Income and Corporation Taxes Act 1988 (c. 1)

(The document as of February, 2008)

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(2) A person is connected with an individual if that person is the individual's wife or husband, or is a relative, or the wife or husband of a relative, of the individual or of the individual's wife or husband.

(3) A person, in his capacity as trustee of a settlement, is connected with any individual who in relation to the settlement is a settlor, with any person who is connected with such an individual and with a body corporate which, under section 681 is deemed to be connected with that settlement ("settlement" and "settlor" having for the purposes of this subsection the meanings given by subsection (4) of that section).

(4) Except in relation to acquisitions or disposals of partnership assets pursuant to bona fide commercial arrangements, a person is connected with any person with whom he is in partnership, and with the wife or husband or relative of any individual with whom he is in partnership.

(5) A company is connected with another company--

(a) if the same person has control of both, or a person has control of one and persons connected with him, or he and persons connected with him, have control of the other; or

(b) if a group of two or more persons has control of each company, and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating (in one or more cases) a member of either group as replaced by a person with whom he is connected.

(6) A company is connected with another person if that person has control of it or if that person and persons connected with him together have control of it.

(7) Any two or more persons acting together to secure or exercise control of a company shall be treated in relation to that company as connected with one another and with any person acting on the directions of any of them to secure or exercise control of the company.

(8) In this section--

"company" includes any body corporate or unincorporated association, but does not include a partnership, and this section shall apply in relation to any unit trust scheme as if the scheme were a company and as if the rights of the unit holders were shares in the company;
"control" shall be construed in accordance with section 416; and
"relative" means brother, sister, ancestor or lineal descendant.

In relation to any period during which section 470(2) has effect the reference above to a unit trust scheme shall be construed as a reference to a unit trust scheme within the meaning of the [1958 c. 45.] Prevention of Fraud (Investments) Act 1958 or the [1940 c. 9 (N.I.).] Prevention of Fraud (Investments) Act (Northern Ireland) 1940.

840 Meaning of "control" in certain contexts

For the purposes of, and subject to, the provisions of the Tax Acts which apply this section, "control", in relation to a body corporate, means the power of a person to secure--

(a) by means of the holding of shares or the possession of voting power in or in relation to that or any other body corporate; or

(b) by virtue of any powers conferred by the articles of association or other document regulating that or any other body corporate,

that the affairs of the first-mentioned body corporate are conducted in accordance with the wishes of that person, and, in relation to a partnership, means the right to a share of more than one-half of the assets, or of more than one-half of the income, of the partnership.

841 Recognised stock exchange and recognised investment exchanges

(1) In the Tax Acts "recognised stock exchange" means--

(a) the Stock Exchange; and

(b) any such stock exchange outside the United Kingdom as is for the time being designated for the purposes of this section as a recognised stock exchange by order made by the Board.

(2) An order made by the Board under this section--

(a) may designate a stock exchange by name, or by reference to any class or description of stock exchanges including a class or description framed by reference to any authority or approval given in a country outside the United Kingdom;

(b) may contain such transitional and other supplemental provisions as appear to the Board to be necessary or expedient;

(3) The Board may by regulations make provision securing that enactments in the Tax Acts containing references to the Stock Exchange have effect, for such purposes and subject to such modifications as may be prescribed by the regulations, in relation to all other recognised investment exchanges (within the meaning of the [1986 c. 60.] Financial Services Act 1986), or in relation to such of those exchanges as may be prescribed.

842 Investment trusts

(1) In the Tax Acts "investment trust" means, as respects any accounting period, a company which is not a close company and which is approved for the purposes of this section for that accounting period by the Board, and the Board shall not approve any company unless it is shown to their satisfaction--

(a) that the company's income is derived wholly or mainly from shares or securities; and

(b) subject to subsection (2) below, that no holding in a company, other than an investment trust or a company which would qualify as an investment trust but for paragraph (c) below, represents more than 15 per cent. by value of the investing company's investments; and

(d) that the distribution as dividend of surpluses arising from the realisation of investments is prohibited by the company's memorandum or articles of association; and

(e) that the company does not retain in respect of any accounting period more than 15 per cent. of the income it derives from shares and securities.

(2) Subsection (1)(b) above shall not apply--

(a) to a holding in a company acquired before 6th April 1965 which on that date represented not more than 25 per cent. by value of the investing company's investments; or

(b) to a holding in a company which, when it was acquired, represented not more than 15 per cent. by value of the investing company's investments;

so long as no addition is made to the holding.

(3) For the purposes of subsection (2) above--

(a) "holding" means the shares or securities (whether of one class or more than one class) held in any one company; and

(b) an addition is made to a holding whenever the investing company acquires shares or securities of that one company, otherwise than by being allotted shares or securities without becoming liable to give any consideration, and if an addition is made to a holding that holding is acquired when the addition or latest addition is made to the holding; and

(c) where in connection with a scheme of reconstruction or amalgamation, a company issues shares or securities to persons holding shares or securities in a second company in respect of and in proportion to (or as nearly as may be in proportion to) their holdings in the second company, without those persons becoming liable to give any consideration, a holding of the shares or securities in the second company and a corresponding holding of the shares or securities so issued shall be regarded as the same holding.

(4) In this section "company" and "shares" shall be construed in accordance with sections 64, 93 and 155(1) of the 1979 Act.

Commencement, savings, repeals etc.

843 Commencement

(1) Except as otherwise provided by the following provisions of this section, this Act shall come into force in relation to tax for the year 1988-89 and subsequent years of assessment, and for companies' accounting periods ending after 5th April 1988.

(2) Except as otherwise provided by the following provisions of this section, such of the provisions of this Act as relate to capital gains tax (including the provisions of Part XVIII as applied to capital gains tax by section 10 of the 1979 Act) shall come into force in relation to that tax for the year 1988-89 and subsequent years of assessment.

(3) The following provisions of this Act, that is to say--

(a) so much of any provision as authorises the making of any Order in Council or regulations or other instrument;

(b) so much of any provision as relates to the making of a return, the furnishing of a certificate or the giving of any other information, including any such provision which imposes a duty on the Board or an officer of the Board as well as any such provision which imposes a duty on any other person;

(d) except where the tax concerned is all tax for years of assessment before the year 1988-89 or accounting periods ending before 6th April 1988, so much of any other provision as confers any power or imposes any duty the exercise or performance of which operates or may operate in relation to tax for more than one chargeable period,

shall come into force for all purposes on 6th April 1988 to the exclusion of the corresponding enactments repealed by this Act.

(4) This section has effect except as otherwise provided by any other provision of this Act, and in particular except as provided by sections 96, 380 to 384, 393, 394, 400, 703 and 812.

844 Savings, transitional provisions, consequential amendments and repeals

(1) Schedule 29, which makes amendments to other enactments consequential on the passing of this Act, shall have effect.

(2) Schedule 29, section 843 and this section are without prejudice to the provisions of the [1978 c. 30.] Interpretation Act 1978 as respects the effect of repeals.

(3) Schedule 30 which contains savings and transitional provisions shall have effect.

(4) The enactments mentioned in Schedule 31 are hereby repealed to the extent specified in the third column of that Schedule.

(5) Subject to subsection (6) below, section 843(3), Schedule 30 and to any other provision of this Act by which any provision is brought into force to the exclusion of the corresponding enactments repealed by this Act, those repeals shall come into force in accordance with subsections (1) and (2) of section 843.

(6) No provision mentioned in subsection (5) above shall be taken as bringing a repeal into force except to the extent that the repealed enactment is being superseded.

845 Short title

This Act may be cited as the Income and Corporation Taxes Act 1988.

SCHEDULES

Section 31.

SCHEDULE 1 RESTRICTIONS ON SCHEDULE A DEDUCTIONS

Expenditure before 1964-65: deductions from rents

1 (1) Except as provided by sub-paragraphs (2) and (3) below, no payment shall be deductible under sections 25 and 26 if made before the beginning of the year 1964-65.

(2) Where, by virtue of paragraph 1(2) of Schedule 2 to the 1970 Act, any amount fell to be treated as a payment in relation to premises made by a person in the year 1964-65 in respect of dilapidation attributable to that year, the amount shall be similarly treated for the purposes of sections 25 and 26.

(3) If the amount of any loss was treated, by virtue of paragraph 1(3) of that Schedule, as if it were a payment such as is mentioned in section 72(1) of the 1970 Act made by any person in respect of any premises in and in respect of any year, it shall be treated for the purposes of sections 25 and 26 as if it were a payment such as is mentioned in section 25(1) made by that person in respect of those premises in and in respect of that year.

(4) A deduction falling to be made by virtue of sub-paragraph (3) above shall be made notwithstanding anything in sections 392(3) and 396(1); and relief shall not be given under either of those sections in respect of the loss in so far as a deduction in respect of it is given under this paragraph.

Expenditure before 1964-65: deductions from other receipts

2 (1) Subject to sub-paragraph (2) below, no payment shall be deductible under section 28 if made before the beginning of the year 1964-65.

(2) Sub-paragraph (1) above shall not prevent the deduction of a payment in so far as a loss in respect thereof was carried forward to the year 1964-65 by virtue of section 346 of the [1952 c. 10.] Income Tax Act 1952 (Case VI losses).

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

Expenditure on sea walls before 1964-65

3 (1) Section 30 shall not apply in relation to expenditure incurred before the beginning of the year 1964-65 except in accordance with sub-paragraphs (2) and (3) below.

(2) Subject to sub-paragraph (3) below, section 30 shall apply in relation to expenditure which, by virtue of paragraph 3(1) of Schedule 2 to the 1970 Act, was treated as if--

(a) it had been incurred in the year of assessment following that in which it was actually incurred, and

(b) in so far as it was incurred in repairing an embankment, it had been incurred in making it,

as if it had been incurred in that year and in making that embankment.

(3) If, by virtue of the proviso to paragraph 3(1) of Schedule 2 to the 1970 Act, any expenditure fell to be treated for the purposes of sections 71 to 77 of that Act as if it were an amount paid by any person in and in respect of the year 1964-65 in respect of the maintenance of premises preserved or protected by an embankment, it shall be similarly treated for the purposes of sections 25 to 31.

Section 39(3).

SCHEDULE 2 PREMIUMS ETC. TAXABLE UNDER SCHEDULES A AND D: SPECIAL RELIEF FOR INDIVIDUALS

1 A claim for relief under this Schedule shall be made to the Board if the claimant is not resident in the United Kingdom.

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

"chargeable sum" means an amount to which under section 34(1), (2), (3), (4) or (5), the claimant is treated as becoming entitled in the year of assessment, or in respect of which he is by virtue of section 34(6) or (7) or 35 or 36, chargeable to income tax for the year under Case VI of Schedule D;
"relevant period", in relation to any chargeable sum, means the period treated in computing the amount of the sum as being the duration of the lease in respect of which it arises or where it arises (by virtue of section 36) in connection with the sale of an estate or interest in land, means the period mentioned in subsection (1) of that section;
"yearly equivalent", in relation to any chargeable sum, means the amount which bears to that sum the same proportion as one bears to the number of years and fractions of years in the relevant period.

3 There shall be computed--

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

(i) the relief were not given, and

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

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

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

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

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

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

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

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

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

(2) Where the relief is to be given in respect of two or more chargeable sums, the tax for each shall be calculated for the purposes of paragraph 3(b) above as provided by sub-paragraph (1) above, but so that--

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

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

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

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

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

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

(a) not to include any amount in respect of which he is chargeable to tax under section 148, and

(b) to include, in respect of any amount which would otherwise be included therein by virtue of section 547(1)(a), no greater amount than the appropriate fraction thereof within the meaning of section 550.

6 A provision of paragraph 3 or 4 above shall apply in relation to any part of the claimant's total income (as computed for the purposes of that provision) as respects which he would be entitled under Chapter I of Part VII to a deduction equal to that part as if that part were subject to a nil rate of tax.

Section 44(2).

SCHEDULE 3 MACHINERY FOR ASSESSMENT, CHARGE AND PAYMENT OF INCOME TAX UNDER SCHEDULE C AND, IN CERTAIN CASES, SCHEDULE D

PART I PUBLIC REVENUE DIVIDENDS ETC. PAYABLE TO THE BANK OF ENGLAND OR THE BANK OF IRELAND OR ENTRUSTED FOR PAYMENT TO THE BANK OF ENGLAND, THE BANK OF IRELAND OR THE NATIONAL DEBT COMMISSIONERS

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

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

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

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

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

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

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

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

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

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

(a) the money which, apart from this sub-paragraph, would be issuable to the Bank of Ireland under section 14 of the [1870 c. 71.] National Debt Act 1870, or otherwise payable to the Bank of Ireland for the purpose of dividends on securities of the United Kingdom government entered in the register of the Bank of Ireland in Dublin, shall be issued and paid to the Bank of England; and

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

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

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

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

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

PART II PUBLIC REVENUE DIVIDENDS PAYABLE BY PUBLIC OFFICES AND DEPARTMENTS

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

PART III OTHER PUBLIC REVENUE DIVIDENDS, FOREIGN DIVIDENDS AND PROCEEDS OF COUPONS

6 (1) The following persons are chargeable persons for the purposes of this Part of this Schedule--

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

(b) every person in the United Kingdom who is entrusted with the payment of any foreign dividends;

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

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

(2) Every chargeable person shall deliver to the Board--

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

(b) not later than 12 months after paying any dividends or effecting any other transaction in respect of which he is a chargeable person, and unless within that time he delivers an account with respect to the dividends or proceeds in question under sub-paragraph (a) above, a written statement specifying his name and address and describing those dividends or proceeds.

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

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

9 The chargeable person shall pay the income tax into the general account of the Board at the Bank of England or the Bank of Ireland within 30 days of the date of the issue of the notice of assessment, and in default of payment it shall be recovered from him in the same manner as other tax assessed and charged on him may be recovered.

10 (1) Subject to sub-paragraph (2) below, a chargeable person who does all such things as are necessary to enable the tax to be assessed and paid shall receive as remuneration an allowance, to be calculated by reference to the amount of the dividends or proceeds paid from which tax has been deducted, and to be fixed by the Treasury at a rate not being less than 68p for every £1,000 of that amount.

(2) Sub-paragraph (1) above shall not apply to any person entrusted with the payment of dividends payable out of the public revenue of Northern Ireland.

11 Nothing in paragraphs 6 to 10 above shall impose on any banker the obligation to disclose any particulars relating to the affairs of any person on whose behalf he may be acting.

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

A claim under this paragraph shall be made to the Board.

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

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

14 In this Part of this Schedule--

"dividends" includes foreign dividends, and
"foreign dividends" has the meaning given by section 123.

PART IV INTEREST PAYABLE OUT OF THE PUBLIC REVENUE OF THE REPUBLIC OF IRELAND ETC.

15 (1) Any person who is entrusted with the payment of any interest, dividends or other annual payments which are payable to any persons in the United Kingdom out of the public revenue of the Republic of Ireland, or out of or in respect of the stocks, funds, shares or securities of any Republic of Ireland company, society, adventure or concern, shall be relieved from the obligation imposed on him under the preceding provisions of this Schedule to pay income tax thereon on behalf of the persons entitled thereto as regards any such interest, dividends or other annual payments in respect of which he furnishes to the Board, in such form and subject to such conditions as they may prescribe, a list containing--

(a) a full description of the interest, dividends or other annual payments, and

(b) the name and address of each person who is entitled thereto, and

(2) Any person entrusted with payment who, by virtue of sub-paragraph (1) above, is relieved from the obligation to pay income tax on interest, dividends or other annual payments, shall be entitled to the like remuneration to which, if he had paid tax thereon, he would have been entitled under paragraph 10 above.

(3) Any interest, dividends or other annual payments in respect of which the person entrusted with payment is relieved from the obligation to pay income tax by virtue of sub-paragraph (1) above, shall be assessable and chargeable under Case IV or V of Schedule D, as the case may be.

(4) The Board may make such regulations as may be necessary for the purposes of this paragraph.

(5) This paragraph shall apply to--

(a) any banker or other person in the United Kingdom who obtains payment of any such interest, dividends or other annual payments as is or are mentioned in sub-paragraph (1) above; and

(b) to any person who would, apart from this paragraph, be obliged to pay income tax in respect of the proceeds of the sale or other realisation of any coupon for any such interest, dividends or other annual payments,

as it applies to any person entrusted with the payment of any such interest, dividends or other annual payments, with the substitution in a case falling within paragraph (b) above, of references to the proceeds of the sale or other realisation for references to such interest, dividends or other annual payments.

In this sub-paragraph "coupon" has the same meaning as in section 123.

Section 57.

SCHEDULE 4 DEEP DISCOUNT SECURITIES

Interpretation

1 (1) For the purposes of this Schedule--

(a) "adjusted issue price", in relation to any security in a particular income period, is the aggregate of the issue price of the security and the income elements for all previous income periods;

(b) "the amount payable on redemption" does not include any amount payable by way of interest;

(i) represents more than 15 per cent. of the amount payable on redemption of that security; or

(ii) is 15 per cent. or less, but exceeds half Y per cent. of the amount so payable (where Y is the number of complete years between the date of issue of the security and the redemption date);

(d) subject to sub-paragraph (2) below, "a deep discount security" means any redeemable security which has been issued by a company, after 13th March 1984, at a deep discount, other than--

(i) a share in the company;

(ii) a security in respect of which the amount payable on redemption is determined by reference to the movement of the retail prices index or any similar general index of prices which is published by, or by an agent of, the government of any territory outside the United Kingdom; or

(iii) a security the whole or part of which, by virtue of section 209(2)(c), is a "distribution";

(e) "a discount" means any amount by which the issue price of a redeemable security is less than the amount payable on redemption of that security;

(f) "income period" means --

(i) in the case of a security carrying a right to interest, any period to which a payment of interest which falls to be made in respect of the security is attributable; and

(ii) in any other case, any year ending immediately before the anniversary of the issue of the security or any period of less than a year which begins on the issue or on such an anniversary and ends on the redemption date;

(g) "the redemption date" in relation to any redeemable security, means the earliest date on which, under the terms on which the security is issued, the holder of the security will be entitled to require it to be redeemed by the company which issued it;

(h) "yield to maturity", in relation to any security, means a rate (expressed as a percentage) such that if a sum equal to the issue price of the security were to be invested at that rate on the assumption that--

(i) the rate would be applied on a compounding basis at the end of each income period; and

(ii) the amount of any interest attributable to an income period would be deducted after applying the rate,

the value of that sum at the redemption date would be equal to the amount payable on redemption of the security; and

(j) "chargeable security" has the meaning given by paragraph 2(5) below.

(2) Where securities which were issued on or before 13th March 1984 have been exchanged at any time after that date for new securities which would be deep discount securities but for this sub-paragraph, the new securities shall not be treated as deep discount securities if--

(a) the old securities would not have been deep discount securities if they had been issued after 13th March 1984;

(b) the date which is the redemption date in relation to the new securities is not later than the date which was the redemption date in relation to the old securities; and

(c) the amount payable on redemption of the new securities does not exceed the amount which would have been payable on redemption of the old securities.

(3) For the purposes of this Schedule, a security comprised in any letter of allotment or similar instrument shall be treated as issued unless the right to the security conferred by the letter or instrument remains provisional until accepted, and there has been no acceptance.

Charge to tax after acquisition of certain securities

2 (1) This sub-paragraph applies to deep discount securities issued by a company on or after 19th March 1985 where one or both of the following applies--

(a) immediately before the issue the assets held by the company included relevant securities with a value equal to at least 75 per cent

of the value of all the assets held by it;

(b) the terms of issue of the deep discount securities are determined by the company by reference to (though not necessarily in such a way that they reflect) the terms of issue of relevant securities which are held by the company when the deep discount securities are issued or which it intends to acquire later.

(2) This sub-paragraph applies to deep discount securities issued by a company where--

(a) sub-paragraph (1) above would apply if the references to relevant securities included references to United Kingdom corporate bonds; and

(b) the company acquired those bonds on or after their issue (by another company) in circumstances where sub-paragraph (1) above would have applied if they had been deep discount securities.

(3) This sub-paragraph applies to deep discount securities of a particular kind issued by a company and in the case of which--

(a) neither of the preceding sub-paragraphs applies; and

(b) at any time in the first income period of the securities of that kind the assets held by the company include relevant securities with a value equal to at least 75 per cent. of the value of all the assets held by it.

(4) This sub-paragraph applies to deep discount securities issued by a company where either--

(a) they are issued on a conversion to which section 82 of the 1979 Act applies of old securities; or

(b) they are issued by a company in exchange for old securities in circumstances in which section 85(3) of the 1979 Act applies or are treated as so issued by virtue of section 86(1) of that Act;

and in this sub-paragraph "old securities" means deep discount securities to which sub-paragraph (1), (2) or (3) above or this sub-paragraph applies, except that securities to which sub-paragraph (3) above applies are not old securities unless sub-paragraph (3)(b) has been fulfilled in their case by the time the conversion or exchange concerned takes place.

(5) In the following provisions of this Schedule "chargeable security" means a deep discount security to which any of the preceding sub-paragraphs applies.

(6) In this paragraph--

"relevant securities" means securities within the meaning of section 710, but excluding United Kingdom corporate bonds;
"terms of issue" includes terms relating to amounts payable on redemption or by way of interest, or to times of payment of such amounts; and
"value" in relation to assets means the price they might reasonably be expected to fetch on a sale in the open market.

(7) For the purposes of this paragraph--

(a) a company holds assets if it has a beneficial interest in them and acquires them if it acquires such an interest in them; and

(b) securities are of the same kind if they are treated as being of the same kind by the practice of a stock exchange, or would be so treated if dealt with on a stock exchange.

(8) In this paragraph "United Kingdom corporate bonds" means securities--

(a) issued by a company resident in the United Kingdom at the time of issue;

(b) the debt on which represents and has at all times represented a normal commercial loan, as defined in paragraph 1(5) of Schedule 18; and

(c) which are expressed in sterling and in respect of which no provision is made for conversion into, or redemption in, a currency other than sterling.

(9) For the purposes of sub-paragraph (8)(c) above--

(a) a security shall not be regarded as expressed in sterling if the amount of sterling falls to be determined by reference to the value at any time of any other currency or asset; and

(b) a provision for redemption in a currency other than sterling but at the rate of exchange prevailing at redemption shall be disregarded.

3 (1) Where a person acquires a chargeable security, the chargeable amount shall be treated as income chargeable to tax under Case III or IV (as the case may be) of Schedule D on each of the following occasions--

(a) the end of each income period to fall within the period of ownership;

(b) the end of any income period which ends but does not begin in the period of ownership.

(2) In sub-paragraph (1) above "the chargeable amount" means--

(a) where paragraph (a) applies, an amount equal to the income element for the income period;

(b) where paragraph (b) applies, an amount equal to the income element for the part of the income period falling within the period of ownership.

(3) The income chargeable shall (notwithstanding anything in sections 64 to 67) be taken into account in computing tax charged for the year of assessment in which the occasion concerned occurs.

Charge to tax on disposal of securities

4 (1) On the disposal by any person of any deep discount security--

(a) an amount which represents the accrued income attributable to the period between his acquisition and disposal of the security (the ("period of ownership"), less any amount or amounts treated as income by virtue of paragraph 3 above, shall be treated as income chargeable to tax under Case III or, as may be, Case IV of Schedule D; and

(b) the tax shall (notwithstanding anything in sections 64 to 67 but subject to sub-paragraph (5) below) be computed on the income so arising from any disposal made in the year of assessment.

(2) The amount which represents the accrued income attributable to any period of ownership is the aggregate of the income elements for each income period or part of an income period in the period of ownership.

(3) In relation to any security, the income element for any income period shall be determined by applying the formula--

---

where--

A is the adjusted issue price;
B is the yield to maturity; and
C is the amount of interest (if any) attributable to the income period.

(4) The income element for any period (the ("short period") falling within an income period shall be determined by applying the formula--

---

where--

I is the income element for the income period in which the short period falls;
P is the number of days in the short period; and
Y is the number of days in that income period.

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