease " shall be construed in accordance with sub-paragraph (2) below;

" material purposes " means the purposes of Chapter I of Part III of the Finance Act 1971 ; and

" relevant land ", in relation to a fixture, means the building or other description of land of which the fixture becomes part.

(2) In this Schedule " interest in land " means—

(a) the fee simple estate in the land or an agreement to acquire that estate;

(b) in Scotland, the estate or interest of the proprietor of the dominium utile (or, in the case of property other than feudal property, of the owner) and any agreement to acquire such an estate or interest;

(c) any leasehold estate in, or in Scotland lease of, the land (whether in the nature of a head-lease, sub-lease or underlease) and any agreement to acquire such an estate or, in Scotland, lease;

(d) an easement or servitude or any agreement to acquire an easement or servitude; and

(e) a licence to occupy land ;

and, except in the context of leasing machinery or plant, any reference in the following provisions of this Schedule to a lease is a reference to such a leasehold estate or, in Scotland, lease as is mentioned in paragraph (c) above or to such an agreement as is mentioned in that paragraph (and, in relation to such an agreement, the expression " grant" shall be construed accordingly).

(3) If an interest in land is conveyed or assigned by way of security and subject to a right of redemption, then, so long as such a right subsists, the interest held by the creditor shall be treated for the purposes of this Schedule as held by the person having that right.

(4) Any reference in the following provisions of this Schedule to a person being entitled to an allowance in respect of any capital expenditure incurred on the provision of a fixture is a reference to a case where

(a) that person is, for any chargeable period, entitled to a first-year allowance in respect of that expenditure, or

(b) that expenditure is taken into account in determining his qualifying expenditure for a chargeable period for the purposes of subsections (2) and (3) of section 44 of the Finance Act 1971 (whether or not an allowance is made to him for that period),

and any reference to a chargeable period for which a person is so entitled is a reference—

(i) to the chargeable period referred to in paragraph (a) above; or

(ii) to the chargeable period referred to in paragraph (b) above; or

(iii) to any chargeable period which is subsequent to that referred to in paragraph (b) above but is not later than the chargeable period in which he is required to bring the disposal value of the fixture concerned into account for the purposes mentioned in paragraph (.b) above.

Expenditure incurred by holder of interest in land

2

(1) Subject to sub-paragraph (2) below, in any case where—

(a) a person incurs capital expenditure on the provision of machinery or plant either for the purposes of a trade carried on byhimor for leasing otherwise than in the course of a trade, and

(b) the machinery or plant becomes a fixture, and

then, subject to paragraphs 3 and 7 below, on and after that time the fixture shall be treated for material purposes as belonging to the person concerned in consequence of his incurring the expenditure.

(2) If, in respect of the same fixture, there are two or more persons with different interests in the relevant land to whom, by virtue of sub-paragraph (1) above, the fixture would (apart from" this sub-paragraph), be treated as belonging for material purposes, the only interest which shall be taken into account under that subparagraph is,—

(a) if one of the interests is an interest falling within paragraph 1(2)(d) above, that interest;

(b) if paragraph (a) above does not apply but one of the interests is an interest falling within paragraph 1(2)(e) above, that interest; and

(i) except in Scotland, that interest which is not in reversion (at law or in equity and whether directly or indirectly) on any other interest in the relevant land which is held by any of the persons referred to above; and

(ii) in Scotland, that of whichever of those persons has, or last had, the right of use of the relevant land.

Expenditure incurred by equipment lessor

3

(1) In any case where—

(a) a person (in this Schedule referred to as " the equipment lessor") incurs capital expenditure on the provision of machinery or plant for leasing, and

(b) an agreement is entered into for the lease, directly or indirectly from the equipment lessor, of the machinery or plant (otherwise than as part of the relevant land) to another person (in this Schedule referred to as " the equipment lessee") for the purposes of a trade carried on by the equipment lessee or for leasing otherwise than in the course of a trade, and

(d) if the expenditure referred to in paragraph (a) above had been incurred by the equipment lessee, the fixture would, by virtue of paragraph 2 above, have been treated for material purposes as belonging to him in consequence of his incurring the expenditure, and

(e) the equipment lessor and the equipment lessee elect that this paragraph should apply,

then, subject to paragraph 7 below, on and after the time at which the expenditure is incurred the fixture shall be treated for material purposes as belonging to the equipment lessor in consequence of his incurring the expenditure.

(2) An election under this paragraph shall be made by notice in writing to the inspector given before the expiry of the period of two years beginning at the end of the chargeable period related to the incurring of the expenditure referred to in sub-paragraph (1)(a) above ; but no election may be made under this paragraph if the equipment lessor and the equipment lessee are connected with each other within the terms of section 533 of the Taxes Act.

(3) Where an election has been made under this paragraph with respect to a fixture, nothing in paragraph 2 above shall have the effect of treating the fixture for material purposes as belonging to the equipment lessee.

(4) In the following provisions of this Schedule " equipment lease " means such an agreement as is mentioned in sub-paragraph (1)(b) above or a lease entered into pursuant to such an agreement.

Expenditure included in consideration for acquisition of existing interest in land

4

(1) In any case where,—

(a) after any machinery or plant has become a fixture, a person (in this paragraph referred to as " the purchaser ") acquires an interest in the relevant land, being an interest which was in existence prior to his acquisition of it, and

(b) the consideration which the purchaser gives for that interest is or includes a capital sum which, in whole or in part, falls to be treated for material purposes as expenditure on the provision of the fixture, and

(c) at the time of the purchaser's acquisition of his interest in the relevant land, either no person has previously become entitled to an allowance in respect of any capital expenditure incurred on the provision of the fixture or, if any person has become so entitled, that person has been or is required to bring the disposal value of the fixture into account under section 44 of the Finance Act 1971,

then, subject to paragraph 7 below, on and after the purchaser's acquisition of his interest in the relevant land, the fixture shall be treated for material purposes as belonging to him in consequence of his incurring expenditure as mentioned in paragraph (b) above.

(2) If, in a case where paragraph (a) of sub-paragraph (1) above applies,—

(a) the machinery or plant was, prior to the purchaser's acquisition of the interest in the relevant land, let under an equipment lease, and

(b) in connection with the acquisition of the interest in the relevant land, the purchaser pays a capital sum to discharge the obligations of the equipment lessee under the equipment lease,

sub-paragraph (1) above shall apply as if that capital sum were such a capital sum as is referred to in paragraph (b) of that sub-paragraph.

Expenditure incurred by incoming lessee : election to transfer right to allowances

5

(1) In any case where—

(a) after any machinery or plant has become a fixture, a person (in this paragraph referred to as " the lessor ") who has an interest in the relevant land grants a lease, and

(b) apart from paragraph 7 below, the lessor would be entitled, for the chargeable period related to the grant of the lease, to an allowance in respect of expenditure incurred on the provision of the fixture, and

(c) the consideration which the lessee gives for the lease is or includes a capital sum which, in whole or in part, falls to be treated for material purposes as expenditure on the provision of the fixture, and

(d) the lessor and the lessee make an election under this paragraph,

then, subject to paragraph 7 below, on and after the grant of the lease, the fixture shall be treated for material purposes as belonging to the lessee in consequence of his incurring expenditure as mentioned in paragraph (c) above.

(2) If in any case the lessor is not within the charge to tax. it shall be assumed that he is within that charge for the purpose of determining whether the condition in sub-paragraph (1)(b) above is fulfilled.

(3) An election under this paragraph shall be made by notice in writing to the inspector given within two years after the date on which the lease takes effect.

(4) No election may be made under this paragraph if—

(a) the lessor and the lessee are connected with each other within the terms of section 533 of the Taxes Act; or

(b) it appears that the sole or main benefit which may be expected to accrue to the lessor from the grant of the lease and the making of an election is the obtaining of an allowance or deduction or a greater allowance or deduction or the avoidance or reduction of a charge under Chapter I of Part III of the Finance Act 1971.

Expenditure incurred by incoming lessee: lessor not entitled to allowances

6

In any case where—

(a) after any machinery or plant has become a fixture, a person (in this paragraph referred to as " the lessor ") who has an interest in the relevant land grants a lease, but paragraph 5(1)(b) above does not apply in his case, and

(b) the consideration which the lessee gives for the lease is or includes a capital sum which, in whole or in part, falls to be treated for material purposes as expenditure on the provision of the fixture, and

(c) at the time of the grant of the lease, no person has previously become entitled to an allowance in respect of any capital expenditure incurred on the provision of the fixture, and

(d) the fixture has not before that time been used for the purposes of a trade by the lessor or any person connected with him within the terms of section 533 of the Taxes Act,

Cases where fixture is to be treated as ceasing to belong to particular person

7

(1) The provisions of this paragraph and paragraph 8 below are without prejudice to any other circumstances in which the disposal value of a fixture falls to be brought into account in accordance with section 44 of the Finance Act 1971.

(2) Subject to sub-paragraph (4) below, if at any time the person to whom a fixture is treated for material purposes as belonging by virtue of any of paragraphs 2, 4, 5 and 6 above ceases (whether by reason of the transfer, surrender, or expiry of the interest or otherwise) to have the qualifying interest, the fixture shall be treated for those purposes as ceasing to belong to him at that time.

(3) In this paragraph and paragraph 9 below, "the qualifying interest" means—

(a) where paragraph 2 or paragraph 4 above applies, the interest in the relevant land referred to in that paragraph ; and

(b) where paragraph 5 or paragraph 6 above applies, the lease referred to in that paragraph ;

but if the qualifying interest is an agreement to acquire an interest in land and that interest in land is subsequently transferred or granted to the person referred to in sub-paragraph (2) above, the interest so transferred or granted shall be treated as the same interest as the qualifying interest.

(4) For the purposes of sub-paragraph (2) above,—

(a) if the qualifying interest ceases to exist by reason of its merger in another interest acquired by the person referred to in that sub-paragraph, that other interest shall be treated as the same interest as the qualifying interest;

(b) if the qualifying interest is a lease and, on its termination, a new lease of the relevant land (with or without other land) is granted to the lessee, the new lease shall be treated as the same interest as the qualifying interest;

(c) if the qualifying interest is a licence and, on its termination, a new licence to occupy the relevant land (with or without other land) is granted to the licensee, the new licence shall be treated as the same interest as the qualifying interest;

(d) if the qualifying interest is a lease and, with the consent of the lessor, the lessee remains in possession of the relevant land after the termination of the lease but without a new lease being granted to him, the qualifying interest shall be treated as continuing to subsist so long as the lessee remains in possession of the relevant land.

(5) At the time at which, by virtue of paragraph 5 above, the fixture concerned begins to be treated for material purposes as belonging to the lessee, it shall be treated for those purposes as ceasing to belong to the lessor (as defined in that paragraph).

(6) Where, by virtue of sub-paragraph (2) above, on the termination of a lease or licence, a fixture is treated for material purposes as ceasing to belong to the outgoing lessee or licensee, it shall, on that termination, be treated for material purposes as beginning to belong to the person who, immediately before the termination, was the lessor under the lease or, as the case may be, the licensor under the licence.

(7) If at any time a fixture is permanently severed from the relevant) land (so that it ceases to be a fixture) and, immediately before that time it was treated for material purposes as belonging to any person by virtue of any of the preceding provisions of this Schedule or sub-paragraph (2) or sub-paragraph (4) of paragraph 8 below, then, unless on its severance the fixture does in fact belong to that person, it shall be treated for those purposes as ceasing to belong to him at that time.

Special provisions as to equipment lessors

8

(1) If, by virtue of an election under paragraph 3 above, a fixture is treated for material purposes as belonging to the equipment lessor and either,—

(a) the equipment lessor at any time assigns his rights under an equipment lease, or

(b) the financial obligations of the equipment lessee under an equipment lease are at any time discharged, on the payment of a capital sum or otherwise,

then, at that time (or, as the case may be, at the earliest of those times) the fixture shall be treated for material purposes as ceasing to belong to the equipment lessor by reason of a sale by him of the fixture.

(2) If paragraph (a) of sub-paragraph (1) above applies, then, on and after the time of the assignment referred to in that paragraphs the fixture to which the agreement in question relates shall be treated for material purposes as belonging to the assignee and the consideration given by him for the assignment shall be treated for those purposes—

(a) as the price received for the sale of the fixture by the assignor; and

(b) as expenditure incurred by the assignee on acquiring the fixture.

(3) On and after an assignment falling within paragraph (a) of sub-paragraph (1) above, that sub-paragraph shall have effect as if the machinery or plant (as a fixture) were treated for material purposes as belonging to the assignee by virtue of an election under paragraph 3 above and, accordingly, as if the assignee were the equipment lessor, as defined in that paragraph.

(4) Where a capital sum is paid as mentioned in paragraph (b) of sub-paragraph (1) above, that capital sum shall be treated for material purposes—

(a) as the price received for the sale of the fixture by the equipment lessor; and

(b) if that capital sum is paid by the equipment lessee, as expenditure incurred by him on the provision of the fixture ;

and, where paragraph (b) above applies, on and after the time of that payment, the fixture shall be treated for material purposes as belonging to the equipment lessee.

(5) Where the financial obligations of the equipment lessee under an equipment lease have become vested in any other person (by assignment, operation of law or otherwise) any reference in sub-paragraph (1)(b) or sub-paragraph (4) above to the equipment lessee shall be construed as a reference to the person in whom those obligations are for the time being vested when the capital sum is paid.

Disposal value of fixtures in certain cases

9

(1) In any case where—

(a) by virtue of paragraph 7 above, a fixture is at any time treated for material purposes as ceasing to belong to any person (in this paragraph referred to as "the former owner "), and

(b) the qualifying interest continues in existence after that time (whether in the hands of the former owner or any other person) or would so continue but for its becoming merged in another interest, and

(c) the occasion of the fixture ceasing to belong to the former owner is not its permanent severance from the relevant land (whether on disposal, demolition, destruction or otherwise),

the fixture shall be treated for material purposes as sold at that time by the former owner for a price determined in accordance with sub-paragraphs (2) to (6) below.

(2) Subject to sub-paragraph (6) below, if the occasion of the fixture ceasing to belong to the former owner is the sale of the qualifying interest, the price referred to in sub-paragraph (1) above is that portion of the sale price of the qualifying interest which falls (or, if the purchaser were entitled to an allowance, would fall) to be treated for material purposes as expenditure incurred by the purchaser on the provision of the fixture.

(3) If the fixture ceases to belong to the former owner by virtue of sub-paragraph (5) of paragraph 7 above, the price referred to in sub-paragraph (1) above is so much of the capital sum referred to in sub-paragraph (1)(c) of paragraph 5 above as falls to be treated for material purposes as expenditure by the lessee on the provision of the fixture.

(4) If neither sub-paragraph (2) nor sub-paragraph (3) above applies, the price referred to in sub-paragraph (1) above is that portion of the price which, on a sale of the qualifying interest in the open market, would fall to be treated for material purposes as expenditure by the purchaser on the provision of the fixture.

(5) The sale referred to in sub-paragraph (4) above shall be assumed to take place immediately before the event which causes the fixture to be treated for material purposes as ceasing to belong to the former owner ; but that event shall be disregarded in determining the open market price on that sale.

(6) If the sale referred to in sub-paragraph (2) above is at a price lower than that which the qualifying interest would have fetched if sold in the open market, that sub-paragraph shall not apply unless the purchaser's expenditure on the acquisition of the fixture can be taken into account as mentioned in section 44(6)(b)(i) of the Finance Act 1971.

(7) If the occasion of the fixture ceasing to belong to the former owner is the expiry of the qualifying interest, then, except in so far as the former owner receives any capital sum, by way of compensation or otherwise, by reference to the fixture, the disposal value of the fixture which falls to be brought into account under section 44 of the Finance Act 1971 shall be nil.

(8) In any case where—

(a) the disposal value of a fixture falls to be brought into account in accordance with section 44 of the Finance Act 1971 on the permanent discontinuance of the trade in circumstances where that value falls to be determined under paragraph (e) of subsection (6) of that section, and

(b) before the occurrence of the later event referred to in that paragraph, the fixture is not permanently severed from the relevant land,

that paragraph shall apply as if the reference therein to paragraph (a) and paragraph (b) of that subsection were omitted; but if the event which follows the discontinuance of the trade is the sale of the qualifying interest, the disposal value of the fixture to be brought into account under that section shall be that portion of the sale price referred to in sub-paragraph (2) above.

(9) If the disposal value of the fixture falls to be brought into account in accordance with section 44 of the Finance Act 1971 on its beginning to be used wholly or partly for purposes which are other than those of the trade, paragraph (f) of subsection (6) of that section shall apply as if the reference to the price which the machinery or plant would have fetched if sold on the open market were a reference to that portion of the price referred to in subparagraph (2) above.

(10) If, on the occasion of the fixture being treated, by virtue of paragraph 7 above, as ceasing to belong to the former owner, another person incurs expenditure on the provision of the fixture, there shall be disregarded for material purposes so much (if any) of that expenditure as exceeds the disposal value which the former owner is required to bring into account in accordance with section 44 of the Finance Act 1971.

SCHEDULE 18

PART I — Expenditure on Purchase of Patent Rights

1

(1) For any chargeable period for which a person within subsection (1) of section 378 of the Taxes Act has qualifying expenditure (as defined in paragraph 2 below) which exceeds any disposal value to be brought into account by him in accordance with paragraph 3 below, there shall be made to him,—

(a) except where paragraph (b) or paragraph (c) below applies, a writing-down allowance of an amount equal, subject to sub-paragraph (2) below, to—

(i) 25 per cent, of the excess, or

(ii) a proportionately reduced percentage of the excess if the period is part only of a year, or if, in a case where the period is a year of assessment and the allowance falls to be made in taxing a trade, the trade has been carried on for part only thereof;

(b) if an allowance falls to be made to that person in taxing his trade and the period is the chargeable period related to the permanent discontinuance of the trade, a balancing allowance equal to the whole of the excess ; and

(c) if paragraph (b) above does not apply but the period is the chargeable period in which the last of the relevant patent rights comes to an end without any of those rights being revived, a balancing allowance equal to the whole of the excess.

(2) For the purposes of sub-paragraph (1)(c) above, the " relevant patent rights " at any time are those—

(a) on the purchase of which the person concerned has incurred capital expenditure which has been taken into account in determining his qualifying expenditure for any chargeable period ; and

(b) which he has not wholly disposed of.

(3) For any chargeable period for which a person's qualifying expenditure is less than the disposal value which he is to bring into account, there shall be made on him a balancing charge and the amount on which the charge is made shall be an amount equal to the difference.

2

For the purposes of paragraph 1 above, a person's qualifying expenditure for a chargeable period is the aggregate of the following amounts—

(a) any capital expenditure incurred by him on the purchase of patent rights, being expenditure incurred during the chargeable period or its basis period or at any previous time, other than expenditure which, or any part of which, has formed part of his qualifying expenditure for any previous chargeable period; and

(b) if, for the chargeable period immediately preceding the chargeable period in question, there was an excess of qualifying expenditure over disposal value, the balance of that excess after deducting any writing-down allowance under paragraph 1(1)(a) above made by reference thereto.

3

(1) If, in any chargeable period or its basis period, a person sells the whole or any part of any patent rights on the purchase of which he has incurred capital expenditure, then, for the purposes of paragraphs 1 and 2 above, he is required to bring into account for that chargeable period disposal value equal, subject to sub-paragraphs (2) and (3) below, to the net proceeds to him of that sale.

(2) The disposal value to be brought into account by any person in respect of any patent rights as a result of one or more sales falling within sub-paragraph (1) above shall not (or, as the case may be, shall not in the aggregate) exceed the capital expenditure incurred by him on the purchase of those rights.

(3) Where the person mentioned in sub-paragraph (2) above has acquired the patent rights as a result of a transaction which was, or a series of transactions each of which was, between persons who are connected with each other within the terms of section 533 of the Taxes Act, that sub-paragraph shall have effect as if it referred to the capital expenditure on the purchase of the rights incurred by whichever party to that transaction, or to any of those transactions, incurred the greatest such expenditure.

4

Where a person incurs capital expenditure on the purchase of patent rights and either—

(a) he and the seller are connected with each other within the terms of section 533 of the Taxes Act, or

(b) it appears with respect to the sale, or with respect to transactions of which the sale is one, that the sole or main benefit which, but for this paragraph, might have been expected to accrue to the parties was the obtaining of an allowance under section 378 of the Taxes Act,

there shall be disregarded for the purposes of paragraphs 1 and 2 above so much (if any) of that expenditure as exceeds the disposal value to be brought into account by virtue of paragraph 3 above by reason of the sale.

PART II — Expenditure on Acquiring Know-How

5

(1) For any chargeable period for which a person within subsection (1) of section 386 of the Taxes Act has qualifying expenditure (as denned in paragraph 6 below) which exceeds any disposal value to be brought into account by him in accordance with paragraph 7 below, there shall be made to him—

(a) unless the period is the chargeable period related to the permanent discontinuance of the trade referred to in that subsection, a writing-down allowance of an amount equal, subject to sub-paragraph (2) below, to—

(i) 25 per cent of the excess, or

(ii) a proportionately reduced percentage of the excess if the period is part only of a year, or if the period is a year of assessment but the trade has been carried on for part only thereof; and

(b) if the period is the chargeable period related to the permanent discontinuance of the trade, a balancing allowance equal to the whole of the excess.

(2) For any chargeable period for which a person's qualifying expenditure is less than the disposal value which he is to bring into account, there shall be made on him a balancing charge and the amount on which the charge is made shall be an amount equal to the difference.

6

For the purposes of paragraph 5 above, a person's qualifying expenditure for a chargeable period is the aggregate of the following amounts—

(a) any capital expenditure incurred by him on the acquisition of know-how, being expenditure incurred during the chargeable period or its basis period or at any previous time, other than expenditure which, or any part of which, has formed part of his qualifying expenditure for any previous chargeable period; and

(b) if, for the chargeable period immediately preceding the chargeable period in question, there was an excess of qualifying expenditure over disposal value, the balance of that) excess after deducting any writing-down allowance under paragraph 5(1)(a) above made by reference thereto.

7

If, in any chargeable period or its basis period, a person sells any know-how, on the acquisition of which for use in a trade carried on by him he has incurred expenditure falling within subsection (1) of section 386 of the Taxes Act, then, for the purposes of paragraphs 5 and 6 above, he is required to bring into account for that chargeable period disposal value equal to the net proceeds to him of that sale.

8

Subsections (7) and (8) of section 386 of the Taxes Act (meaning of "know-how" and treatment of certain consideration) apply for the purposes of this Part of this Schedule as they apply for the purposes of that section.

SCHEDULE 19

Part I

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Part II

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Part III

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Consideration for options

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Part IV — Identification of Securities etc.

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19

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Part V

20

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21

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Part VI

22

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23

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SCHEDULE 20

Part I

1

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2

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3

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4

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Part II

Disposals on which relief may be given

5

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Gains qualifying for relief

6

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7

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8

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9

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10

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11

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12

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The amount available for relief : the basic rule

13

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Aggregation of earlier business periods

14

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Relief given on earlier disposal

15

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Aggregation of spouse’s interest in the business

16

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 21

1

(1) This Schedule has effect for determining the original market value of assets and the aggregate market value of assets as mentioned in subsection (1)(b) of section 71 of this Act (in this Schedule referred to as “the principal section”).

(2) Expressions used in this Schedule have the same meaning as in the principal section.

2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

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4

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SCHEDULE 22

Introduction

1

(1) In this Schedule " the first date " means 28th February 1985, " the second date " means 27th February 1986, and " the year " means the period beginning with the first date and ending with the second date.

(2) In this Schedule—

" chargeable securities" means the securities held by a person at any time in the year which fall within paragraph 3 below, and

" deemed interest" means the interest he would have received in the year in respect of the chargeable securities if he were entitled to receive interest accruing in the period in which he held them in the year and interest had accrued from day to day and been apportioned accordingly.

The charge

2

(1) This paragraph applies where the person has been served with a notice under paragraph 6 below.

(2) If no interest was received by the person in the year in respect of the chargeable securities, he shall be treated as receiving on the second date annual profits or gains whose amount is equal to the deemed interest.

(3) If interest was received by the person in the year in respect of the chargeable securities, and the amount of the deemed interest exceeds an amount equal to 110 per cent, of the amount so received, he shall be treated as receiving on the second date annual profits or gains whose amount is equal to the excess.

(4) Profits or gains treated as received under sub-paragraph (2) or (3) above shall be chargeable to tax under Case VI of Schedule D for the chargeable period in which they are treated as received.

Chargeable securities

3

(1) If the aggregate nominal value of securities held by the person on the second date is not more than the aggregate nominal value of securities held by him on the first date, the securities which fall within this paragraph are all the securities held by him at any time in the year other than those held by him throughout the year.

(2) If the aggregate nominal value of securities held by the person on the second date (value A) exceeds the aggregate nominal value of securities held by him on the first date (value B) the securities which fall within this paragraph are those mentioned in sub-paragraph (5) below (for the purposes of which sub-paragraphs (3) and (4) below apply).

(3) If the aggregate nominal value of securities of a particular kind held by the person on the second date exceeds the aggregate nominal value of securities of that kind held by him on the first date, securities which are of that kind, which are of a total nominal value equal to the excess and which were acquired by him in the year shall be taken into account for the purposes of sub-paragraph (4) below.

(4) Securities (of one or more kinds) which are to be taken into account for the purposes of this sub-paragraph and which are of a total nominal value equal to the excess of value A over value B are excluded securities for the purposes of sub-paragraph (5) below.

(5) The securities which fall within this paragraph are all the securities held by the person at any time in the year other than—

(a) those which are excluded securities, and

(b) those held by him throughout the year.

(6) This is how to ascertain what securities are held by a person throughout the year—

(a) find, for securities of each kind held by him at any time in the year, the lowest nominal value held in the year (value Q ;

(b) take securities of that kind of a total nominal value equal to value C;

(c) the securities so ascertained (of one or more kinds) are for the purposes of this paragraph held by him throughout the year.

(7) In determining under sub-paragraph (3) or (4) above which securities to take into account or (as the case may be) which securities are excluded securities*—

(a) those the person acquired later must be chosen before those he acquired earlier, and

(b) as between those acquired on the same day those whose choice produces a smaller charge under paragraph 2 above must be chosen before those whose choice produces a greater charge.

(8) In determining under sub-paragraph (6)(b) above which securities to take, those which the person acquired on terms entitling him to receive all interest payable on them on or after the first date must be chosen before others.

Charge eliminated or reduced

4

(1) if the person makes a claim under this paragraph, then—

(a) if amount E exceeds or is equal to amount D, he shall not be treated as receiving annual profits or gains under paragraph 2 above;

(b) if amount D exceeds amount E, the amount of annual profits or gains he is treated as receiving under paragraph 2(2) or (3) above (as the case may be) shall be, instead of the amount there mentioned, the amount by which amount D exceeds amount E ;

and amounts D and E shall be determined as mentioned in the following provisions of this paragraph.

(2) Amount D is the amount the person is treated as receiving under paragraph 2(2) above or (if paragraph 2(3) applies) the amount he would be treated as receiving under paragraph 2(3) if "110" were " 100 ".

(3) Amount E is to be found by applying the formula—

$Y×1096Z×3$

(4) Y is the amount of annual profits or gains the person would be treated as having received under this Schedule (ignoring this paragraph) if—

(a) the references in paragraph 1(1) above to 28th February 1985 and 27th February 1986 were (respectively) to the appropriate day and 27th February 1985, and "the year" were construed accordingly,

(b) paragraph 2(1) above were omitted,

(d) in paragraph 5(5) below " 1985-86 " were " 1984-85 ".

(5) Z is the number of days beginning with the appropriate day and ending with 27th February 1985.

(6) " The appropriate day " means—

(a) if the person held no securities on 28th February 1982, the first day (falling after 28th February 1982 and before 28th February 1985) on which he acquired securities, and

(b) in any other case, 28th February 1982.

Exceptions

5

(1) For the purposes of this Schedule a person is to be treated as not entitled to securities on a day if he carries on a trade on the day and if, were he to transfer them on that day, that transfer would fall to be taken into account for the purposes of the Tax Acts in computing the profits or losses of that trade.

(2) Paragraph 2(2) or (3) above (as the case may be) does not apply if—

(a) the person is an individual and on no day in the year the nominal value of securities held byhimexceeded £5,000,

(b) the person is a personal representative and on no day in the year the nominal value of securities held by him as the deceased's personal representative exceeded £5,000,

(c) the person is trustee of a settlement of property held on a disabled person's trusts and on no day m the year the nominal value of securities held by him as trustee of the settlement exceeded £5,000, or

(d) the person does not fulfil the residence requirement for the year and is not a non-resident United Kingdom trader in the year.

(3) For the purposes of this Schedule a person is to be treated as not entitled to securities if he is not ordinarily resident in the United Kingdom during the year and, if he became entitled in the year to any interest on the securities, it would not be liable to income tax by virtue of section 99 of the Taxes Act (securities free of income tax for residents abroad).

(4) For the purposes of this Schedule a person who is not domiciled in the United Kingdom at any time in the year, and is either not ordinarily resident in the United Kingdom during the year or a non-resident United Kingdom trader in the year, is to be treated as not entitled to securities which are FOTRA securities.

(5) For the purposes of this Schedule a person who is an individual is to be treated as not entitled to securities in the case of which, if he became entitled in the year of assessment 1985-86 to any interest on them, he would be liable, in respect of the interest, to tax chargeable under Case IV or Case V of Schedule D and computed on the amount of sums received in the United Kingdom.

(6) Paragraph 2(2) or (3) above (as the case may be) does not apply if the person is an individual who dies in the year.

(7) Paragraph 2(2) or (3) above (as the case may be) applies, in a case where the person is a company and the second date does not fall within an accounting period of the company, as if the reference to the second date were to the last day which does so fall.

(8) For the purposes of this paragraph a person fulfils the residence requirement for the year if he is resident in the United Kingdom during any part of the year or is ordinarily resident in the United Kingdom during the year.

(9) For the purposes of this paragraph a person is a non-resident United Kingdom trader in the year if during any part of it he is (though neither resident during any part of it nor ordinarily resident during it) carrying on a trade in the United Kingdom through a branch or agency.

(10) But if (apart from this sub-paragraph) a person who is a non-resident United Kingdom trader in the year would for the purposes of this Schedule be treated as entitled to securities at a time in the year, he is not to be treated as so entitled for those purposes unless the securities were at some time in the year used or held for the purposes of the branch or agency and (except where the person concerned is a company) situated in the United Kingdom.

(11) For the purposes of this paragraph " disabled person's trusts " means trusts falling within paragraph 5(1) of Schedule 1 to the Capital Gains Tax Act 1979, " branch or agency " has the meaning given by section 12(3) of that Act, and the place where securities are situated shall be determined in accordance with section 18(4) of that Act.

(12) For the purposes of this paragraph " FOTRA securities " means securities issued with the condition mentioned in section 22(1) of the Finance (No. 2) Act 1931 (securities free of tax for residents abroad) as modified by virtue of section 60(1) of the Finance Act 1940.

Information etc.

6

(1) Any person upon whom notice is served by an inspector, requiring the person to furnish a statement of and particulars relating to any securities held by the person at any time in the year, shall furnish such a statement and such particulars in the form and within the time (not being less than 28 days) required by the notice ; and an inspector may serve further notices whenever he considers it necessary for the purposes of this Schedule until complete particulars have been furnished to his satisfaction.

(2) If a person fails to furnish any statement or particulars required under this paragraph, or if an inspector is not satisfied with any statement or particulars furnished under this paragraph, he may make an estimate of the amount of the annual profits or gains which the person is to be treated as receiving under the preceding provisions of this Schedule.

(3) In the Table in section 98 of the Taxes Management Act 1970 (penalties for failure to comply with notices etc.) at the end of the first column there shall be inserted—

Paragraph 6(1) of Schedule 22 to the Finance Act 1985

Offshore funds

7

(1) Any amount which, on the assumptions mentioned in subparagraph (2) below, an offshore fund would be treated as receiving as annual profits or gains by virtue of paragraph 2(2) or (3) above (as the case may be) shall for the purposes of Schedule 19 to the Finance Act 1984 be taken to be part of the United Kingdom equivalent profits of the fund for the account period of the fund in which 27th February 1986 falls.

(2) The assumptions are—

(a) that the offshore fund is a company which is resident in the United Kingdom during the period beginning with the appropriate day and ending with 27th February 1986,

(b) that a notice is served on the fund under paragraph 6(1) above, and

(3) In this paragraph " offshore fund ", " United Kingdom equivalent profits " and " account period " have the meanings they have in Schedule 19 to the Finance Act 1984 ; and " the appropriate day " shall be construed in accordance with paragraph 4(6) above.

SCHEDULE 23

PART I — General Interpretation

Securities

1

(1) For the purposes of this Chapter " securities " does not include shares in a company but, subject to sub-paragraph (2) below, includes any loan stock or similar security—

(a) whether of the Government of the United Kingdom, any other government, any public or local authority in the United Kingdom or elsewhere, or any company or other body, and

(b) whether or not secured, whether or not carrying a right to interest of a fixed amount or at a fixed rate per cent, of the nominal value of the securities, and whether or not in bearer form.

(2) For the purposes of this Chapter " securities " does not include—

(a) securities on which the whole of the return is a distribution by virtue of paragraph (d)(iv) of section 233(2) of the Taxes Act;

(b) national savings certificates (including Ulster savings certificates) ;

(d) certificates of deposit (which expression has here the same meaning as in section 55 of the Finance Act 1968);

(e) any security which fulfils the following conditions, namely, it is redeemable, the amount payable on its redemption exceeds its issue price, and no return other than the amount of that excess is payable on it.

(3) For the purposes of this Chapter securities are of the same kind if they are treated as being of the same kind by the practice of a recognised stock exchange in the United Kingdom or elsewhere, or would be so treated if dealt with on such a stock exchange.

Transfers, holding etc.

2

(1) This paragraph applies for the purposes of this Chapter.

(2) "Transfer", in relation to securities, means transfer by way of sale, exchange, gift or otherwise.

(3) Where an agreement for the transfer of securities is made, they are transferred, and the person to whom they are agreed to be transferred becomes entitled to them, when the agreement is made and not on a later transfer made pursuant to the agreement.

(4) " Entitled", " transfer" and cognate expressions, except in sub-paragraph (3) above, shall be construed in accordance with that sub-paragraph.

(5) A person holds securities at a particular time if he is entitled to them at the time.

(6) A person holds securities on a day if he is entitled to them throughout the day, or he becomes and does not cease to be entitled to them on the day.

(7) A person acquires securities when he becomes entitled to them.

(8) Where—

(a) one individual holds securities at a particular time, and

(b) any interest on them would, if it became payable at that time, be treated for the purposes of the Tax Acts as part of another individual's income,

then, for the purposes of the provisions mentioned in sub-paragraph (9) below, each of them shall be treated as holding at that time the securities which the other holds as well as those which he actually holds.

(9) The provisions are—

(a) section 75(1)(b) of this Act,

(b) section 75(2)(b) of this Act, so far as relating to section 75(1)(b), and

(10) Where, in Scotland, two or more persons carry on a trade or business in partnership, any partnership dealings shall be treated as dealings by the partners and not by the firm as such and the partners as being entitled to securities held by the firm.

3

(1) This paragraph applies for the purposes of this Chapter.

(2) An interest payment day, in relation to securities, is a day on which interest on them is payable; and, in a case where a particular payment of interest may be made on one of a number of days, the interest is for the purposes of this sub-paragraph payable on the first of those days.

(3) Subject to sub-paragraph (4) below, the following are interest periods in relation to securities—

(a) the period beginning with the day following that on which they are issued and ending with the first interest payment day to fall;

(b) the period beginning with the day following one interest payment day and ending with the next to fall.

(4) A period which would (apart from this sub-paragraph) be an interest period exceeding 12 months (a long period) is not an interest period, but the following shall apply to it-

(a) the period of 12 months beginning with the day on which it begins is an interest period ;

(b) each successive period (if any) of 12 months falling within it is an interest period ;

(5) Securities are transferred with accrued interest if they are transferred with the right to receive interest payable on—

(a) the settlement day, if that is an interest payment day, or

(b) the next (or first) interest payment day to fall after the settlement day, in any other case,

and they are transferred without accrued interest if they are transferred without that right.

(6) The interest applicable to securities for an interest period is (subject to sub-paragraph (7) below) the interest payable on them on the interest payment day with which the period ends.

(7) In the case of a period which is an interest period by virtue only of sub-paragraph (4) above or paragraph 26(3) below—

(a) the interest applicable to securities for the period is the interest payable on them on the interest payment day with which the long or straddling period concerned ends, and

(b) section 73(8) of this Act shall have effect as if the references to the period were to the long or straddling period concerned.

(8) "Interest" includes dividends and any other return (however described) except a return consisting of an amount by which the amount payable on a security's redemption exceeds its issue price.

Settlement day

4

(1) This paragraph has effect to determine, for the purposes of this Chapter, the settlement day in relation to a transfer of securities.

(2) Where the securities are transferred in accordance with the rules of a recognised market the settlement day is the day on which the transferee agrees to settle or, if he may settle on one of a number of days, the day on which he settles; and, where they are transferred otherwise, sub-paragraphs (3) to (5) below apply.

(3) Where the consideration for the transfer is money alone, and the transferee agrees to pay the whole of it on or before the next (or first) interest payment day to fall after an agreement for transfer is made, the settlement day is the day on which he agrees to make the payment or, if payment may be made on one of a number of days, or on a number of different days, the latest of them to fall.

(4) Where there is no consideration for the transfer, or the transfer is a transfer by virtue of paragraph 7, 12, 13, 14 or 31 below, the settlement day is the day on which the securities are transferred.

(5) In any other case, the settlement day is such day as an inspector decides ; and the jurisdiction of the General Commissioners or the Special Commissioners on any appeal shall include jurisdiction to review such a decision of the inspector.

Nominal value

5

For the purposes of this Chapter the nominal value of securities is—

(a) where the interest on them is expressed to be payable by reference to a given value, that value, and

(b) in any other case, the price of the securities when they were issued.

PART II — Special Cases

Nominees and trustees

6

(1) Where securities are transferred by or to a person as nominee for another person, or as trustee for another person absolutely entitled as against the trustee, or for any person who would be so entitled but for being an infant or other person under disability, or for two or more persons who are or would be jointly so entitled, sections 73 and 75 of this Act apply as if references to the transferor or the transferee (as the case may be) were to the person or persons for whom the nominee or trustee disposes or acquires.

(2) It is hereby declared that for the purposes of sub-paragraph (1) above—

(a) securities are transferred by a person as trustee for another person absolutely entitled as against the trustee if that other person has immediately before the transfer the exclusive right to direct how the securities shall be dealt with, subject only to satisfying any outstanding charge, hen or other right of the trustee to resort to the securities for payment of duty, taxes, costs or other outgoings, and

(b) securities are transferred to a person as trustee for another person so entitled if that other person has that right immediately after the transfer.

7

(1) Where a person who is entitled to securities becomes trustee of them, he shall be treated for the purposes of this Chapter as transferring them (in a capacity other than trustee) to himself (in his capacity as trustee), or to himself and any other trustees, at the time he becomes trustee.

(2) The securities shall be treated as transferred with accrued interest if the person was entitled to receive in respect of them interest payable on—

(a) the day the transfer is treated as made, if that is an interest payment day, or

(b) the next (or first) interest payment day to fall after that day, in any other case,

and they shall be treated as transferred without accrued interest if he was not so entitled.

8

(1) Annual profits or gains which by virtue of any of the provisions mentioned in sub-paragraph (2) below are treated as received in a year of assessment by trustees shall be chargeable to income tax at a rate equal to the sum of the basic rate and the additional rate for that year.

(2) The provisions are—

(a) section 74(2) of this Act,

(b) paragraph 2(2) or (3) of Schedule 22 to this Act, and

(3) In section 17 of the Finance Act 1973 (payments under discretionary trusts) in subsection (3) (amounts to be set against tax assessable on trustees in connection with such payments) at the end of paragraph (f) there shall be inserted

and (g) the amount of any tax on annual profits or gains treated as received by trustees by virtue of section 74(2) of the Finance Act 1985, paragraph 2(2) or (3) of Schedule 22 to that Act or paragraph 15(3) of Schedule 23 to that Act (securities) and charged at a rate equal to the sum of the basic rate and the additional rate by virtue of paragraph 8(1) of Schedule 23 to that Act;

9

(1) Sub-paragraph (2) below applies where—

(a) a trustee of a settlement is treated as receiving annual pro fits or gains under section 74(2) of this Act, or

(b) a trustee of a settlement who is resident or domiciled outside the United Kingdom throughout any chargeable period in which an interest period (or part of it) falls would, at the end of the interest period, have been treated under section 74(2) of this Act as receiving annual profits or gains or annual profits or gains of a greater amount if he had been resident or domiciled in the United Kingdom during a part of each such chargeable period.

(2) Chapters II to IV of Part XVI of the Taxes Act (settlements) shall have effect as if the amount which the trustee is or would be treated as receiving were income (within Chapter II) or income arising under the settlement (within Chapter III or IV).

(3) Sub-paragraph (4) below applies where income of a trustee of a settlement who is resident or domiciled outside the United Kingdom throughout any chargeable period in which an interest period (or part of it) falls consists of interest which falls due at the end of the interest period and which would have been treated under section 74(5) of this Act as reduced by an allowance or an allowance of a greater amount if he had been resident or domiciled in the United Kingdom during a part of each such chargeable period.

(4) For the purposes of Chapters II to IV of Part XVI of the Taxes Act, the interest shall be treated as being reduced by the amount of the allowance or by the additional amount (as the case may be).

(5) In this paragraph—

(a) " settlement" means settlement within the meaning of Chapter II, III or IV of Part XVI of the Taxes Act (as the case may be), and

(b) references to a trustee of a settlement are, where there is no trustee of the settlement, to any person entitled to securities comprised in the settlement.

Foreign currency

10

(1) Sub-paragraphs (2) to (4) below apply where the interest on securities is payable in a currency other than sterling.

(2) For the purposes of section 73(2) of this Act the accrued amount is to be determined as follows—

(a) if section 73(4)(a) applies and the sterling equivalent of the amount of gross interest there mentioned is shown in an agreement for transfer, the accrued amount is the sterling equivalent so shown;

(b) if section 73(4)(a) applies but sub-paragraph (a) above does not, or if section 73(4)(b) applies, the accrued amount is the sterling equivalent on the settlement day of the amount found by virtue of section 73(4)(a) or ((b) (as the case may be).

(3) For the purposes of section 73(3) of this Act the rebate amount is to be determined as follows—

(a) if section 73(5)(a) applies and the sterling equivalent of the amount of gross interest there mentioned is shown in an agreement for transfer, the rebate amount is the sterling equivalent so shown;

(b) if section 73(5)(a) applies but sub-paragraph (a) above does not, or if section 73(5)(b) applies, the rebate amount is the sterling equivalent on the settlement day of the amount found by virtue of section 73(5)(a) or (b) (as the case may be).

(4) For the purposes of paragraph 2(3) of Schedule 22 to this Act, the amount of interest! received on any day shall be taken to be the sterling equivalent on that day of the amount actually received.

(5) Where securities are denominated in a currency other than sterling the amount of the deemed interest for the purposes of paragraph 2(2) and (3) of Schedule 22 to this Act is the sterling equivalent on the second date (within the meaning of that Schedule) of the deemed interest.

(6) Where, apart from this sub-paragraph, the nominal value of securities would be a value (the foreign value) expressed in a currency other than sterling, then, for the purposes of section 75 of this Act and Schedule 22 to this Act, their nominal value on a particular day is the sterling equivalent on that day of the foreign value.

(7) For the purposes of sub-paragraphs (2)(b), (3)(b) and (4) to (6) above, the sterling equivalent of an amount or value on a particular day is the sterling equivalent calculated by reference to the London closing rate of exchange for that day.

Foreign securities: delayed remittances

11

(1) This paragraph applies where in an interest period a person is treated as entitled to a sum or sums under section 73(2)(a) of this Act in respect of a transfer or transfers of securities of a particular kind which are situated outside the United Kingdom.

(2) Subject to sub-paragraph (3) below, the amount of any annual profits or gains which the person is treated under section 74 of this Act as receiving on the day the period ends in respect of securities of that kind shall be reduced—

(a) if the amount of the sum or aggregate of the sums exceeds the amount of the profits or gains, to nil, or

(b) in any other case, by the amount of the sum or aggregate.

(3) No reduction shall be made unless the person makes a claim and shows that the conditions in sub-paragraph (5) below are, so far as applicable, satisfied in the chargeable period in which the profits or gains are treated as received.

(4) The claimant (or his personal representatives) shall be charged to tax under Case VI of Schedule D on the amount of the reduction for the chargeable period in which the conditions in sub-paragraph (5) below cease to be satisfied.

(5) The conditions are—

(a) that the claimant was unable to remit the proceeds of the transfer or transfers to the United Kingdom,

(b) that the inability was due to the laws of the territory in which the securities are situated, or to the executive action of its government, or to the impossibility of obtaining foreign currency in that territory, and

(6) No claim under this paragraph shall be made in respect of a transfer more than six years after the end of the interest period in which the transfer occurred.

(7) The personal representatives of a deceased person may make any claim which he might have made under this paragraph if he had not died.

(8) For the purposes of this paragraph the place where securities are situated shall be determined in accordance with section 18(4) of the Capital Gains Tax Act 1979.

Death

12

(1) Where an individual who is entitled to securities dies, he shall be treated for the purposes of this Chapter as transferring the securities to his personal representatives immediately before his death.

(2) The securities shall be treated as transferred with accrued interest if the deceased was entitled to receive in respect of them interest payable on—

(a) the day of death, if that is an interest payment day, or

(b) the next (or first) interest payment day to fall after the day of death, in any other case,

and they shall be treated as transferred without accrued interest if he was not so entitled.

(3) Where the securities are transferred with accrued interest by the personal representatives to a legatee in the interest period in which the individual died—

(a) section 73 of this Act shall not apply to the transfer, and

(b) the transfer of the securities which the individual is treated as making by virtue of sub-paragraph (1) above shall be treated as made to the legatee (and not to the personal representatives).

(4) In sub-paragraph (3) above "legatee" includes any person taking (whether beneficially or as trustee) under a testamentary disposition or on an intestacy or partial intestacy, including any person taking by virtue of an appropriation by the personal representatives in or towards satisfaction of a legacy or other interest or share in the deceased's property.

(5) In the case of an individual who dies in an interest period, section 74(2) of this Act shall have effect as if the reference to the day the period ends were to the day he dies.

Trading stock: appropriations

13

(1) Where securities acquired by a person otherwise than as trading stock of a trade carried on by him are appropriated by him for the purposes of the trade as trading stock (whether on the commencement of the trade or otherwise), he shall be treated for the purposes of this Chapter as transferring them otherwise than in the course of the trade and re-acquiring them in the course of the trade on the day the appropriation is made.

(2) Where securities forming part of the trading stock of a person's trade are appropriated by him for any other purpose, or are retained by him on his ceasing to carry on the trade, he shall be treated for the purposes of this Chapter as transferring them in the course of the trade and re-acquiring them otherwise than in the course of the trade on the day the appropriation is made or (as the case may be) he ceases to carry on the trade.

(3) Where sub-paragraph (1) or (2) above applies, the securities shall be treated as transferred with accrued interest if the person was entitled to receive in respect of them interest payable on—

(a) the day the transfer is treated as made, if that is an interest payment day, or

(b) the next (or first) interest payment day to fall after that day, in any other case,

and they shall be treated as transferred without accrued interest if he was not so entitled.

Conversions

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(1) Where there is a conversion of securities the person who was entitled to them immediately before the conversion shall be treated for the purposes of this Chapter as transferring them on the day of the conversion (if there is no actual transfer).

(2) The transfer shall be treated as made with accrued interest if the person was entitled to receive in respect of the securities interest payable on—

(a) the day of the conversion, if that is an interest payment day, or

(b) the next (or first) interest payment day to fall after the day of the conversion, in any other case,

and they shall be treated as transferred without accrued interest if he was not so entitled.

(3) For the purposes of this Chapter the interest period in which the conversion is made shall be treated as ending on the day on which it would have ended had the conversion not been made.

(4) In this paragraph " conversion " means conversion within the meaning of section 82 of the Capital Gains Tax Act 1979.

Transfer of unrealised interest

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