Income Tax Act 2007

• (b) is repaid the whole or part of a loan which was made in the tax year and is neither an investment nor an approved charitable loan (see section 561).

• (2) Any further investment or lending in the tax year of the sum realised or repaid, so far as it does not exceed the sum originally invested or lent, is not non-charitable expenditure as a result of section 543(1)(i) or (j).

Substantial donor transactions

Transactions with substantial donors

549

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

Meaning of “relievable gift”

550

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

Non-charitable expenditure in substantial donor transactions

551

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

Adjustment if section 551(1) and (2) applied to single transaction

552

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

Section 551: certain payments and benefits to be ignored

553

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

Transactions: exceptions

554

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

Donors: exceptions

555

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

Connected charities

556

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

Substantial donor transactions: supplementary

557

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

Approved charitable investments and loans

Approved charitable investments

558

An investment is an approved charitable investment for the purposes of section 543 (meaning of “non-charitable expenditure”) if it is an investment of any of the following types.

• Type 1An investment to which section 559 applies.

• Type 2An investment in a common investment fund established under—section 22 of the Charities Act 1960 (c. 58),section 24 of the Charities Act 1993 (c. 10), section 96 of the Charities Act 2011, orsection 25 of the Charities Act (Northern Ireland) 1964.

• Type 3An investment in a common deposit fund established under—section 22A of the Charities Act 1960, ...section 25 of the Charities Act 1993 or section 100 of the Charities Act 2011.

• Type 4An investment in a fund which—is similar to a fund mentioned in relation to Type 2 or 3, andis established for the exclusive benefit of charities by or under a provision relating to any particular charities or class of charities contained in an Act.

• Type 5An interest in land, other than an interest held as security for a debt.

• Type 6Any of the following issued by Her Majesty's Government in the United Kingdom—bills,Certificates of Tax Deposit,Savings Certificates, andTax Reserve Certificates.

• Type 7Northern Ireland Treasury Bills.

• Type 8Units in a unit trust scheme (as defined in section 237(1) of FISMA 2000) or in a recognised scheme (as defined in section 237(3) of FISMA 2000).“Units” is defined in section 237(2) of FISMA 2000.

• Type 9A deposit with a bank (as defined in section 991)—in respect of which interest is payable at a commercial rate, andwhich is not made as part of an arrangement under which a loan is made by the bank to some other person.

• Type 10A deposit with—the National Savings Bank,a building society, ora credit institution which operates on mutual principles and which is authorised by an appropriate governmental body in the territory in which the deposit is taken.

• Type 11Certificates of deposit (including uncertificated eligible debt security units as defined in section 986(3)).

• Type 12A loan or other investment as to which an officer of Revenue and Customs is satisfied, on a claim, that it is made for the benefit of the charitable trust and not for the avoidance of tax (whether by the trust or any other person).

Securities which are approved charitable investments

559

• (1) The investments to which this section applies are investments in securities—

• (a) issued or guaranteed by Her Majesty’s Government in the United Kingdom or by the government of a member State of the European Union,

• (b) issued or guaranteed by the government or a governmental body of any territory or part of a territory,

• (c) issued by an international entity listed in the Annex to Council Directive 2003/48/EC (directive on taxation of interest payments),

• (d) issued by an entity meeting the four criteria set out at the end of that Annex,

• (e) issued by a building society,

• (f) issued by a credit institution which operates on mutual principles and which is authorised by an appropriate governmental body in the territory in which the securities are issued,

• (g) issued by an open-ended investment company,

• (h) issued by a company and listed on a recognised stock exchange, or

• (i) issued by a company but not listed on a recognised stock exchange.

• (2) Subsection (1) is subject to section 560.

• (3) In this section and in section 560—

• “debentures” includes—debenture stock and bonds (whether constituting a charge on assets or not), andloan stock or notes,

• “open-ended investment company” is to be read in accordance with sections 613 and 615 of CTA 2010,

• “securities” includes shares and debentures, and

• “shares” includes stocks.

Conditions to be met for some securities

560

• (1) Section 559 does not apply to an investment by virtue of subsection (1)(b), (c) or (d) of that section unless—

• (a) condition A is met in relation to the securities, and

• (b) if the securities are shares or debenture stock, condition B is met in relation to the securities.

But see subsection (3) of this section.

• (2) In the case of an investment in securities issued by a company which is incorporated, section 559 does not apply to the investment by virtue of subsection (1)(i) of that section unless—

• (a) condition A is met in relation to the securities,

• (b) if the securities are shares or debenture stock, condition B is met in relation to the securities, and

• (c) condition C is met in relation to the company.

But see subsection (3) of this section.

• (3) Conditions A and B need not be met if the securities are traded or quoted on a money market supervised by the government or a governmental body of any territory or part of a territory.

• (4) Condition A is that the securities are traded or quoted on—

• (a) a recognised investment exchange (as defined in section 285(1) of FISMA 2000), or

• (b) an investment exchange which constitutes the principal or only market established in a territory on which securities admitted to official listing are dealt in or traded.

• (5) Condition B is that—

• (a) the securities are fully paid up,

• (b) the terms of the issue of the securities require them to be fully paid up within the period of 9 months beginning with the day after the day on which they are issued, or

• (c) the securities are shares issued with no nominal value.

• (6) Condition C is that—

• (a) throughout the last business day before the investment day, the company has total issued and paid up share capital of at least £1,000,000 (or the equivalent of £1,000,000 in some other currency), and

• (b) in each of the five years immediately before the calendar year in which the investment day falls, the company paid a dividend on all the shares issued by the company (excluding any shares issued after the dividend was declared and any shares which by their terms of issue did not rank for dividend for that year).

• (7) For the purposes of the words in brackets in subsection (6)(a) use the exchange rate prevailing in the United Kingdom at the close of business on the last business day before the investment day.

• (8) For the purposes of subsection (6)(b) a company formed—

• (a) to take over the business of another company or other companies, or

• (b) to acquire the securities of, or control of, another company or other companies,

is treated as having paid a dividend in any year in which a dividend has been paid by the other company or all of the other companies (as the case may be).

• (9) It is irrelevant that the company is formed for other purposes in addition to those mentioned in paragraph (a) or (b) of subsection (8).

• (10) In this section—

• “business day” means, in relation to an investment, a business day in the place where the investment is made, and

• “the investment day” means, in relation to an investment, the day on which the investment is made.

Approved charitable loans

561

• (1) A loan is an approved charitable loan for the purposes of section 543 (meaning of “non-charitable expenditure”) if it meets conditions A and B.

• (2) Condition A is that the loan is not made by way of investment.

• (3) Condition B is that either—

• (a) the loan is made to another charity for charitable purposes only,

• (b) it is made to a beneficiary of the charitable trust in the course of carrying out the purposes of the charitable trust,

• (c) it consists of money placed on current account with a bank otherwise than as part of an arrangement under which a loan is made by a bank to some other person, or

• (d) an officer of Revenue and Customs is satisfied, on a claim, that the loan is made for the benefit of the charitable trust and not for the avoidance of tax (whether by the charitable trust or by some other person).

• (4) In this section “bank” has the meaning given by section 991.

Carry back of excess non-charitable expenditure

Excess expenditure treated as non-charitable expenditure of earlier years

562

• (1) This section applies if a charitable trust's non-charitable expenditure for a tax year exceeds its available income and gains for the tax year.

• (2) The excess is the charitable trust's “excess expenditure” for the tax year.

• (3) The charitable trust's excess expenditure for the tax year is treated for the purposes of this Part as non-charitable expenditure for earlier tax years so far as it can be attributed to earlier tax years under section 563.

• (4) For the purposes of this Part a charitable trust's “available income and gains” for a tax year is the sum of—

• (a) the charitable trust's total income for the tax year (ignoring any restrictions on the exemptions under this Part which result from sections 539(2) and 541),

• (b) any chargeable gains accruing to the charitable trust in the tax year (ignoring any restriction on the exemption under section 256(1) of TCGA 1992 which results from section 256(4) of that Act),

• (c) the charitable trust's attributable income and gains for the tax year (see section 540), and

• (d) any non-taxable sums received by the charitable trust in the tax year.

• (5) In subsection (4) “non-taxable sums” means donations, legacies and other sums of a similar nature which, ignoring exemptions from income tax under this Part and from capital gains tax under section 256 of TCGA 1992, are not liable to income tax or capital gains tax.

Rules for attributing excess expenditure to earlier years

563

• (1) The rules in this section apply for attributing a charitable trust's excess expenditure for a tax year to earlier tax years under section 562.

• (2) The excess expenditure for a tax year may be attributed to an earlier tax year if—

• (a) the earlier tax year ends not more than 6 years before the end of the tax year in question, and

• (b) the charitable trust's available income and gains for the earlier tax year exceed its non-charitable expenditure for the earlier tax year.

• (3) If the conditions in subsection (2) are met in the case of more than one earlier tax year, the excess expenditure is to be attributed to a later tax year in priority to an earlier tax year.

• (4) The amount of excess expenditure that is to be attributed to an earlier tax year must not be greater than the amount by which the charitable trust's available income and gains for the earlier tax year exceed its non-charitable expenditure for the earlier tax year.

• (5) For the purposes of subsections (2)(b) and (4) the charitable trust's non-charitable expenditure for the earlier tax year includes any excess expenditure attributed to the earlier tax year as a result of a previous operation of this section, but ignores the attribution in question.

Adjustments in consequence of section 562

564

Such adjustments must be made (whether by way of the making of assessments or otherwise) as may be required in consequence of section 562.

Part 11 — Manufactured payments and repos

Chapter 1 — Introduction

Overview of Part

565

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

Meaning of “UK shares” and “UK securities”

566

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

Meaning of “overseas securities” and “overseas dividend”

567

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

Meaning of “stock lending arrangement”

568

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

Meaning of “repo”

569

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

Meaning of “buying back” securities etc

570

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

Meaning of “related” agreements

571

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

Chapter 2 — Manufactured payments

Introduction

Overview of Chapter

572

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

Manufactured dividends on UK shares

Manufactured dividends on UK shares

573

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

Allowable deductions: matching

574

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

Allowable deductions: restriction on double-counting

575

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

Manufactured dividends on UK shares: Real Estate Investment Trusts

576

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

Statements about manufactured dividends

577

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

Manufactured interest on UK securities

Manufactured interest on UK securities

578

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

Allowable deductions: matching

579

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

Allowable deductions: restriction on double counting

580

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

Manufactured overseas dividends

Manufactured overseas dividends

581

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

Powers about manufactured overseas dividends

582

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

Special cases

Manufactured payments exceeding underlying payments

583

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

Manufactured payments less than underlying payments

584

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

Power to deal with other special cases

585

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

General regulation-making powers

Powers about administrative provisions

586

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

Power for manufactured payments to be eligible for relief

587

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

Regulation-making powers: general

588

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

Interpretation

Meaning of “gross amount”: interest and manufactured overseas dividends

589

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

Meaning of “relevant withholding tax”

590

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

Interpretation of other terms used in Chapter

591

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

Chapter 3 — Tax credits: stock lending arrangements and repos

Stock lending arrangements

No tax credits for borrower under stock lending arrangement

592

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

Repos

No tax credits for interim holder under repo

593

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

No tax credits for original owner under repo

594

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

Interpretation

Meaning of “manufactured dividend”

595

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

Chapter 4 — Deemed manufactured payments

Stock lending arrangements

Deemed manufactured payments: stock lending arrangements

596

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (1A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (1B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (1C) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

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

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

Deemed interest: cash collateral under stock lending arrangements

597

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

Cash collateral under stock lending arrangements: supplementary

598

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

Sections 597 and 598: quasi-stock lending arrangements and quasi-cash collateral

599

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

Meaning of “quasi-stock lending arrangements” and “quasi-cash collateral”

600

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

Repos

Repo cases in which deeming rules apply

601

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

Deemed manufactured payments: repos

602

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

Deemed deductions of tax

603

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

Deemed increase in repurchase price: price differences under repos

604

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

Deemed increase in repurchase price: other income tax purposes

605

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

Interpretation

Interpretation of Chapter

606

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

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

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

• (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (6A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

• (8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 5 — Price differences under repos

Main tax treatment

Treatment of price differences under repos

607

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

Exceptions to section 607

608

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

Additional tax treatment

Additional income tax consequences of price differences

609

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

Interpretation

Repurchase price in deemed manufactured payment case

610

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

Power to modify

Power to modify Chapter in non-arm’s length case

611

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

Chapter 6 — Powers to modify repo provisions

Non-standard repo cases

612

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

Redemption arrangements

613

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

Sections 612 and 613: supplementary

614

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

Part 12 — Accrued income profits

Chapter 1 — Introduction

Overview of Part

615

• (1) This Part makes provision about—

• (a) accrued income profits and losses, and

• (b) exemptions which apply where there is interest on securities.

• (2) In this Part “accrued income profits” means profits which under Chapter 2 are treated as made where securities which carry or have carried interest are transferred.

• (3) See sections 628, 630 and 670(2) and (3) for when such profits are treated as made.

• (4) In this Part “accrued income losses” means losses which under Chapter 2 are treated as made where securities which carry or have carried interest are transferred.

• (5) See section 628 for when such losses are treated as made.

• (6) For the meaning of “securities”, “transfer” and “interest”, see sections 619, 620 and 671 respectively.

Chapter 2 — Accrued income profits and losses

Charge to tax

Charge to tax on accrued income profits

616

Income tax is charged on accrued income profits.

Income charged

617

• (1) Tax is charged under this Chapter on the full amount of the accrued income profits treated as made in the tax year.

• (2) Accrued income profits within section 628(5) (profits treated as made where the settlement day falls within an interest period) are treated as made in the tax year in which the last day of the interest period in which the profits are treated as made falls.

• (3) Accrued income profits within section 630(2) (profits treated as made where the settlement day falls after the end of the securities' last interest period) are treated as made in the tax year in which the settlement day for the transfer falls.

• (4) Accrued income profits within section 670(2) or (3) (withdrawal of relief for unremittable transfer proceeds) are treated as made in the tax year in which the proceeds cease to be unremittable.

• (5) Section 668(5) (when proceeds are unremittable) applies for the purposes of subsection (4) as it applies for the purposes mentioned in section 668(5).

• (6) For the meaning of “interest period” and “the settlement day”, see sections 673 and 674 respectively.

• (7) Subsection (1) is subject to section 832 of ITTOIA 2005 (relevant foreign income charged on remittance basis).

Person liable

618

• (1) The person liable for any tax charged under this Chapter is the person treated as making the accrued income profits.

• (2) But see section 666 (under which nominees and trustees may be disregarded).

Securities to which Chapter applies

Meaning of “securities” and when securities are of the same kind

619

• (1) In this Chapter “securities” includes—

• (a) any loan stock or similar security other than an excluded security, and

• (b) shares in a building society which are qualifying shares for the purposes of section 117(4) of TCGA 1992 (qualifying corporate bonds),

but (subject to paragraph (b)) it does not include any shares in a company.

• (2) For the purposes of subsection (1)(a), it does not matter—

• (a) whether the security is 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,

• (b) whether or not the security is secured,

• (c) whether or not the security carries a right to interest of a fixed amount or at a fixed rate percentage of the nominal value of the security, or

• (d) whether or not the security is in bearer form.

• (3) In this section “excluded securities” means—

• (a) national savings certificates (including Ulster Savings Certificates as defined in section 693(7) of ITTOIA 2005),

• (b) war savings certificates,

• (c) uncertificated eligible debt security units as defined in section 986,

• (d) certificates of deposit (see section 1019),

• (e) a security which is a right falling within section 552(1)(c) of ITTOIA 2005 at the time of the transfer in question,

• (f) a security that meets the redemption conditions (see subsection (5)), and

• (g) a security that is a deeply discounted security within the meaning of Chapter 8 of Part 4 of ITTOIA 2005.

• (4) But subsection (3)(g) does not include a security if, on its transfer, Chapter 8 of Part 4 of ITTOIA 2005 would apply subject to the rules in sections 454 to 456 of that Act (listed securities held since 26 March 2003).

• (5) The redemption conditions are that—

• (a) the security is redeemable,

• (b) the amount payable on its redemption exceeds its issue price, and

• (c) no return other than the amount of that excess is payable on it.

• (6) Securities are treated as being of the same kind for the purposes of this Chapter if they—

• (a) are treated as being of the same kind by the practice of a recognised stock exchange, or

• (b) would be so treated if dealt in on such an exchange.

Transfers to which Chapter applies

Transactions which are transfers: general

620

• (1) References in this Chapter to the transfer of securities are—

• (a) to the transfer of securities by way of sale, exchange, gift or otherwise,

• (b) to the conversion of securities in any case where there is no transfer of the securities within paragraph (a),

• (c) to the redemption of variable rate securities in any case where there has been a transfer of the securities at any time before redemption, or

• (d) to a transaction or event treated as a transfer under—

• (i) section 648(1) or (3) (strips of gilt-edged securities),

• (ii) section 649(4) (new securities issued with extra return),

• (iii) section 650(2), (4) or (6) (trading stock appropriations etc),

• (iv) section 651(2) (owner becoming entitled to securities as trustee), or

• (v) section 652(2) (securities ceasing to be held on charitable trusts).

• (2) But subsection (1)(a) does not include—

• (a) the vesting of securities in personal representatives on death, or

• (b) the transfer of a security to which Chapter 8 of Part 4 of ITTOIA 2005 applies subject to the rules in sections 454 to 456 of that Act.

• (3) For the purposes of this Chapter—

• (a) a transfer of securities under an agreement takes place when the agreement is made, and

• (b) the person to whom they are to be transferred under the agreement becomes entitled to them at that time.

• (4) But in the case of a conversion of securities within subsection (1)(b), the transfer takes place on the day of the conversion.

• (5) And in the case of a redemption of securities within subsection (1)(c), the transfer takes place on the day of the redemption.

• (6) Subsection (1) is subject to—

• section 648(7) (transactions forming part of exchanges concerning strips of gilt-edged securities),

• section 653 (stock lending), and

• section 655 (transfers under sale and repurchase arrangements).

• (7) In this Chapter “conversion”, in relation to securities, has the meaning given by section 132 of TCGA 1992.

Transferors and transferees

621

• (1) In this Chapter “transferor” and “transferee” are to be read in accordance with section 620 (but this is subject to subsections (2) to (4)).

• (2) In the case of a conversion of securities within section 620(1)(b)—

• (a) the person who was entitled to the securities immediately before the conversion is treated as the transferor, but

• (b) no one is treated as the transferee.

• (3) In the case of a redemption of securities within section 620(1)(c)—

• (a) the person who was entitled to the securities immediately before the redemption is treated as the transferor, but

• (b) no one is treated as the transferee.

• (4) The following provisions also contain rules about who is the transferor or the transferee for certain transfers—

• section 648(1) to (4) (strips of gilt-edged securities),

• section 649(4) and (5) (new securities issued with extra return),

• section 650 (trading stock appropriations etc),

• section 651(2) and (3) (owner becoming entitled to securities as trustee),

• section 652(2) and (3) (securities ceasing to be held on charitable trusts), and

• section 666 (certain transfers by or to nominees or trustees treated as made by or to others).

• (5) See also sections 638 to 647 (excluded transferors and transferees).

Application of Chapter to different kinds of transfer

622

• (1) Different rules apply under this Chapter for the different kinds of transfer specified in subsection (2).

• (2) The transfers are—

• (a) transfers with accrued interest (see section 623),

• (b) transfers without accrued interest (see section 624),

• (c) transfers with unrealised interest (see section 625), and

• (d) transfers of variable rate securities (see section 626).

• (3) If a transfer is both a transfer with unrealised interest and a transfer of a kind specified in subsection (2)(a), (b) or (d), both the provisions of this Chapter applicable to transfers with unrealised interest and the provisions applicable to the other kind of transfer apply to the transfer.

Transfers with accrued interest

623

• (1) The general rule is that securities are transferred with accrued interest for the purposes of this Chapter if they are transferred with the right to receive interest payable—

• (a) in a case where the settlement day is an interest payment day, on the settlement day, and

• (b) in any other case, on the first interest payment day after the settlement day.

• (2) But, in the case of the transfers specified in subsection (3), subsection (4) applies instead of subsection (1).

• (3) The transfers are those treated as made under—

• (a) section 620(1)(b) (conversion),

• (b) section 650 (trading stock appropriations etc),

• (c) section 651 (owner becoming entitled to securities as trustee), and

• (d) section 652 (securities ceasing to be held on charitable trusts).

• (4) If the person treated as the transferor had the right to receive interest payable as mentioned in subsection (1)(a) or (b), the securities are treated as transferred with accrued interest.

• (5) This section is subject to section 626 (transfers of variable rate securities).

• (6) See also—

• section 648(6) (certain exchanges of strips treated as transfers with accrued interest), and

• section 649(4) (issue of new securities with extra return treated as transfer with accrued interest).

Transfers without accrued interest

624

• (1) The general rule is that securities are transferred without accrued interest for the purposes of this Chapter if they are transferred without the right to receive interest payable as mentioned in section 623(1)(a) or (b).

• (2) But, in the case of the transfers specified in subsection (3), subsection (4) applies instead of subsection (1).

• (3) The transfers are those treated as made under—

• (a) section 620(1)(b) (conversion),

• (b) section 650 (trading stock appropriations etc),

• (c) section 651 (owner becoming entitled to securities as trustee), and

• (d) section 652 (securities ceasing to be held on charitable trusts).

• (4) If the person treated as the transferor did not have the right to receive interest payable as mentioned in section 623(1)(a) or (b), the securities are treated as transferred without accrued interest.

• (5) This section is subject to section 626 (transfers of variable rate securities).

• (6) See also section 648(5) (certain exchanges of strips treated as transfers without accrued interest).

Transfers with unrealised interest

625

• (1) For the purposes of this Chapter securities are transferred with unrealised interest if they are transferred with the right to receive interest payable on an interest payment day falling before the settlement day.

• (2) Such interest is referred to in this Chapter as “unrealised interest”.

Transfers of variable rate securities

626

• (1) Sections 623 and 624 do not apply to transfers of variable rate securities.

• (2) Such transfers are not treated as transfers with accrued interest or transfers without accrued interest.

Meaning of “variable rate securities”

627

• (1) For the purposes of this Chapter securities are “variable rate securities” unless their terms of issue provide that throughout the period from issue to redemption (whenever redemption might occur) they are to carry interest at a rate which falls into one, and one only, of the categories specified in subsection (2).

• (2) The categories are—

• (a) a fixed rate which is the same throughout the period,

• (b) a rate which bears the same fixed relationship to a standard published base rate throughout the period, and

• (c) a rate which bears the same fixed relationship to a published index of prices throughout the period.

• (3) In subsection (2) “published index of prices” means the retail prices index or any similar general index of prices which is published by the government of any territory outside the United Kingdom or by an agent of such a government.

• (4) In determining whether new securities (within the meaning of section 649 (new securities issued with extra return)) are variable rate securities, the interest payable on them on the first interest payment day after their issue is treated as payable in respect of the period beginning with the relevant period and ending with that day.

• (5) In subsection (4) “the relevant period” has the meaning given by section 649(8).

Calculating accrued income profits and losses

Making accrued income profits and losses: general rule

628

• (1) This section sets out the general rule for determining whether a person is treated as making accrued income profits or accrued income losses where securities are transferred by or to the person.

• (2) This section does not apply in a case where section 630 applies.

• (3) A separate calculation is to be made for each kind of security that is transferred by or to the person and for each interest period of each such kind of security.

• (4) Each such calculation is to find—

• (a) the total amount (“A”) of the payments treated under this Chapter as made to the person in the interest period in question in respect of transfers of securities of the particular kind, and

• (b) the total amount (“B”) of the payments treated under this Chapter as made by the person in that period in respect of such transfers.

• (5) A person is treated as making accrued income profits in an interest period as a result of transfers of securities of a particular kind if A exceeds B.

• (6) A person is treated as making accrued income losses in an interest period as a result of transfers of securities of a particular kind if B exceeds A.

• (7) For the payments that are treated as made on transfers of different kinds, see—

• section 632 (payment on transfer with accrued interest),

• section 633 (payment on transfer without accrued interest),

• section 634 (payment on transfer with unrealised interest),

• section 635 (payment on transfer of variable rate securities), and

• section 637(2) (accrued income losses treated as payment on transfer in next interest period).

• (8) See also—

• section 638(2) (no account to be taken of any payment treated as made by or to excluded transferor or transferee), and

• Chapter 3 (exemptions relating to interest on securities).

Calculating accrued income profits and losses where section 628 applies

629

• (1) If section 628(5) applies, the amount of the accrued income profits treated as made is equal to the excess mentioned in section 628(5).

• (2) If section 628(6) applies, the amount of the accrued income losses treated as made is equal to the excess mentioned in section 628(6).

Making accrued income profits: settlement day outside interest period

630

• (1) This section applies if—

• (a) there is a transfer of securities with unrealised interest or a transfer of variable rate securities, and

• (b) the settlement day for the transfer falls after the end of the only or last interest period of the securities.

• (2) The transferor is treated as making accrued income profits.

• (3) See also—

• section 638(3) (no account to be taken of transfer if transferor is excluded transferor), and

• section 681 (exemption for unrealised interest received by transferee after transfer).

Amount of accrued income profits where section 630 applies

631

• (1) In the case of a transfer of securities with unrealised interest to which section 630 applies, the amount of the accrued income profits treated as made is equal to the unrealised interest.

• (2) Subsection (1) is subject to section 660 (transfers with unrealised interest: interest in default).

• (3) In the case of a transfer of variable rate securities to which section 630 applies, the amount of the accrued income profits treated as made is such amount as is just and reasonable.

The payments treated as made on transfers

Payment on transfer with accrued interest

632

• (1) In the case of a transfer of securities with accrued interest, for the purposes of this Chapter a payment is treated as made by the transferee to the transferor in the interest period in which the settlement day falls.

• (2) The amount of that payment depends on whether the transfer is under an arrangement by which the transferee accounts to the transferor separately—

• (a) for the consideration for the securities, and

• (b) for gross interest accruing to the settlement day.

• (3) If the transfer is under such an arrangement, the amount of the payment is the amount of gross interest which the transferee accounts for.

• (4) If—

• (a) the transfer is not under such an arrangement, and

• (b) the settlement day is itself an interest payment day for the securities,

the amount of the payment is the amount of interest payable on the securities on that day.

• (5) If—

• (a) the transfer is not under such an arrangement, and

• (b) the settlement day is not an interest payment day for the securities,

the amount of the payment is an amount equal to—

$$I×AB$where—I is the interest payable on the securities on the first interest payment day after the settlement day (“the payment day”),A is the number of days in the period beginning with the first day on which that interest accrues and ending with the settlement day, andB is the number of days in the period beginning with the first day on which that interest accrues and ending with the payment day.$

• (6) For the purposes of subsection (5), the first day on which that interest accrues is taken to be—

• (a) the day after the last interest payment day before the settlement day, or

• (b) if there was no interest payment day before the settlement day, the first day of the first interest period of the securities.

• (7) In a case where no one is treated as the transferor (see sections 648(4) and 649(5)), this section has effect as if—

• (a) in subsection (1) the words “to the transferor” were omitted, and

• (b) subsections (2), (3), (4)(a) and (5)(a) were omitted.

• (8) In a case where no one is treated as the transferee (see sections 621(2) and (3) and 648(2)), this section has effect as if—

• (a) in subsection (1) the words “by the transferee” were omitted, and

• (b) subsections (2), (3), (4)(a) and (5)(a) were omitted.

• (9) Subsections (2) to (5) are subject to section 662 (new securities issued with extra return: special rules about payments).

• (10) Subsections (4) and (5) are subject to section 659 (transfers with or without accrued interest: interest in default).

Payment on transfer without accrued interest

633

• (1) In the case of a transfer of securities without accrued interest, for the purposes of this Chapter a payment is treated as made by the transferor to the transferee in the interest period in which the settlement day falls.

• (2) The amount of that payment depends on whether the transfer is under an arrangement by which the transferor accounts to the transferee for gross interest accruing from the settlement day to the next interest payment day.

• (3) If the transfer is under such an arrangement, the amount of the payment is the amount of gross interest which the transferor accounts for.

• (4) If—

• (a) the transfer is not under such an arrangement, and

• (b) the settlement day is itself an interest payment day for the securities,

the amount of the payment is nil.

• (5) If—

• (a) the transfer is not under such an arrangement, and

• (b) the settlement day is not an interest payment day for the securities,

the amount of the payment is an amount equal to—

$$I×AB$where—I is the interest payable on the securities on the first interest payment day after the settlement day (“the payment day”),A is the number of days in the period beginning with the day after the settlement day and ending with the payment day, andB is the number of days in the period beginning with the first day on which that interest accrues and ending with the payment day.$

• (6) For the purposes of subsection (5), the first day on which that interest accrues is taken to be—

• (a) the day after the last interest payment day before the settlement day, or

• (b) if there is no interest payment day before the settlement day, the first day of the first interest period of the securities.

• (7) In a case where no one is treated as the transferor (see section 648(4)), this section has effect as if—

• (a) in subsection (1) the words “by the transferor” were omitted, and

• (b) subsections (2), (3), (4)(a) and (5)(a) were omitted.

• (8) In a case where no one is treated as the transferee (see sections 621(2) and (3) and 648(2)), this section has effect as if—

• (a) in subsection (1) the words “to the transferee” were omitted, and

• (b) subsections (2), (3), (4)(a) and (5)(a) were omitted.

• (9) Subsection (5) is subject to section 659 (transfers with or without accrued interest: interest in default).

• (10) See also section 663(2) (reduction of amount of payment under this section where transfer to maker of manufactured payments).

Payment on transfer with unrealised interest

634

• (1) In the case of a transfer of securities with unrealised interest where the settlement day falls within an interest period, for the purposes of this Chapter a payment is treated as made to the transferor in that period.

• (2) The amount of the payment is equal to the unrealised interest.

• (3) Subsection (2) is subject to section 660 (transfers with unrealised interest: interest in default).

• (4) No one is treated as making the payment.

• (5) Accordingly, the payment is not brought into account in determining whether the transferee is treated as making accrued income profits or losses under section 628.

• (6) But see section 681 (exemption for unrealised interest received by transferee after transfer).

• (7) See section 630 for the rules that apply to transfers of securities with unrealised interest where the settlement day falls outside an interest period.

Payment on transfer of variable rate securities

635

• (1) In the case of a transfer of variable rate securities where the settlement day falls within an interest period, for the purposes of this Chapter a payment is treated as made to the transferor in that period.

• (2) The amount of the payment is such amount as is just and reasonable.

• (3) No one is treated as making the payment.

• (4) Accordingly, the payment is not brought into account in determining whether the transferee is treated as making accrued income profits or losses under section 628.

• (5) See section 630 for the rules that apply to transfers of variable rate securities where the settlement day falls outside an interest period.

Exception where there is a transfer to a legatee

Exception where there is a transfer to a legatee

636

• (1) This section applies if—

• (a) an individual who is entitled to securities dies, and

• (b) the securities are transferred by the personal representatives to a legatee.

• (2) If the securities are transferred in the interest period in which the death occurs, no payment is treated as made under this Chapter as a result of the transfer.

• (3) If the securities are variable rate securities and the deceased dies after the end of the only or last interest period of the securities, no accrued income profits are treated as made under section 630(2).

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

• (a) under a testamentary disposition, or

• (b) on an intestacy or partial intestacy.

• (5) 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.

Relief for losses

Accrued income losses treated as payments in next interest period

637

• (1) This section applies if—

• (a) a person is treated as making accrued income losses in an interest period as a result of transfers of securities, and

• (b) the period does not end with an interest payment day.

• (2) For the purposes of this Chapter the person is treated as making a payment on a transfer of the securities in the next interest period equal to the amount of the losses.

• (3) For cases where the period does end with an interest payment day, see sections 678 to 680 (exemptions for interest on securities involving accrued income losses).

Excluded transferors and transferees

Excluded persons: disregard of certain payments and transfers

638

• (1) This section applies if there is a transfer of securities in relation to which a person (“P”) is an excluded transferor or excluded transferee.

• (2) In determining whether P has made accrued income profits or accrued income losses under section 628 (making accrued income profits and losses: general rule) and the amount of any such profits or losses, no account is to be taken of any payment treated as made by or to P on the transfer.

• (3) In determining whether P has made accrued income profits under section 630 (making accrued income profits: settlement day outside interest period) and the amount of any such profits, no account is to be taken of the transfer if P is an excluded transferor in relation to it.

• (4) For the cases where a person is an excluded transferor or excluded transferee in relation to a transfer, see—

• section 639 (small holdings: individuals),

• section 640 (small holdings: personal representatives),

• section 641 (small holdings: trustees of a disabled person's trusts),

• section 642 (traders),

• section 643 (non-residents),

• section 644 (individuals to whom the remittance basis applies),

• section 645 (charitable trusts etc),

• section 646 (pension scheme trustees), and

• section 647 (makers of manufactured payments).

• (5) Whether a person is an excluded transferee is also relevant to the application of section 681 (exemption for unrealised interest received by transferee after transfer).

Small holdings: individuals

639

• (1) In relation to a transfer with accrued interest or transfer without accrued interest, an individual is an excluded transferor or excluded transferee unless the nominal value of securities held by the individual exceeds £5,000 on any day—

• (a) in the tax year in which the interest period ends, or

• (b) in the previous tax year.

• (2) In relation to a transfer with unrealised interest, an individual is an excluded transferor or excluded transferee unless the nominal value of securities held by the individual exceeds £5,000 on any day—

• (a) in the tax year in which the settlement day falls, or

• (b) in the previous tax year.

• (3) In relation to a transfer of variable rate securities, an individual is an excluded transferor unless the nominal value of securities held by the individual exceeds £5,000 on any day in the relevant tax year or the previous tax year.

• (4) In subsection (3) “the relevant tax year” means—

• (a) if the settlement day falls in an interest period, the tax year in which the interest period ends, or

• (b) otherwise, the tax year in which the settlement day falls.

• (5) For the purposes of this section, if—

• (a) an individual holds securities at a particular time, and

• (b) any interest on them which became payable at that time would be treated for income tax purposes as part of another individual's income,

each of those individuals is treated as holding at that time the securities which the other holds, as well as those which that individual actually holds.

Small holdings: personal representatives

640

• (1) In relation to a transfer with accrued interest or transfer without accrued interest of securities that form part of a deceased person's estate, the deceased's personal representatives are an excluded transferor or excluded transferee unless the nominal value of securities held by the deceased's personal representatives as such exceeds £5,000 on any day—

• (a) in the tax year in which the interest period ends, or

• (b) in the previous tax year.

• (2) In relation to a transfer with unrealised interest of securities that form part of a deceased person's estate, the deceased's personal representatives are an excluded transferor or excluded transferee unless the nominal value of securities held by the deceased's personal representatives as such exceeds £5,000 on any day—

• (a) in the tax year in which the settlement day falls, or

• (b) in the previous tax year.

• (3) In relation to a transfer of variable rate securities that form part of a deceased person's estate, the deceased's personal representatives are an excluded transferor unless the nominal value of securities held by the deceased's personal representatives as such exceeds £5,000 on any day in the relevant tax year or the previous tax year.

• (4) In subsection (3) “the relevant tax year” has the meaning given by section 639(4).

Small holdings: trustees of a disabled person’s trusts

641

• (1) In relation to a transfer with accrued interest or transfer without accrued interest of securities held on a disabled person's trusts, the trustees of the settlement are an excluded transferor or excluded transferee unless the nominal value of securities held by the trustees of the settlement as such exceeds £5,000 on any day—

• (a) in the tax year in which the interest period ends, or

• (b) in the previous tax year.

• (2) In relation to a transfer with unrealised interest of securities held on a disabled person's trusts, the trustees of the settlement are an excluded transferor or excluded transferee unless the nominal value of securities held by the trustees of the settlement as such exceeds £5,000 on any day—

• (a) in the tax year in which the settlement day falls, or

• (b) in the previous tax year.

• (3) In relation to a transfer of variable rate securities held on a disabled person's trusts, the trustees of the settlement are an excluded transferor unless the nominal value of securities held by the trustees of the settlement as such exceeds £5,000 on any day in the relevant tax year or the previous tax year.

• (4) In this section—

• “disabled person's trusts” means trusts falling within paragraph 3 of Schedule 1C to TCGA 1992 (application of annual exempt amount), and

• “the relevant tax year” has the meaning given by section 639(4).

Traders

642

• (1) In relation to a transfer of securities by a person carrying on a trade, the person is an excluded transferor if the transfer is taken into account for income tax purposes in calculating the profits or losses of the trade.

• (2) In relation to a transfer of securities at any time to a person carrying on a trade, the person is an excluded transferee if, had the transfer been made by the person at that time, it would have been taken into account for income tax purposes in calculating the profits or losses of the trade.

Non-residents

643

• (1) A person is—

• (a) an excluded transferor in relation to a transfer by the person, and

• (b) an excluded transferee in relation to a transfer to the person,

if the person is non-UK resident throughout the tax year in which the transfer occurs ....

• (2) In the case of a person who is carrying on a trade in the United Kingdom through a branch or agency during any part of that year (“a UK branch trader”), subsection (1) is subject to subsections (3) and (4).

• (3) A UK branch trader is not an excluded transferor under subsection (1) if the securities transferred were situated in the United Kingdom and used or held for the purposes of the branch or agency at or before the time of the transfer.

• (4) A UK branch trader is not an excluded transferee under subsection (1) if the securities transferred were situated in the United Kingdom at the time of the transfer and were acquired for use by or for the purposes of the branch or agency.

• (5) In this section “branch or agency” has the meaning given by section 1B(5) of TCGA 1992.

• (6) The place where securities are situated is determined for the purposes of this section in accordance with sections 275(1) and (2)(b) and 275C of TCGA 1992.

• (7) Further provision about trustees who are non-UK resident is made in section 667 (trustees' accrued income profits treated as settlement income).

Individuals to whom the remittance basis applies

644

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

Charitable trusts etc

645

• (1) A person is—

• (a) an excluded transferor in relation to a transfer of securities by the person, and

• (b) an excluded transferee in relation to a transfer of securities to the person,

if condition A or B is met.

• (2) Condition A is that if the person—

• (a) became entitled to any interest on the securities, and

• (b) applied it for charitable purposes only,

exemption could be granted in respect of the interest under section 532 (exemption for certain savings and investment income that belongs to a charitable trust and is applicable and applied to charitable purposes only).

• (3) Condition B is that if the person—

• (a) became entitled to any interest on the securities, and

• (b) applied it for the purposes mentioned in section 533 (exemption for public revenue dividends that are applied only for the repair of college or church buildings etc),

exemption could be granted in respect of the interest under that section.

• (4) For the transfer treated as occurring where charitable trusts over securities cease, see section 652 (securities ceasing to be held on charitable trusts).

Pension scheme trustees

646

A person is—

• (a) an excluded transferor in relation to a transfer of securities by the person, and

• (b) an excluded transferee in relation to a transfer of securities to the person,

if, were the person to become entitled to interest on the securities, exemption in respect of it would be allowable under section 186 of FA 2004 (exemption for income from investments held for the purposes of a registered pension scheme).

Makers of manufactured payments

647

• (1) This section applies if the manufactured payments conditions are met.

• (2) The manufactured payments conditions are that—

• (a) securities are transferred without accrued interest to a person (“the seller”),

• (b) the seller makes a contract for the sale of securities of that kind (“the seller's contract”), and

• (c) any contract under which the securities are transferred to the seller, or the seller's contract itself, is a manufactured payments contract.

• (3) The seller is an excluded transferee in relation to the transfer to the seller if the nominal value of the securities subject to the seller's contract equals or exceeds that of the securities transferred to the seller.

• (4) The seller is an excluded transferor in relation to the transfer of securities under the seller's contract.

• (5) See section 663 (transfers without accrued interest to makers of manufactured payments) for cases where that nominal value is less than that of the securities transferred to the seller.

• (6) In this section “manufactured payments contract” means a contract under which—

• (a) the seller is required to pay another person an amount which is representative of a periodical payment of interest on UK securities under an arrangement between them for the transfer of the securities, or

• (b) the seller is required to pay another person an amount which is representative of an overseas dividend on overseas securities under an arrangement between them for the transfer of the securities.

• (7) In this section—

• (a) “overseas securities” means shares, stock or other securities issued by—

• (i) a government, local authority or other public authority of a territory outside the United Kingdom, or

• (ii) another non-UK resident body of persons,

and includes shares in a non-UK resident company,

• (b) “overseas dividend” means any interest, dividend or other annual payment payable in respect of overseas securities, and

• (c) “UK securities” means securities of—

• (i) the government of the United Kingdom,

• (ii) a local authority in the United Kingdom,

• (iii) another public authority in the United Kingdom, or

• (iv) a UK resident company or other UK resident body,

but does not include shares in a UK resident company.

Further transactions treated as transfers

Strips of gilt-edged securities

648

• (1) The exchange of a gilt-edged security for strips of that security is treated for the purposes of this Chapter as a transfer of the security by the person who exchanges the security.

• (2) But no one is treated as the transferee.

• (3) The exchange of strips of a gilt-edged security for a single gilt-edged security consolidating those strips is treated for the purposes of this Chapter as a transfer of the single security to the person who exchanges those strips.

• (4) But no one is treated as the transferor.

• (5) An exchange within subsection (1) or (3) is treated as a transfer without accrued interest if it is made at any time after the balance has been struck for a dividend on the security but before the day on which that dividend is payable.

• (6) In any other case, such an exchange is treated as a transfer with accrued interest.

• (7) If an exchange is treated as a transfer under subsection (1) or (3), any transaction forming part of the exchange is not itself a transfer for the purposes of this Chapter.

• (8) In this section “strip” has the meaning given by section 444 of ITTOIA 2005.

• (9) For the meaning of “gilt-edged security”, see section 1024.

New securities issued with extra return

649

• (1) This section applies if—

• (a) securities (“old securities”) of a particular kind are issued by way of an original issue of securities of that kind,

• (b) on a later occasion securities (“new securities”) of the same kind are issued,

• (c) a sum (“the extra return”) is payable in respect of the new securities by the issuer of them to reflect the fact that interest is accruing on the old securities,

• (d) the issue price of the new securities includes an element (whether or not separately identified) representing payment for the extra return, and

• (e) the extra return is equal to the amount of interest mentioned in subsection (2).

• (2) The amount of interest referred to in subsection (1)(e) is—

• (a) the amount of interest payable for the relevant period on so many old securities as there are new, or

• (b) if there are more new securities than old, the amount of interest which would be so payable if there were as many old securities as new.

• (3) This section does not apply if the new securities are variable rate securities.

• (4) The new securities are treated as transferred with accrued interest to the person to whom they are issued on the new issue day.

• (5) But no one is treated as the transferor.

• (6) For the purposes of this Chapter, the settlement day for the transfer is taken to be the new issue day.

• (7) See section 662 for the amount of the payment treated as made in the case of the transfer.

• (8) In this section—

• “the relevant period” is the period beginning with the day after—the only or last interest payment day before the new issue day, orif there is no interest payment day before the new issue day, the day on which the old securities are issued,and ending with the new issue day, and

• “the new issue day” is the day on which the new securities are issued.

Trading stock appropriations etc

650

• (1) Subsection (2) applies if a person—

• (a) acquires securities otherwise than as trading stock of a trade the person carries on, and

• (b) appropriates the securities as trading stock for the purposes of such a trade (whether on the start of the trade or otherwise).

• (2) The person is treated for the purposes of this Chapter as transferring the securities otherwise than in the course of the trade, and re-acquiring them in the course of the trade, on the day of appropriation.

• (3) Subsection (4) applies if securities—

• (a) form part of the trading stock of a person's trade, and

• (b) are appropriated by the person for any other purpose.

• (4) The person is treated for the purposes of this Chapter as transferring the securities in the course of the trade, and re-acquiring them otherwise than in the course of the trade, on the day of appropriation.

• (5) Subsection (6) applies if securities—

• (a) form part of the trading stock of a person's trade, and

• (b) are retained by the person on ceasing to carry on the trade.

• (6) The person is treated for the purposes of this Chapter as transferring the securities in the course of the trade, and re-acquiring them otherwise than in the course of the trade, on the day of cessation.

• (7) See sections 623(2) to (4) and 624(2) to (4) for cases where securities are treated as transferred with or without accrued interest where this section applies.

Owner becoming entitled to securities as trustee

651

• (1) This section applies if a person entitled to securities otherwise than as trustee becomes trustee of them.

• (2) The person is treated for the purposes of this Chapter as transferring the securities at the time the person becomes trustee of them.

• (3) The transfer is treated as being made—

• (a) by the person in a capacity other than trustee, and

• (b) to the person and, if there are any other trustees, to the others in the capacity of trustees.

• (4) See sections 623(2) to (4) and 624(2) to (4) for cases where securities are treated as transferred with or without accrued interest where this section applies.

Securities ceasing to be held on charitable trusts

652

• (1) This section applies if securities held on charitable trusts cease to be subject to those trusts.

• (2) The trustees are treated for the purposes of this Chapter as transferring the securities at the time when the securities cease to be so subject.

• (3) The transfer is treated as being made by the trustees in their capacity as charitable trustees to themselves in another capacity.

• (4) See sections 623(2) to (4) and 624(2) to (4) for cases where securities are treated as transferred with or without accrued interest where this section applies.

Excluded transfers

Stock lending

653

This Chapter does not apply to transfers of securities in circumstances such that any disposal and acquisition are disregarded for the purposes of capital gains tax as a result of section 263B(2) of TCGA 1992 (capital gains tax exemption for disposals in pursuance of stock lending arrangements).

Sale and repurchase arrangements

654

• (1) This section applies for the purposes of sections 655 to 658.

• (2) There is a sale and repurchase arrangement in respect of securities if the securities are transferred under an agreement to sell them and—

• (a) the transferor (“T”) or a person connected with T is required to buy back the securities by the agreement or a related agreement,

• (b) T or a person connected with T is required to buy back the securities as a result of the exercise of an option acquired under the agreement or a related agreement, or

• (c) T or a person connected with T exercises an option to buy back the securities which was acquired under the agreement or a related agreement.

• (3) Agreements are related for the purposes of this section if they are entered into in pursuance of the same arrangement (regardless of the date on which either agreement is entered into).

• (4) References in this section to buying back securities include—

• (a) buying similar securities, and

• (b) in the case of a person connected with T, buying the securities sold by T or similar securities.

• (5) Subsection (4) applies even if the person buying the securities has not held them before.

• (6) References in sections 656 and 657 to repurchase are to be read accordingly.

• (7) Securities are similar for the purposes of subsection (4) if they give their holders—

• (a) the same rights against the same persons as to capital and interest, and

• (b) the same remedies to enforce those rights.

• (8) Subsection (7) applies even if there is a difference in—

• (a) the total nominal amounts of the securities,

• (b) the form in which they are held, or

• (c) the manner in which they can be transferred.

Transfers under sale and repurchase arrangements

655

• (1) If there is a sale and repurchase arrangement in respect of securities, this Chapter does not apply to the transfer by T or the transfer back under the arrangement.

• (2) But subsection (1) does not apply if section 608 prevents section 607 (treatment of price differences under repos) from applying in relation to the arrangement.

Power to modify: non-standard sale and repurchase arrangements

656

• (1) The Treasury may by regulations provide for section 655 to apply with modifications in relation to cases involving non-standard sale and repurchase arrangements.

• (2) A case involves a non-standard sale and repurchase arrangement if—

• (a) there is a sale and repurchase arrangement in respect of securities,

• (b) T makes a sale of the securities under the agreement to sell them (“the original sale”),

• (c) the securities are UK shares, UK securities or overseas securities, and

• (d) any of conditions A to E is met in relation to the sale and repurchase arrangement.

• (3) Condition A is that—

• (a) the obligation to buy back the securities is not performed, or

• (b) the option to buy them back is not exercised.

• (4) Condition B is that provision is made by or under an agreement for different or additional UK shares, UK securities or overseas securities to be treated as (or as included with) representative securities.

• (5) Condition C is that provision is made by or under an agreement for any UK shares, UK securities or overseas securities to be treated as not included with representative securities.

• (6) Condition D is that provision is made by or under an agreement for the sale price or repurchase price to be decided or varied wholly or partly by reference to post-agreement fluctuations.

• (7) Condition E is that provision is made by or under an agreement for a person to be required, in a case where there are post-agreement fluctuations, to make a payment in the period—

• (a) beginning immediately after the making of the agreement for the original sale, and

• (b) ending when the repurchase price becomes due.

• (8) “Post-agreement fluctuations” are fluctuations in the value of —

• (a) securities transferred in pursuance of the original sale, or

• (b) representative securities,

which occur in the period after the making of the agreement for the original sale.

• (9) “Representative securities” are UK shares, UK securities or overseas securities which, for the purposes of the repurchase, are to represent securities transferred in pursuance of the original sale.

Power to modify: redemption arrangements

657

• (1) The Treasury may by regulations provide for section 655 to apply with modifications in relation to cases involving redemption arrangements.

• (2) A case involves redemption arrangements if—

• (a) arrangements, corresponding to those made in cases where there is a sale and repurchase arrangement in respect of securities, are made by an agreement, or one or more related agreements, in relation to securities that are to be redeemed in the period after their sale,

• (b) the securities are UK shares, UK securities or overseas securities, and

• (c) the arrangements are such that the seller or a person connected with the seller (instead of being required to repurchase the securities or acquiring an option to do so) is granted rights in respect of the benefits that will result from the redemption.

Powers to modify: supplementary

658

• (1) Regulations under section 656 or 657 may make different provision for different cases.

• (2) Regulations under either section may contain incidental, supplemental, consequential and transitional provision and savings.

• (3) In this section and sections 656 and 657 “modifications” includes exceptions and omissions.

• (4) Accordingly, a power in sections 656 and 657 to provide for a provision to apply with modifications in relation to a particular case includes power to provide for the provision not to apply in relation to that case.

• (5) Subsections (6) to (10) apply for the purposes of sections 656 and 657 and this section.

• (6) “UK shares” means shares in a UK resident company.

• (7) “UK securities” means securities of—

• (a) the government of the United Kingdom,

• (b) a local authority in the United Kingdom,

• (c) another public authority in the United Kingdom, or

• (d) a UK resident company or other UK resident body.

• (8) But “UK securities” does not include UK shares.

• (9) “Overseas securities” means shares, stock or other securities issued by—

• (a) a government, local authority or other public authority of a territory outside the United Kingdom, or

• (b) another non-UK resident body of persons.

• (10) “Overseas securities” includes shares in a non-UK resident company.

Special rules about some calculations

Transfers with or without accrued interest: interest in default

659

• (1) This section applies if—