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Income Tax (Trading and Other Income) Act 2005

Type Public General Act

Publication 2005-03-24

Last updated 2026-01-20

State In force

Department Statute Law Database

Source legislation.gov.uk

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(5) The dividends are treated as paid on the shares and by the company referred to in section 617(1) of CTA 2010 (which relates to the trustees of an authorised unit trust being treated as a UK resident company in which the unit holders' rights are shares).

(6) This section does not apply if the authorised unit trust is an approved personal pension scheme.

(7) See section 391 for the interpretation of this section and section 390.

Date when dividends paid under section 389

390

(1) This section applies for determining the date on which dividends are treated as paid under section 389.

(2) The date on which the dividends are treated as paid depends on whether a date is specified by or in accordance with the trust's terms for any distribution for the distribution period in question.

(3) If such a date is so specified, the dividends are treated as paid on that date.

(4) If no such date is so specified, the dividends are treated as paid on the last day of that period.

Interpretation of sections 389 and 390

391

In sections 389 and 390—

“approved personal pension scheme” has the same meaning as in Chapter 4 of Part 14 of ICTA (see section 630(1) of that Act),

“distribution” includes investment on behalf of a unit holder in respect of the holder's accumulation units,

“distribution accounts” means the accounts showing how the total amount available for distribution to unit holders is ascertained, and

“distribution period” means the period by reference to which that amount is ascertained.

SIP shares: introduction

392

(1) Sections 393 to 395 contain special rules about the charge under this Chapter in respect of shares awarded to an individual under a Schedule 2 share incentive plan.

(2) Those sections only apply if condition A or B was met at the time the shares in question were so awarded.

(3) Condition A is that—

(a) the earnings from the eligible employment were general earnings (see section 7(3) of ITEPA 2003) to which any of the charging provisions of Chapter 4 or 5 of Part 2 of ITEPA 2003 applied, or

(b) if there had been any earnings from it, they would have been such earnings.

(4) In subsection (3)—

(a) “the eligible employment” means the employment resulting in the individual meeting the employment requirement in relation to the plan, and

(b) the reference to any of the charging provisions of Chapter 4 or 5 of Part 2 of ITEPA 2003 has the same meaning as it has in the employment income Parts of that Act (see sections 14(3) and 20(3) of that Act).

(5) Condition B is that—

(a) the shares were awarded before 6th April 2003, and

(b) the individual was liable for tax under Schedule E in respect of the relevant employment.

(6) In subsection (5) “the relevant employment” means the employment by reference to which the individual met the requirements in paragraph 14 of Schedule 8 to FA 2000 (employee share ownership plans: the employment requirement) in relation to the plan.

(7) See section 396 for the general interpretation of this section and sections 393 to 395.

Later charge where cash dividends retained in SIPs are paid over

393

(1) This section applies if a cash dividend is paid over to a participant under paragraph 68(4) of Schedule 2 to ITEPA 2003 (cash dividend paid over if not reinvested etc.).

(2) Tax charged under this Chapter is charged for the tax year in which the cash dividend is paid over instead of the tax year in which it was originally paid.

(3) Tax so charged is charged on the amount of the cash dividend paid over.

(4) The person liable for any tax so charged is the participant.

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) For the purposes of this Chapter, the question whether a cash dividend paid over to a participant under paragraph 68(4) of Schedule 2 to ITEPA 2003 is a dividend paid by a company that is UK resident is determined by reference to the tax year in which the dividend was originally paid.

Distribution when dividend shares cease to be subject to SIP

394

(1) This section applies if dividend shares cease to be subject to a Schedule 2 share incentive plan before the end of the period of 3 years beginning with the date on which the shares were acquired on the participant's behalf.

(2) For income tax purposes a distribution is treated as made to the participant in the tax year in which the shares cease to be subject to the plan.

(3) The amount of the distribution treated as made is the amount of the cash dividend applied to acquire the shares on the participant's behalf, so far as it represents a cash dividend paid in respect of plan shares in a UK resident company.

(3A) But if the shares cease to be subject to the plan by virtue of a provision of the kind mentioned in paragraph 65(2) of Schedule 2 to ITEPA 2003 (provision requiring dividend shares to be offered for sale), the amount of the distribution treated as made is the amount equal to the relevant fraction of the market value of the shares at the time they are offered for sale if that amount is less than the amount given by subsection (3).

(3B) For the purposes of subsection (3A) “the relevant fraction” is—

$$A B$where—A is so much of the amount of the cash dividend applied to acquire the shares on the participant's behalf as represents a cash dividend paid in respect of plan shares in a UK resident company, andB is the amount of the cash dividend applied to acquire the shares on the participant's behalf.$

(3C) Paragraph 92(2) of Schedule 2 to ITEPA 2003 (market value of shares subject to a restriction) applies for the purposes of subsection (3A).

(4) The person liable for any tax charged on the distribution as a result of this section is the participant.

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) For the purposes of this Chapter, the question whether the distribution under subsection (2) is a distribution by a company that is UK resident is determined by reference to the year in which the company paid the dividend applied to acquire the shares on the participant's behalf.

(7) For rules identifying shares ceasing to be subject to Schedule 2 share incentive plans, see section 508 of ITEPA 2003.

Reduction in tax due in cases within section 394

395

(1) This section applies if—

(a) a person is liable to tax as a result of section 394, and

(b) any tax is paid on any capital receipts under section 501 of ITEPA 2003 (charge on capital receipts in respect of plan shares) in respect of the shares that cease to be subject to the Schedule 2 share incentive plan.

(2) The tax due is to be reduced by an amount equal to the total tax so paid.

(3) In subsection (2) “the tax due” means the amount of tax due as a result of section 394 ....

(4) For rules identifying shares ceasing to be subject to Schedule 2 share incentive plans, see section 508 of ITEPA 2003.

Interpretation of sections 392 to 395

396

(1) This section and sections 392 to 395 form part of the SIP code (see section 488 of ITEPA 2003 (... share incentive plans)).

(2) Accordingly, expressions used in this section or those sections and contained in the index in paragraph 100 of Schedule 2 to that Act (... share incentive plans) have the meaning indicated by that index.

(3) In particular—

(a) for the meaning of “award of shares” see paragraph 5(1) of that Schedule,

(b) for the meaning of “ceasing to be subject to plan” see paragraph 97 of that Schedule,

(d) for the meaning of “employment requirement” see paragraph 15(3) of that Schedule,

(e) for the meaning of “participant” see paragraph 5(4) of that Schedule,

(f) for the meaning of “plan shares” see paragraphs 86 to 88 and 99(1) of that Schedule, and

(g) for the meaning of “shares” see paragraphs 87(6) and 99(2) of that Schedule.

... Payment and deduction of tax

Tax credits for qualifying distributions: UK residents and eligible non-UK residents

397

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

Increase in amount or value of dividends where tax credit available

398

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

Qualifying distributions received by persons not entitled to tax credits

399

(1) This section applies if—

(a) a person's income for a tax year includes a distribution of a company, and

(b) the person is non-UK resident.

(2) The person is treated as having paid income tax at the dividend ordinary rate on the amount or value of the distribution ....

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) The income tax treated as paid under subsection (2) is not repayable.

(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-qualifying distributions

400

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

Relief: qualifying distribution after linked non-qualifying distribution

401

(1) Where a person is liable to income tax on a CD distribution, the person's liability to income tax on a subsequent non-CD distribution is reduced in accordance with this section if the non-CD distribution consists of a repayment of—

(a) the share capital, or

(b) the principal of the security,

which constituted the CD distribution.

(1A) The reduction is—

(a) the amount of income tax to which the person is liable on the CD distribution, or

(b) if lower, the amount of income tax to which the person is liable on the non-CD distribution.

(1B) For the purposes of calculating the amounts mentioned in subsection (1A)(a) and (b) assume—

(a) that the CD distribution is the lowest part of the person's dividend income in the tax year (“year 1”) in which it is made,

(b) that the non-CD distribution, if it is made in year 1, is the part of the person's dividend income in year 1 that is next lowest after the CD distribution, and

(c) that the non-CD distribution, if it is made after year 1, is the lowest part of the person's dividend income in the tax year in which it is made.

(6A) The reduction under this section is given effect at Step 6 of the calculation in section 23 of ITA 2007.

(7) In this section—

“CD distribution” means a distribution which is a distribution for the purposes of the Corporation Tax Acts only because it falls within paragraph C or D in section 1000(1) of CTA 2010 (redeemable share capital or security issued as bonus in respect of shares in, or securities of, the company),

“non-CD distribution” means a distribution which is not a CD distribution, and

“security” has the meaning given in section 1117(1) of CTA 2010.

Chapter 4 — Dividends from non-UK resident companies

Charge to tax on dividends from non-UK resident companies

402

(1) Income tax is charged on dividends of a non-UK resident company.

(2) For exemptions, see in particular section 770 (amounts applied by SIP trustees acquiring dividend shares or retained for reinvestment).

(3) Subsection (1) is also subject to section 498 of ITEPA 2003 (no charge on shares ceasing to be subject to SIP in certain circumstances).

(4) In this Chapter “dividends” does not include dividends of a capital nature.

Income charged

403

(1) Tax is charged under this Chapter on the ... amount of the dividends arising in the tax year.

(2) Subsection (1) is subject to—

section 406(2) and (3) (later charge where cash dividends retained in SIPs are paid over),

section 407(3) (dividend payment when dividend shares cease to be subject to SIP), and

Part 8 (foreign income: special rules).

Person liable

404

(1) The person liable for any tax charged under this Chapter is the person receiving or entitled to the dividends.

(2) Subsection (1) is subject to—

section 406(4) (later charge where cash dividends retained in SIPs are paid over), and

section 407(4) (dividend payment when dividend shares cease to be subject to SIP).

SIP shares: introduction

405

(1) Sections 406 to 408 contain special rules about the charge under this Chapter in respect of shares awarded to an individual under a Schedule 2 share incentive plan.

(2) Those sections only apply if the condition in section 392(3) or (5) was met at the time the shares in question were so awarded (earnings within ITEPA 2003).

(3) This section and sections 406 to 408 form part of the SIP code (see section 488 of ITEPA 2003 (... share incentive plans)).

(4) Accordingly, expressions used in this section or those sections and contained in the index in paragraph 100 of Schedule 2 to that Act (... share incentive plans) have the meaning indicated by that index.

(5) In particular—

(a) for the meaning of “award of shares” see paragraph 5(1) of that Schedule,

(b) for the meaning of “ceasing to be subject to plan” see paragraph 97 of that Schedule,

(d) for the meaning of “participant” see paragraph 5(4) of that Schedule,

(e) for the meaning of “plan shares” see paragraphs 86 to 88 and 99(1) of that Schedule, and

(f) for the meaning of “shares” see paragraphs 87(6) and 99(2) of that Schedule.

Later charge where cash dividends retained in SIPs are paid over

406

(1) This section applies if a cash dividend is paid over to a participant under paragraph 68(4) of Schedule 2 to ITEPA 2003 (cash dividend paid over if not reinvested etc.).

(2) Tax charged under this Chapter is charged for the tax year in which the cash dividend is paid over instead of the tax year in which in which it was originally paid.

(3) Tax so charged is charged on the amount of the cash dividend paid over.

(4) The person liable for any tax so charged is the participant.

(4A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) For the purposes of this Chapter, the question whether a cash dividend so paid over is a dividend paid by a company that is non-UK resident is determined by reference to the tax year in which the dividend was originally paid.

Dividend payment when dividend shares cease to be subject to SIP

407

(1) This section applies if dividend shares cease to be subject to a Schedule 2 incentive plan before the end of the period of 3 years beginning with the date on which the shares were acquired on the participant's behalf.

(2) For income tax purposes a dividend is treated as paid to the participant in the tax year in which the shares cease to be subject to the plan.

(3) The amount of the dividend treated as paid is the amount of the cash dividend applied to acquire the shares on the participant's behalf, so far as it represents a cash dividend paid in respect of plan shares in a non-UK resident company.

(3A) But if the shares cease to be subject to the plan by virtue of a provision of the kind mentioned in paragraph 65(2) of Schedule 2 to ITEPA 2003 (provision requiring dividend shares to be offered for sale), the amount of the dividend treated as paid is the amount equal to the relevant fraction of the market value of the shares at the time they are offered for sale if that amount is less than the amount given by subsection (3).

(3B) For the purposes of subsection (3A) “the relevant fraction” is—

$$A B$where—A is so much of the amount of the cash dividend applied to acquire the shares on the participant's behalf as represents a cash dividend paid in respect of plan shares in a non-UK resident company, andB is the amount of the cash dividend applied to acquire the shares on the participant's behalf.$

(3C) Paragraph 92(2) of Schedule 2 to ITEPA 2003 (market value of shares subject to a restriction) applies for the purposes of subsection (3A).

(4) The person liable for any tax charged as a result of this section is the participant.

(4A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) For rules identifying shares ceasing to be subject to Schedule 2 share incentive plans, see section 508 of ITEPA 2003.

Reduction in tax due in cases within section 407

408

(1) This section applies if—

(a) a person is liable for tax as a result of section 407, and

(b) any tax is paid on any capital receipts under section 501 of ITEPA 2003 (charge on capital receipts in respect of plan shares) in respect of the shares that cease to be subject to the Schedule 2 share incentive plan.

(2) The tax due as a result of section 407 is to be reduced by an amount equal to the total tax so paid.

(2A) In subsection (2) “the tax due” means the amount of tax due as a result of section 407 ....

(3) For rules identifying shares ceasing to be subject to Schedule 2 share incentive plans, see section 508 of ITEPA 2003.

Chapter 5 — Stock dividends from UK resident companies

Charge to tax on stock dividend income

409

(1) Income tax is charged on stock dividend income.

(2) In this Chapter “stock dividend income” means the income that is treated as arising under section 410.

When stock dividend income arises

410

(1) This section applies to—

(a) share capital issued by a UK resident company in lieu of a cash dividend, and

(b) bonus share capital issued by a UK resident company in respect of shares in the company of a qualifying class.

(1A) For the purposes of subsection (1)(b), shares are of a qualifying class if—

(a) shares of that class carry the right to receive bonus share capital in the company (of the same or a different class), and

(b) that right is conferred by the terms on which shares of that class were originally issued or by those terms as subsequently extended or otherwise varied.

(2) If an individual is beneficially entitled to that share capital, income is treated as arising to the individual.

(3) If—

(a) the share capital is issued to trustees in respect of shares they hold in the company (alone or with others), and

(b) a cash dividend paid to them in respect of the shares would have been to any extent accumulated or discretionary income (as defined in section 480 of ITA 2007 but excluding income arising under a charitable trust or an unauthorised unit trust in relation to which regulation 12 of the Unauthorised Unit Trusts (Tax) Regulations 2013 applies) ,

income is treated as arising to the trustees.

(4) If the share capital is issued to personal representatives during the administration period, income is treated as arising (but see section 413(4)).

(5) In subsection (4) “administration period” has the meaning given by section 653.

(6) Income within this section is treated as arising on the earliest date on which the company is required to issue the share capital in question.

(7) See section 413(5) (apportionment) if two or more persons are entitled to the share capital.

(8) There are special rules in paragraph 78A of Schedule 2 for share capital issued in respect of shares issued before 6 April 1975.

Income charged

411

(1) Tax is charged under this Chapter on the amount of stock dividend income treated for income tax purposes as arising in the tax year.

(2) That amount is the cash equivalent of the share capital on the issue of which the stock dividend income arises (see section 412)....

412

(1) The cash equivalent of share capital issued as mentioned in section 410(1)(a) is the amount of the cash dividend alternative (see section 414A(2)).

(2) But if the difference between the cash dividend alternative and the share capital's market value equals or exceeds 15% of that market value—

(a) subsection (1) does not apply, and

(b) the cash equivalent of the share capital is its market value.

(3) The cash equivalent of share capital issued as mentioned in section 410(1)(b) is its market value.

(4) For the purposes of this section, market value is determined—

(a) in the case of listed share capital, on the date of first dealing, and

(b) in the case of other share capital, on the earliest date on which the company is required to issue it.

(5) In this section—

“listed” means listed in the Stock Exchange Daily Official List, and

“market value” has the same meaning as in sections 272(1) and (3) and 273(3) of TCGA 1992.

Person liable

413

(1) The person liable for any tax charged under this Chapter is the person indicated by this section.

(2) If section 410(2) applies, the individual is liable for the tax.

(3) If section 410(3) applies, the trustees are liable for the tax.

(4) If section 410(4) applies, tax is not charged under this Chapter, but see—

(a) section 664 (under which the income treated as arising to the personal representatives under section 410 is treated as part of the aggregate income of the estate for the purposes of Chapter 6 of Part 5), and

(b) section 947 of CTA 2009 (under which similar provision is made for the purposes of Chapter 3 of Part 10 of that Act).

(5) If two or more persons are entitled to the share capital on the issue of which the stock dividend income arises, this Chapter applies as if the company issuing it had issued to each of those persons a proportionate part of the share capital.

(6) In subsection (5) “proportionate part” means a part proportionate to the person's interest on the earliest date on which the company is required to issue the share capital.

Income tax treated as paid

414

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

Chapter 6 — Release of loan to participator in close company

Charge to tax under Chapter 6

415

(1) Income tax is charged if—

(a) a company is or was chargeable to tax under section 455 of CTA 2010 (loans to participators in close companies etc.) in respect of a loan or advance, and

(b) the company releases or writes off the whole or part of the debt in respect of the loan or advance.

(2) Subsection (1) is subject to section 418 (relief where borrowers liable as settlors).

(3) Subsection (4) applies if, as a result of section 460 of CTA 2010, sections 455 to 459 of that Act have effect as if a loan or advance had been made by a company (“A”), rather than the company (“B”) which—

(a) actually made it,

(b) is regarded as having made it under section 455(4) of that Act (deemed loans where debt incurred or assigned to close company), or

(4) If the whole or part of the debt is released or written off by B, for the purposes of subsection (1), A rather than B is treated as releasing it or writing it off.

(5) Expressions used in this Chapter have the same meanings as they have for the purposes of section 455 of CTA 2010 .

Income charged

416

(1) Tax is charged under this Chapter on the ... amount of the debt released or written off in the tax year.

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

(3) For the purposes of calculating the total income of the person liable for the tax, the amount charged is treated as income.

(4) This section is subject to section 418 (relief where borrowers liable as settlors).

Person liable

417

(1) The person liable for any tax charged under this Chapter is—

(a) in the case of a loan or advance made to a partnership, any partner who is an individual, and

(b) in any other case, the person to whom the loan or advance was made.

(1A) If more than one person is liable in a case within subsection (1)(a), the liability is to be apportioned between them in a just and reasonable manner.

(2) This is subject to—

section 419 (loans and advances to persons who die), and

section 420 (loans and advances to trustees of trusts that have ended).

Relief where borrowers liable as settlors

418

(1) Relief is given under this section if the person to whom the loan or advance was made—

(a) is liable for the tax year for income tax on a sum in respect of it under Chapter 5 of Part 5 as a result of section 633 (capital sums paid to settlor by trustees of settlement), or

(b) has been so liable for any previous tax year.

(2) If the total amount previously charged (see subsection (4)) equals or exceeds the total amount released (see subsection (6)), tax is not charged under this Chapter.

(3) If the total amount released exceeds the total amount previously charged, tax is charged under this Chapter on the excess....

(4) In this section “the total amount previously charged” means the total of—

(a) the sums included in the person's income under section 633 in respect of the loan or advance for the tax year or for previous tax years, and

(b) the amounts charged under this Chapter in respect of the loan or advance for previous tax years.

(5) For the purposes of subsection (4)(a), section 640(1) (which requires the grossing up of the sums treated as paid to the settlor by reference to the trust rate) is ignored.

(6) In this section “the total amount released” means the total amount released or written off in respect of the loan or advance in the tax year and previous tax years.

Loans and advances to persons who die

419

(1) This section applies if—

(a) a loan or advance is made to a person who dies,

(b) a company is or was chargeable to tax under section 455 of CTA 2010 (charge to tax in case of loan to participator) in respect of the loan or advance, and

(2) Tax is not charged under this Chapter if at the time of the release or writing off the debt is due from the person's personal representatives in that capacity, but see—

(a) section 664 (under which the amount that would be so charged is treated as part of the aggregate income of the estate for the purposes of Chapter 6 of Part 5), and

(b) section 947 of CTA 2009 (under which similar provision is made for the purposes of Chapter 3 of Part 10 of that Act).

(3) If subsection (2) does not apply, tax is charged under this Chapter on the person from whom the debt is due at the time of release or writing off.

Loans and advances to trustees of trusts that have ended

420

(1) This section applies if—

(a) a loan or advance is made to trustees of a trust,

(b) a company is or was chargeable to tax under section 455 of CTA 2010 (charge to tax in case of loan to participator) in respect of the loan or advance, and

(c) after the trust has ended the company releases or writes off the whole or part of the debt in respect of the loan or advance.

(2) Tax is charged under this Chapter on the person from whom the debt is due at the time of release or writing off.

Income tax treated as paid

421

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

Chapter 7 — Purchased life annuity payments

Charge to tax on purchased life annuity payments

422

(1) Income tax is charged on annuity payments made under a purchased life annuity.

(2) For exemptions, see in particular—

(a) section 717 (exemption for part of purchased life annuity payments),

(b) section 725 (annual payments under immediate needs annuities),

(d) section 732 (compensation awards).

Meaning of “purchased life annuity”

423

(1) In this Chapter “purchased life annuity” means an annuity—

(a) granted for consideration in money or money's worth in the ordinary course of a business of granting annuities on human life, and

(b) payable for a term ending at a time ascertainable only by reference to the end of a human life.

(2) For this purpose it does not matter that the annuity may in some circumstances end before or after the life.

Income charged

424

(1) Tax is charged under this Chapter on the full amount of the annuity payments arising in the tax year.

(2) Subsection (1) is subject to Part 8 (foreign income: special rules).

Person liable

425

The person liable for any tax charged under this Chapter is the person receiving or entitled to the annuity payments.

Annuity payments received after deduction of tax

426

In accordance with section 848 of ITA 2007 a sum representing income tax deducted under section 901 of that Act from an annuity payment within this Chapter is treated as income tax paid by the recipient . . . .

Chapter 8 — Profits from deeply discounted securities

Charge to tax under Chapter 8

Charge to tax on profits from deeply discounted securities

427

(1) Income tax is charged on profits on the disposal of deeply discounted securities.

(2) The profits are treated as income for income tax purposes if they would not otherwise be income.

Income charged

428

(1) Tax is charged under this Chapter on the full amount of profits arising in the tax year.

(2) The profits on a disposal are to be taken to arise when the disposal occurs.

(3) If the profits arise on a disposal of securities that are outside the United Kingdom—

(a) they are treated for the purposes of section 830 (meaning of “relevant foreign income”) as arising from a source outside the United Kingdom, and

(b) subsection (1) is subject to Part 8 (foreign income: special rules).

(4) Subsection (2) needs to be read with section 438 (timing of transfers and acquisitions).

Person liable

429

(1) The person liable for any tax charged under this Chapter is the person making the disposal.

(2) See section 437 for who that person is.

Deeply discounted securities

Meaning of “deeply discounted security”

430

(1) The general rule is that a security is a “deeply discounted security” for the purposes of this Chapter if, as at the time it is issued, the amount payable on maturity or any other possible occasion of redemption (“A”) exceeds or may exceed the issue price by more than—

$$A×0.5%×Y.$where Y is the number of years in the redemption period or 30, whichever is the lower.$

(2) If the redemption period is not a number of complete years, for the purposes of subsection (1) the incomplete year is expressed as twelfths, treating each complete month and any remaining part of a month as one-twelfth.

(3) In this section “redemption period” means the period between the date of issue and the date of the occasion of redemption in question.

(4) Interest payable on an occasion of redemption is ignored in determining for the purposes of this section the amount payable on that occasion.

(5) For the purposes of this section, in the case of an issue to which section 442 applies (securities issued in accordance with qualifying earn-out right), the issue price of the security is to be taken as the amount paid to acquire it (see section 442(2)).

(6) The general rule in subsection (1) is subject to—

section 431 (excluded occasions of redemption),

section 432 (securities which are not deeply discounted securities),

sections 434 to 436 (securities issued in separate tranches),. . .

section 443(1) (strips of government securities) , and

section 452A(1) (corporate strips).

Excluded occasions of redemption

431

(1) An occasion of redemption of a security other than maturity is ignored for the purposes of section 430(1) if the third-party option conditions or the commercial protection conditions are met.

(2) The third-party option conditions are that—

(a) the security may be redeemed on the occasion at the option of a person other than its holder,

(b) the security is issued to a person who is not connected with the issuer, and

(c) the obtaining of a tax advantage by any person is not the main benefit, or one of the main benefits, that might have been expected to accrue from the provision in accordance with which the security may be redeemed on the occasion.

(3) The commercial protection conditions are that—

(a) the security may be redeemed on the occasion as the result of an exercise of an option that is exercisable only on the occurrence of—

(i) an event adversely affecting the holder (see subsection (8)), or

(ii) a default by any person, and

(b) as at the time of the security's issue it appears unlikely that the option will be exercisable on the occasion.

(4) Subsection (1) does not apply to an occasion just because the occasion coincides or may coincide with an occasion meeting the third-party option conditions or the commercial protection conditions.

(5) If—

(a) the only reason that a security is not a deeply discounted security is that an occasion on which it may be redeemed is ignored because the third-party option conditions are met, and

(b) at some time after its issue the security is acquired by, or its holder becomes, a person connected with the issuer,

in relation to that time and later this Chapter applies as if the security were a deeply discounted security.

(6) If a person (“P”) who is not connected with the issuer acquires—

(a) a security which is only a deeply discounted security because it was issued to a person connected with the issuer and so fails to meet the condition specified in subsection (2)(b), or

(b) a security within subsection (5),

this Chapter applies in relation to P as if the security ceased to be a deeply discounted security on the acquisition.

(7) For the purposes of the application of this section to a security, the question whether persons are connected is determined without regard to the security or any other security issued under the same prospectus.

(8) In this section “event adversely affecting the holder”, in relation to a security, means an event the occurrence of which appears, as at the time of the security's issue, likely to have an adverse effect on the interests of its holder at the time of the event if there were no provision for redemption on its occurrence.

Securities which are not deeply discounted securities

432

(1) The following are not deeply discounted securities—

(a) shares in a company,

(b) gilt-edged securities that are not strips,

(d) capital redemption policies.

(2) An excluded indexed security (see section 433) is only a deeply discounted security if treated as such under section 431(5) (acquisition by a person connected with the issuer or holder becoming such a person).

(3) In this section “capital redemption policies” has the same meaning as in Chapter 9 of this Part (see section 473(2)).

(4) See also sections 434 to 436 (rules under which securities issued under the same prospectus on separate occasions may be treated as being, or as not being, deeply discounted securities).

Meaning of “excluded indexed security”

433

(1) In this Chapter “excluded indexed security” means a security under the terms of which the amount payable on redemption is determined by applying to the amount for which the security was issued the percentage change (if any) over the security's redemption period in—

(a) the value of chargeable assets of a particular description, or

(b) an index of the value of such assets.

(2) The fact that the terms under which the security is issued include a provision to the effect that the amount payable on its redemption must be at least a specified percentage of the amount for which it was issued only prevents it from falling within the definition in subsection (1) if that percentage exceeds 10%.

(3) Interest payable on redemption is ignored in determining for the purposes of this section the amount payable on redemption.

(4) In subsection (1) “redemption period” means—

(a) the period beginning with the date of issue and ending with the date of redemption, or

(b) a period which is or includes almost all that period and only differs from it for purposes connected with giving effect to a valuation in relation to rights or liabilities under the security.

(5) An asset is a chargeable asset for the purposes of subsection (1) if a gain accruing to a person on its disposal would be a chargeable gain for the purposes of TCGA 1992 on the assumptions specified in subsection (6).

(6) The assumptions are that—

(a) the asset is an asset of the person,

(b) the person is not entitled to the exemption conferred by section 100 of TCGA 1992 (exemption for authorised unit trusts etc.),

(c) disposal of the asset by the person would not be treated for income tax purposes as a disposal in the course of a trade, profession or vocation, and

(d) section 116(10) of TCGA 1992 is ignored (chargeable gains on subsequent disposals of qualifying corporate bonds acquired in reorganisations, conversions and reconstructions).

(7) For the purposes of this section—

(a) neither the retail prices index nor any similar general index of prices published by the government of a territory or by an agent of such a government is an index of the value of chargeable assets, and

(b) “redemption”, in relation to a security, does not include its redemption on an occasion which is to be ignored under section 431(1) (excluded occasions of redemption).

Securities issued in separate tranches: preliminary

434

(1) Sections 435 and 436 set out rules under which securities issued under the same prospectus on separate occasions may be treated as being, or as not being, deeply discounted securities.

(2) If any of the securities in the original issue under the prospectus is a deeply discounted security—

(a) the rule in section 435 applies to securities in later issues under it, and

(b) the rule in section 436 does not apply to any securities issued under it.

(3) If none of the securities in the original issue under the prospectus is a deeply discounted security, the rule in section 435 applies to securities in a later issue except where the rule in section 436 applies.

Securities issued in separate tranches: basic rule

435

(1) The rule in this section is that if securities in any of the issues made on separate occasions under the same prospectus are not deeply discounted securities, securities in any later issue under it are not deeply discounted securities, unless they are treated as such for one of the reasons specified in subsection (2).

(2) The reasons are—

(a) that the securities were issued to a person connected with the issuer and so fail to meet the condition specified in section 431(2)(b), and

(b) that such a person has acquired or become the holder of the securities and so section 431(5) applies to them.

Deeply discounted securities issued in separate tranches: nominal value rule

436

(1) This section only applies if some of the securities in one or more later issues under the same prospectus are deeply discounted securities (or are such securities if the rule in section 435 is ignored).

(2) The rule in this section applies for any disposal or acquisition after the time when the condition specified in subsection (3) is first met.

(3) The condition is that the aggregate nominal value as at a particular time of the securities within subsection (1) exceeds the aggregate nominal value as at that time of all the other securities issued under the prospectus at any time.

(4) The rule is that all securities issued under the prospectus (including those issued after the time when the condition specified in subsection (3) is first met) are to be treated as deeply discounted securities and as having been acquired as such (whenever actually issued or acquired).

(5) Subsection (6) applies where the question is whether a security held by a person who is not connected with the issuer is a deeply discounted security as a result of the rule in this section.

(6) For the purpose of determining whether the rule in this section applies, securities that are only within subsection (1) for one of the reasons specified in section 435(2) are treated as not being within it.

Disposals

Transactions which are disposals

437

(1) References in this Chapter to the disposal of a deeply discounted security are—

(a) to its redemption,

(b) to its transfer by sale, exchange, gift or otherwise, including a transfer treated as made by subsection (3), and

(c) so far as not covered by paragraph (a) or (b), to its conversion under its terms into shares in a company or other securities (including other deeply discounted securities).

(2) The person treated as making a disposal is—

(a) in the case of a disposal within subsection (1)(a), the person entitled as the security's holder to any payment on the disposal,

(b) in the case of a disposal within subsection (1)(b), the transferor, and

(c) in the case of a disposal within subsection (1)(c), the person who would be entitled as the security's holder to any payment on the disposal, if such a payment were made.

(3) A person who dies while entitled to a deeply discounted security is treated as transferring it immediately before death to the personal representatives.

(4) In the case of strips, further provision about occasions counting as disposals is made by section 445(2) and (6)(a).

(5) In the case of interest-bearing corporate securities, further provision about occasions counting as disposals is made by section 452F(2)(a).

(6) In the case of corporate strips, further provision about occasions counting as disposals is made by section 452F(2)(a) and (3)(a).

Timing of transfers and acquisitions

438

(1) This section applies if—

(a) a transfer or acquisition of a deeply discounted security is made under an agreement, and

(b) the transferee or the person making the acquisition becomes entitled to the security at the time the agreement is made.

(2) The transfer or acquisition is treated as occurring at that time.

(3) For this purpose a conditional agreement is taken to be made when the condition is met.

(4) This section is subject to—

section 445(7) (exchanges for and consolidations of strips);

section 452F(4) (conversion into and consolidations of corporate strips).

Calculating profits

Calculating the profit from disposals

439

(1) A person's profit on a disposal is the amount by which the amount payable on the disposal exceeds the amount paid by the person to acquire the security.

(2) No account is to be taken of any incidental expenses incurred in connection with the disposal or acquisition.

(3) Subsection (2) is subject to subsection (4) and section 455 (listed securities held since 26th March 2003: calculating the profit or loss on disposals).

(4) Incidental expenses incurred before 27th March 2003 by the person making the disposal in connection with the acquisition or disposal of the security are deducted from the person's profit.

(5) Where a person re-acquires a security, any previous acquisition of it is ignored in determining on a subsequent disposal—

(a) the amount the person paid to acquire the security, and

(b) incidental expenses within subsection (4).

Market value disposals

440

(1) On the disposal of a deeply discounted security by a transfer of a kind specified in subsection (2), for the purposes of this Chapter an amount equal to the market value at the time of the disposal is treated as payable.

(2) The transfers are—

(a) a transfer made otherwise than by a bargain at arm's length,

(b) a transfer between connected persons,

(d) a transfer treated as made by section 437(3) (death), and

(e) a transfer by personal representatives to a legatee.

(3) Subsection (1) is subject to subsection (4).

(4) On a conversion of a deeply discounted security into shares or other securities which counts as its disposal under section 437(1), an amount equal to the market value of the shares or other securities at the time of the conversion is treated as the amount payable.

(5) Subsection (4) is subject to—

section 445(8) (exchanges for and consolidations of strips);

section 452F(5) (conversion into and consolidations of corporate strips).

(6) In this section “legatee” includes any person taking (whether beneficially or as trustee)—

(a) on a testamentary disposition, or

(b) on an intestacy or partial intestacy.

(7) Such a person includes a person taking as a result of an appropriation by personal representatives in or towards the satisfaction of a legacy or other interest or share in the deceased's property.

Market value acquisitions

441

(1) A person who acquires a deeply discounted security on a disposal of a kind specified in subsection (2) is treated for the purposes of this Chapter as acquiring it by the payment of an amount equal to its market value at the time of the disposal.

(2) The disposals are—

(a) a transfer within section 440(2), and

(b) a conversion of a deeply discounted security into other deeply discounted securities which counts as its disposal under section 437(1).

(3) Subsection (2) is subject to—

section 445(8) (exchanges for and consolidations of strips);

section 452F(5) (conversion into and consolidations of corporate strips).

Securities issued in accordance with qualifying earn-out right

442

(1) This section applies if a security is issued to a person in accordance with the terms of a qualifying earn-out right.

(2) The amount paid by the person to acquire the security is to be taken for the purposes of this Chapter to be the total of—

(a) the market value, immediately before the issue, of the right to be issued with the security in accordance with the terms of the qualifying earn-out right, and

(b) any amount payable for the issue in accordance with those terms.

(3) In this section “qualifying earn-out right” means a right that meets conditions A to C, or so much of a right as does so.

(4) Condition A is that the right constitutes the whole or part of the consideration for—

(a) the transfer by the person on whom the right is conferred of shares in or debentures of a company, or

(b) the transfer of the whole or part of—

(i) a business carried on by that person, or by that person and others in partnership, or

(ii) an interest in such a business.

(5) Condition B is that the right is either—

(a) a right to be issued with securities of another company, or

(b) a right which is capable of being discharged in accordance with its terms by the issue of such securities.

(6) Condition C is that the right is such that the value of the consideration mentioned in condition A is unascertainable at the time when the right is conferred.

Special rules for strips of government securities

Application of this Chapter to strips of government securities

443

(1) All strips are treated as deeply discounted securities for the purposes of this Chapter, whether or not they would otherwise be so.

(2) This Chapter applies to strips subject to the rules in—

(a) section 445 (strips of government securities: acquisitions and disposals),

(b) section 446 (strips of government securities: relief for losses),

(d) section 448 (restriction of losses on strips by reference to original acquisition cost),

(e) section 449 (strips of government securities: manipulation of acquisition, transfer or redemption payments), and

(f) section 450 (market value of strips etc.), and

(g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “strip” in Chapter 8

444

(1) In this Chapter “strip”, in relation to any stock or bond (“the underlying security”), means a security which—

(a) meets conditions A to C,

(b) if it was acquired after 26th March 2003, was issued by or on behalf of the government of any territory, and

(c) if it was acquired on or before that date, was issued under the National Loans Act 1968 (c. 13) in a case where the underlying security was itself a gilt-edged security.

(2) Condition A is that the security is issued for the purpose of representing the right to or of securing—

(a) a payment corresponding to a payment of interest or principal remaining to be made under the underlying security, or

(b) two or more payments each corresponding to a payment to be so made.

(3) Condition B is that the security is issued in conjunction with the issue of one or more other securities which, together with that security—

(a) represent the right to, or

(b) secure,

payments corresponding to every payment remaining to be made under the underlying security.

(4) Condition C is that the security is not itself a security which—

(a) represents the right to, or

(b) secures,

payments corresponding to a part of every payment remaining to be made under the underlying security.

(5) After the balance has been struck for a dividend on any underlying security, a payment to be made in respect of that dividend is treated for the purposes of conditions A to C as not being a payment remaining to be made under the underlying security.

(6) Nothing in this section affects the meaning of the expression “corporate strip” in this Chapter (see section 452E).

Strips of government securities: acquisitions and disposals

445

(1) A person who receives strips of a security (“the underlying security”) in exchange for the underlying security is treated as having acquired each strip by the payment of an amount equal to—

$$A×BC$where—A is the market value of the underlying security at the time of the exchange,B is the market value of the strip at that time, andC is the total of the market values at that time of all the strips received in the exchange.$

(2) For the purposes of this Chapter—

(a) a person who holds a strip of a security on 5th April in any tax year is treated as having transferred the strip on that day, and

(b) an amount equal to its market value on that day is treated as payable on the transfer.

(3) For the purposes of this Chapter that person is also treated as having immediately re-acquired the strip for the same amount.

(4) Subsections (2) and (3) do not apply if there is any other disposal of the strip on that day.

(5) Section 439(4) (deduction of incidental expenses incurred before 27th March 2003) does not apply to transfers and reacquisitions within subsections (2) and (3).

(6) For the purposes of this Chapter—

(a) the consolidation of a strip of a security with other such strips into a single security is a disposal of the strip by the person consolidating it (whether or not it would be apart from this subsection), and

(b) an amount equal to the market value of the strip at the consolidation is treated as payable on the disposal.

(7) Section 438 (timing of transfers and acquisitions) does not apply to an exchange within subsection (1) or a consolidation within subsection (6).

(8) Subsections (1) and (6) apply instead of sections 440(4) (market value on general conversions of deeply discounted securities) and 441 (market value acquisitions).

Strips of government securities: relief for losses

446

(1) Relief from income tax may be claimed under this section for any loss made on the disposal of a strip of a security.

(2) If a person makes a claim under this section, the relief is given by deducting the loss in calculating the person's net income for the tax year in which the disposal occurs (see Step 2 of the calculation in section 23 of ITA 2007).

(3) For this purpose a person makes a loss on the disposal of a strip if—

(a) the person disposes of the strip, and

(b) the amount the person paid for the strip, ignoring any incidental expenses incurred in connection with the acquisition, exceeds the amount payable on the disposal, ignoring any incidental expenses incurred in connection with the disposal.

(4) The loss is an amount equal to the excess.

(5) A claim under this section must be made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the disposal occurs.

(6) The relief may be claimed by the person making the disposal.

(7) Relief for a loss on a disposal may not be claimed under this section if section 454 (listed securities held since 26th March 2003: relief for losses) applies in respect of the disposal.

(8) This section is subject to—

(a) section 448 (restriction of losses on strips by reference to original acquisition cost),

(b) section 449 (strips of government securities: manipulation of acquisition, sale or redemption payments), and

Restriction of profits on strips by reference to original acquisition cost

447

(1) This section applies if—

(a) a person makes a profit on the disposal of a strip (apart from this section), and

(b) the person's original acquisition cost for the strip (see subsection (4)) exceeds the amount that falls to be brought into account as the amount paid by the person to acquire the strip in determining the amount of the profit.

(2) If the amount that falls to be brought into account as the amount payable on the disposal in determining the amount of the profit exceeds the person's original acquisition cost for the strip, the amount of the profit is restricted to that excess.

(3) Otherwise the person is treated as not making a profit on the disposal.

(4) For the purposes of this section and section 448, a person's original acquisition cost for a strip is the amount that falls to be taken into account as the amount paid by the person to acquire the strip in determining whether the person makes a profit or loss on its disposal if 5th April disposals and acquisitions are ignored.

(5) In subsection (4) “5th April disposals and acquisitions” means—

(a) disposals under section 445(2) (other than the disposal in question), and

(b) acquisitions under section 445(3).

Restriction of losses on strips by reference to original acquisition cost

448

(1) This section applies if—

(a) a person makes a loss on the disposal of a strip (apart from this section), and

(b) the person's original acquisition cost for the strip exceeds the amount that falls to be brought into account as the amount payable on the disposal of the strip in determining the amount of the loss.

(2) If the amount that falls to be brought into account as the amount paid by the person to acquire the strip in determining the amount of the loss exceeds the person's original acquisition cost for the strip, the amount of the loss is reduced.

(3) The amount of the reduction is A – B where—

A is the person's original acquisition cost for the strip, and

B is the amount that falls to be brought into account as the amount payable on the disposal of the strip in determining the amount of the loss.

(4) If subsection (2) does not apply, the person is treated as not making a loss on the disposal.

(5) In this section any reference to making a loss on the disposal of a strip has the meaning given in section 446(3) and (4).

Strips of government securities: manipulation of acquisition, transfer or redemption payments

449

(1) This section applies if—

(a) as a result of a scheme or arrangement an amount referred to in subsection (2)(a), (b) or (c) differs from the market value of a strip in a way specified in that subsection, and

(b) the obtaining of a tax advantage by any person is the main benefit, or one of the main benefits, that might have been expected to accrue from, or from any provision of, the scheme or arrangement.

(2) The ways are that—

(a) the amount paid by a person in respect of the acquisition of the strip is or was more than the market value at the time of the acquisition,

(b) the amount payable to a person on transferring the strip is less than the market value at the time of the transfer, or

(c) on redemption of the strip the amount payable to a person, as the person holding the strip, is less than the market value on the day before redemption.

(3) In a case within subsection (2)(a), for the purposes of sections 439(1) and 446(3) on transferring the strip the person is treated as if the person had paid to acquire the strip an amount equal to the market value of the strip at the time of the acquisition.

(4) In a case within subsection (2)(b), for those purposes the person is treated as if the amount payable to the person on the transfer were an amount equal to the market value of the strip at the time of the transfer.

(5) In a case within subsection (2)(c), for those purposes the person is treated as if the amount payable to the person on redemption were an amount equal to the market value of the strip on the day before redemption.

(6) For the purposes of this section, no account is to be taken of any incidental expenses incurred in connection with any disposal or acquisition of a strip.

Market value of strips etc.

450

(1) The Treasury may make regulations as to the manner for determining—

(a) the market value at any time of a strip for the purposes of this Chapter, and

(b) the market value at any time of a security exchanged for strips of that security for the purposes of section 445(1).

(2) The regulations may—

(a) make different provision for different cases, and

(b) contain incidental, supplemental, consequential and transitional provision and savings.

Market value of strips etc. quoted in foreign stock exchange lists

451

(1) This section applies if the strip or security referred to in section 450(1)—

(a) is a security, or a strip of a security, issued by or on behalf of the government of a territory outside the United Kingdom, and

(b) is not quoted in The Stock Exchange Daily Official List, but

(2) The market value on any day on which the foreign stock exchange to which that list relates is open is—

(a) the lower of the two figures shown in that list for the strip or security for that day, plus

(b) one-quarter of the difference between those two figures.

(3) The market value on any day on which the foreign stock exchange to which that list relates is closed is the lower of—

(a) its market value on the latest previous day on which that exchange is open, and

(b) its market value on the earliest subsequent day on which that exchange is open.

(4) But subsections (2) and (3) have effect subject to any modifications that are necessary because of the form of quotation adopted in the exchange in question.

(5) In particular, if a single figure only is published, that figure is to be taken as the market value.

(6) If a strip or security is quoted in more than one foreign stock exchange list—

(a) any such list published for a foreign stock exchange in the territory of the issuing government is to be used for the purposes of this section in preference to any other such list, and

(b) any such list published for a foreign stock exchange which is regarded as the major exchange in that territory for strips or securities is to be used for those purposes in preference to any other such list.

(7) In this section—

“foreign stock exchange” means a recognised stock exchange in a territory outside the United Kingdom on which strips are traded,

“foreign stock exchange list” means any publication which performs in the case of a foreign stock exchange a function equivalent, or broadly similar, to that performed by The Stock Exchange Daily Official List in relation to strips, and

“issuing government” means the government which issued the security mentioned in subsection (1)(a).

Power to modify this Chapter for strips

452

(1) The Treasury may by regulations provide that this Chapter is to apply to a strip with such modifications as they consider appropriate.

(2) This section is without prejudice to the general power to make regulations under section 202 of FA 1996 (gilt stripping).

Special rules for listed securities held since 26th March 2003

Application of sections 454 to 456

453

(1) In the case of a disposal of a deeply discounted security that meets conditions A and B, the rules in sections 454 to 456 apply for—

(a) providing for relief for losses on the disposal, and

(b) calculating the amount of profits chargeable under this Chapter on the disposal or the losses for which such relief may be given.

(2) Condition A is that the person making the disposal has held the security continuously since a time before 27th March 2003.

(3) Condition B is that the security was listed on a recognised stock exchange at any time before 27th March 2003.

Listed securities held since 26th March 2003: relief for losses

454

(1) A person may claim relief from income tax under this section for a loss the person has made on disposing of deeply discounted securities.

(2) For this purpose a person makes such a loss only if A exceeds B, where—

A is the amount the person paid for the securities, excluding any incidental expenses incurred in connection with the acquisition, and

B is the amount payable on the disposal, excluding any incidental expenses incurred in connection with the disposal.

(3) For the calculation of the amount of the loss, see section 455(2) to (4) (under which those expenses are taken into account).

(4) If a claim under this section is made by a person other than a trustee, the relief is given by deducting the loss in calculating the person's net income for the tax year in which the disposal occurs (see Step 2 of the calculation in section 23 of ITA 2007).

(5) If such a claim is made by a trustee, the amount of profits arising in the tax year in which the disposal occurs that is charged under this Chapter is reduced by the amount of the loss.

(6) A claim under this section must be made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the disposal occurs.

(7) This section is subject to section 458(2) (securities held by non-UK resident trustees).

Listed securities held since 26th March 2003: calculating the profit or loss on disposals

455

(1) A person's profit on a disposal, as calculated under section 439, is reduced by any incidental expenses incurred before 6 April 2015 by that person in connection with the disposal or the acquisition of the security that have not been deducted under section 439(4).

(2) A person's loss on a disposal for the purposes of section 454 (relief for losses) is the amount by which the deductible costs exceed the amount payable on the disposal.

(3) In this section the “deductible costs” means—

(a) the amount paid by the person to acquire the security, and

(b) the incidental expenses incurred before 6 April 2015 by that person in connection with the disposal or the acquisition.

(4) Where a person re-acquires a security, any previous acquisition of it is ignored in determining the person's incidental expenses within subsection (1) or deductible costs on a subsequent disposal.

(5) For the purposes of this section, no incidental expenses are treated as incurred in connection with transfers and reacquisitions within section 445(2) and (3) (transfer and immediate reacquisition of strips on 5th April).

Securities issued to connected persons etc. at excessive price: subsequent transfers to connected persons

456

(1) No loss is taken to occur for the purposes of section 454 on a transfer of a deeply discounted security to a person connected with the transferor if conditions A and B and either condition C or conditions D and E are met.

(2) Condition A is that the transferor acquired the security on its issue.

(3) Condition B is that the amount paid by the transferor to acquire the security exceeded the market value of the security at the time of its issue.

(4) Condition C is that at that time the transferor was connected with the issuer.

(5) Condition D is that at that time the issuer was a close company.

(6) Condition E is that at that time the transferor controlled that company with other persons to whom securities of the same kind were also issued.

(7) Chapter 2 of Part 10 of CTA 2010 (meaning of “close company”) applies for the purposes of this section but with the omission of section 442(a) (exclusion of non-UK resident companies).

(8) In this section “control” has the meaning given by sections 450 and 451 of CTA 2010.

Trustees

457

(1) This section applies if profits are taken to arise on a disposal of a deeply discounted security by trustees.

(2) For the purposes of Chapter 5 of Part 5 (settlements: amounts treated as income of settlor), the profits are to be taken to be income arising under the settlement from the security.

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) If the trustees are trustees of a scheme in relation to which section 504 of ITA 2007 applies, subsection (2) does not apply to profits which are shown in the scheme's accounts as income available for payment to unit holders or for investment.

Non-UK resident trustees

458

(1) Tax is not charged under this Chapter if the disposal is made by the trustees of a settlement and they are non-UK resident.

(2) The following provisions do not apply if the disposal falls within subsection (1)—

section 446 (strips of government securities: relief for losses), and

section 454 (listed securities held since 26th March 2003: relief for losses).

(3) In this section “settlement” has the same meaning as in Chapter 5 of Part 5 (see section 620).

Miscellaneous and supplementary

Transfer of assets abroad

459

(1) This section applies if profits are taken to arise on the disposal of a deeply discounted security by a person resident ... outside the United Kingdom (“A”).

(2) For the purpose of determining whether a UK resident individual is liable for income tax in respect of the profits, Chapter 2 of Part 13 of ITA 2007 (transfer of assets abroad) has effect as if the profits, when arising, constituted income becoming payable to A.

(3) For this purpose it does not matter if A is not liable to income tax under this Chapter because of section 458 (non-UK resident trustees).

Minor definitions

460

(1) In this Chapter “share”, in the case of a share in a company, means any share under which an entitlement to receive distributions may arise, but does not include a share in a building society.

(2) In this Chapter “tax advantage” has the meaning given by section 1139 of CTA 2010.

(3) In this Chapter “market value” has the same meaning as in TCGA 1992 (see sections 272 to 274 of that Act), except as provided in section 450 . . . (market value of strips etc.).

Chapter 9 — Gains from contracts for life insurance etc.

Charge to tax under Chapter 9

461

(1) Income tax is charged on gains treated as arising from policies and contracts to which this Chapter applies.

(2) For the policies and contracts to which this Chapter applies, see sections 473 to 483.

(3) See also sections 530 to 538 (provisions relating to tax treated as paid on gains and to reliefs).

(4) For exemptions, see in particular Chapter 3 of Part 6 (income from individual investment plans).

(5) For the application of this Chapter where corresponding provision for corporation tax purposes is also relevant, see section 544 (application of Chapter to policies and contracts in which companies interested).

When gains arise from policies and contracts

462

(1) For the purposes of this Chapter, a gain from a policy or contract arises when a chargeable event occurs in relation to the policy or contract (see section 484).

(2) But certain chargeable events are only treated as occurring because a calculation required to be made as at a particular time shows that the gain has arisen.

(3) See, in particular—

(a) section 509(1) (under which a chargeable event is treated as occurring where a periodic calculation following a part surrender or assignment shows a gain),

(b) section 514(1) (under which a part surrender or assignment is treated as a chargeable event where a calculation related to it shows a gain), and

(c) section 525(2) (under which a chargeable event is treated as occurring where an annual personal portfolio bond calculation shows a gain).

Income charged

463

(1) Tax is charged under this Chapter on the amount of the gains arising in the tax year.

(2) Subsection (1) is subject to section 514(4) (under which certain gains are charged for a later tax year).

(3) See section 469(3) for the apportionment of gains where two or more persons are interested in a policy or contract.

(4) See sections 491 to 497, 507, 508, 511 to 513, 522 to 524 and 527 to 529 for the rules as to how the gains are calculated.

Person liable etc.

Person liable for tax: introduction

464

(1) The person liable for any tax charged under this Chapter is the person indicated by—

section 465 (person liable: individuals),

section 466 (person liable: personal representatives), and

section 467 (person liable: UK resident trustees),

according to how the rights under the policy or contract are owned or held immediately before the chargeable event in question occurs.

(2) References in those sections to the ownership or holding of those rights are references to their ownership or holding at that time.

(3) If there has been a surrender or assignment of only a part of or share in rights under the policy or contract, the references in this section and those sections to the rights are references to that part or share.

(4) For cases where such surrenders or assignments are taken to occur, see—

section 500 (events treated as part surrenders), and

section 505 (assignments etc. involving co-ownership).

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Income Tax (Trading and Other Income) Act 2005

Date when dividends paid under section 389

390

Interpretation of sections 389 and 390

391

Shares in Schedule 2 share incentive plans (“SIPs”)

SIP shares: introduction

392

Later charge where cash dividends retained in SIPs are paid over

393

Distribution when dividend shares cease to be subject to SIP

394

Reduction in tax due in cases within section 394

395

Interpretation of sections 392 to 395

396

... Payment and deduction of tax

Tax credits for qualifying distributions: UK residents and eligible non-UK residents

397

Increase in amount or value of dividends where tax credit available

398

Qualifying distributions received by persons not entitled to tax credits

399

Non-qualifying distributions

400

Relief: qualifying distribution after linked non-qualifying distribution

401

Chapter 4 — Dividends from non-UK resident companies

Charge to tax on dividends from non-UK resident companies

Charge to tax on dividends from non-UK resident companies

402

Income charged

403

Person liable

404

Shares in Schedule 2 share incentive plans (“SIPs”)

SIP shares: introduction

405

Later charge where cash dividends retained in SIPs are paid over

406

Dividend payment when dividend shares cease to be subject to SIP

407

Reduction in tax due in cases within section 407

408

Chapter 5 — Stock dividends from UK resident companies

Charge to tax on stock dividend income

409

When stock dividend income arises

410

Income charged

411

Cash equivalent of share capital

412

Person liable

413

Income tax treated as paid

414

Chapter 6 — Release of loan to participator in close company

Charge to tax under Chapter 6

415

Income charged

416

Person liable

417

Relief where borrowers liable as settlors

418

Loans and advances to persons who die

419

Loans and advances to trustees of trusts that have ended

420

Income tax treated as paid

421

Chapter 7 — Purchased life annuity payments

Charge to tax on purchased life annuity payments

422

Meaning of “purchased life annuity”

423

Income charged

424

Person liable