Finance (No. 2) Act 1997 (c. 58)

(The document as of February, 2008)

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(3) This section has effect in relation to qualifying distributions made on or after 2nd July 1997.

20 Losses etc not to be set against surplus franked investment income

(1) No claim shall be made under section 242 or 243 of the Taxes Act 1988 (set off of losses etc against surplus of franked investment income) for any accounting period beginning on or after 2nd July 1997; and section 244(1) of that Act shall cease to have effect accordingly.

(2) Sections 242(5) and (6) and 243(4) of the Taxes Act 1988 (restoration of loss etc in later accounting period for which there is a surplus of franked payments) shall not have effect where the later accounting period mentioned in section 242(5)(b) begins on or after 2nd July 1997.

(3) No amount shall be deducted under paragraph (a), or carried forward and deducted under paragraph (b), of section 244(2) (deduction of tax credit paid from ACT subsequently available for set off or surrender) for any accounting period beginning on or after 2nd July 1997.

(4) For the purposes of sections 242 and 243 of the Taxes Act 1988, if--

(a) a company has a surplus of franked investment income for an accounting period beginning before 2nd July 1997 and ending on or after that date, and

(b) that surplus exceeds the surplus of franked investment income which the company would have had for that accounting period had it ended on 1st July 1997,

the surplus shall be treated as reduced by the excess.

(5) Sections 242 to 244 of the Taxes Act 1988 cease to have effect in consequence of, and in accordance with, the foregoing provisions of this section.

(6) In section 237(4) of the Taxes Act 1988 (bonus issue and related tax credit not to be franked investment income for the purposes of sections 241 and 244) for "sections 241 and 244" there shall be substituted "section 241".

(7) Subsection (6) above has effect in accordance with subsection (5) above.

21 Estates in administration: distributions to which s.233(1) applies

(1) Section 699A of the Taxes Act 1988 (untaxed sums comprised in the income of the estate) shall be amended as follows.

(2) In subsection (1) (which defines "a relevant amount" by reference to an amount which is or would be paid out of sums to which paragraphs (a) and (b) apply) after paragraph (b) there shall be inserted--

" or out of any sums included in the aggregate income of the estate of the deceased which fall within subsection (1A) below. "

(3) After subsection (1) there shall be inserted--

" (1A) A sum falls within this subsection if it is a sum in respect of a distribution to which section 233(1) applies.

(1B) Any reference in this Part to a sum to which subsection (1)(a) and (b) above applies includes a reference to a sum falling within subsection (1A) above which is included in the aggregate income of the estate of the deceased. "

(4) In subsection (4) (rate at which sums are assumed to bear tax) after paragraph (b) there shall be inserted " ; and

(5) This section has effect in relation to amounts which a person is deemed by virtue of Part XVI of the Taxes Act 1988 (estates in the course of administration) to receive, or to have a right to receive, on or after 2nd July 1997.

22 Lloyd's underwriters

(1) In section 171 of the [1993 c. 34.] Finance Act 1993 (taxation of profits, and allowance of losses, of non-corporate members) after subsection (2A) there shall be inserted--

" (2B) Section 231(1) of the Taxes Act 1988 (entitlement to tax credit) shall not apply where the distribution there mentioned is a distribution in respect of any asset of a member's premiums trust fund. "

(2) In section 219 of the [1994 c. 9.] Finance Act 1994 (taxation of profits of corporate members) at the beginning of subsection (3) there shall be inserted "Subject to subsection (4A) below,".

(3) In subsection (4) of that section (subsection (2) applies in relation to distributions and associated tax credits notwithstanding section 11(2)(a) or 208 of the Taxes Act 1988)--

(a) for "dividends or other distributions of a company resident in the United Kingdom" there shall be substituted "UK distributions"; and

(b) the words "(and any associated tax credits)" shall cease to have effect.

(4) After that subsection there shall be inserted--

" (4A) Notwithstanding anything in section 11(2)(a) or 208 of the Taxes Act 1988, UK distributions in respect of any assets of a corporate member which are mentioned in paragraph (a) or (b) of subsection (3) above--

(a) shall be taken into account in computing profits of the corporate member for tax purposes; and

(b) shall be so taken into account under Case I of Schedule D (and not under any other Schedule or any other Case of Schedule D).

(4B) Section 231(1) of the Taxes Act 1988 (entitlement to tax credit) shall not apply where the distribution there mentioned is a distribution in respect of any asset of a corporate member's premiums trust fund.

(4C) In this section "UK distributions" means dividends or other distributions of a company resident in the United Kingdom. "

(5) In section 20(1) of the Taxes Act 1988, as amended by section 24(10) below, in paragraph 2 of Schedule F (distribution in respect of which a person is entitled to a tax credit treated for the purposes of the Tax Acts, other than section 95(1), as representing income equal to the aggregate of the distribution and the tax credit) after "95(1)" there shall be inserted "of this Act and section 219(4A) of the Finance Act 1994".

(6) In section 231(1) of the Taxes Act 1988 (recipient of distribution made by UK resident company entitled to tax credit subject to sections 247 and 441A) after "441A," there shall be inserted "section 171(2B) of the Finance Act 1993 and section 219(4B) of the Finance Act 1994,".

(7) This section has effect in relation to distributions made on or after 2nd July 1997.

23 Insurance companies and friendly societies

Schedule 3 to this Act (which makes provision in relation to insurance companies and friendly societies) shall have effect.

Distributions, tax credits etc: avoidance

24 Taxation of dealers in respect of distributions etc

(1) Section 95 of the Taxes Act 1988 (taxation of dealers in respect of certain qualifying distributions etc) shall be amended in accordance with subsections (2) to (9) below.

(2) For subsection (1) (qualifying distributions to which Schedule 7 to the [1997 c. 16.] Finance Act 1997 applies which are received by a dealer, and payments made by a dealer which are representative of such distributions, to be taken into account in computing profits of the dealer) there shall be substituted--

" (1) Where a dealer--

(a) receives a relevant distribution, that is to say--

(i) any distribution which is made by a company resident in the United Kingdom ("a UK distribution"), or

(ii) any payment which is representative of a UK distribution, or

(b) makes any payment which is representative of a UK distribution,

the distribution or, as the case may be, the payment shall be taken into account in computing the profits of the dealer which are chargeable to tax in accordance with the provisions of this Act applicable to Case I or II of Schedule D. "

(3) In subsection (1A) (provisions consequential on subsection (1) where dealer receives qualifying distribution to which Schedule 7 to the Finance Act 1997 applies)--

(a) in the words preceding paragraph (a), for "qualifying distribution to which Schedule 7 to the Finance Act 1997 applies" there shall be substituted "relevant distribution";

(b) paragraph (b) (distribution not to be treated for the purposes of sections 246D and 246F as a FID received by the dealer) shall cease to have effect;

(d) paragraph (d) (which disapplies paragraph 2A(2) of Schedule 23A to the Taxes Act 1988 which is repealed by this section) shall be omitted; and

(e) the following paragraph shall be inserted at the appropriate place--

" (e) section 11(2)(a) shall have effect in relation to that distribution with the omission of the words "(but so that this paragraph shall not include distributions received from companies resident in the United Kingdom)". "

(4) Subsection (1B) (which relates to the application of section 732 and which becomes unnecessary in consequence of the amendments made to that section by section 26 below) shall cease to have effect.

(5) In subsection (2) (meaning of "dealer")--

(a) the word "qualifying" shall be omitted in both places where it occurs; and

(b) in paragraph (a), after "shares" there shall be inserted "or stock".

(6) After subsection (2) there shall be inserted--

" (2A) The reference in subsection (2) above to the profits of a person does not include the profits of that person in respect of insurance business or any category of insurance business. "

(7) Subsection (4) (which makes special provision in relation to preference shares) shall cease to have effect.

(8) Subsection (5) (definitions) shall be omitted.

(9) For the sidenote there shall be substituted "Taxation of dealers in respect of distributions etc."

(10) In section 20(1) of the Taxes Act 1988, in paragraph 2 of Schedule F (distribution in respect of which a person is entitled to a tax credit treated for the purposes of the Tax Acts as representing income equal to the aggregate of the distribution and the tax credit) after "purposes of the Tax Acts" there shall be inserted "(other than section 95(1))".

(11) In section 234 of the Taxes Act 1988 (information relating to distributions) in subsection (1), the words "but subject to section 95(1A)(c)" shall be omitted.

(12) In section 246D(1) of the Taxes Act 1988 (individuals entitled to FIDs treated as receiving grossed-up amount) after "that individual shall be treated" there shall be inserted "(except for the purposes of section 95(1))".

(13) In Schedule 23A to the Taxes Act 1988 (manufactured dividends and interest) paragraph 2A(2) (which provides that if the dividend manufacturer is a company not resident in the UK no amount shall be deductible in the case of that company in respect of the manufactured dividend) shall be omitted (and accordingly paragraph 2(3)(c) of that Schedule has effect instead).

(14) In Schedule 7 to the [1997 c. 16.] Finance Act 1997 (special treatment for certain distributions) in paragraph 2 (distributions treated as FIDs) in sub-paragraph (3)--

(a) paragraph (a) (subjection to section 95(1A)(b)) shall be omitted; and

(b) in paragraph (b) (subjection to section 247(5B) to (5D)) for "of that Act" there shall be substituted "of the Taxes Act 1988".

(15) This section has effect in relation to--

(a) any distribution made on or after 2nd July 1997; and

(b) any payment which is representative of such a distribution.

25 Repeal of s.95(5) of the Taxes Act 1988: consequential amendments

(1) In section 246A(9) of the Taxes Act 1988 (which provides that "fixed-rate preference shares" shall be construed in accordance with section 95(5)) for "section 95(5)" there shall be substituted "paragraph 13(6) of Schedule 28B".

(2) In Schedule 28B to the Taxes Act 1988 (venture capital trusts) paragraph 13 (general interpretation) shall be amended in accordance with subsections (3) and (4) below.

(3) In sub-paragraph (5), paragraph (b) (which provides that "fixed-rate preference shares" has the same meaning as in section 95), and the word "and" immediately preceding that paragraph, shall be omitted.

(4) After sub-paragraph (5) there shall be inserted--

" (6) In this paragraph "fixed-rate preference shares" means shares which--

(a) were issued wholly for new consideration;

(b) do not carry any right either to conversion into shares or securities of any other description or to the acquisition of any additional shares or securities; and

(i) are of a fixed amount or at a fixed rate per cent. of the nominal value of the shares, and

(ii) together with any sum paid on redemption, represent no more than a reasonable commercial return on the consideration for which the shares were issued;

and in paragraph (a) above "new consideration" has the meaning given by section 254. "

(5) In Schedule 7 to the [1997 c. 16.] Finance Act 1997 (special treatment for certain distributions) paragraph 5 (fixed-rate preference shares) shall be amended in accordance with subsections (6) and (7) below.

(6) In sub-paragraph (2) (which defines "fixed-rate preference shares" by reference to section 95 of the Taxes Act 1988)--

(a) in paragraph (a) for "section 95 of" there shall be substituted "paragraph 13 of Schedule 28B to"; and

(b) in paragraph (b) for "section 95(5)(c)(i) of that Act" there shall be substituted "paragraph 13(6)(c)(i) of that Schedule".

(7) After sub-paragraph (2) there shall be inserted--

" (3) For the purposes of sub-paragraph (2) above, any reference in paragraph 13(6) of Schedule 28B to shares shall be taken as a reference to shares within the meaning of this Schedule. "

(8) This section has effect on and after 2nd July 1997.

26 Purchase and sale of securities

(1) Section 732 of the Taxes Act 1988 (dealers in securities) shall Purchase and sale be amended as follows. of securities.

(2) After subsection (1) (dealers in securities: reduction for tax purposes of price paid by the appropriate amount in respect of interest) there shall be inserted--

" (1A) Subsection (1) above shall not apply if the interest receivable by the first buyer falls to be taken into account by virtue of section 95(1) in computing profits of his which are chargeable to tax in accordance with the provisions of this Act applicable to Case I or II of Schedule D. "

(3) Subsections (2) and (2A) (exceptions from subsection (1) for certain market makers, recognised clearing houses and members of recognised investment exchanges) shall cease to have effect.

(4) In subsection (4) (exception from subsection (1) for overseas securities bought on a stock exchange outside the United Kingdom if conditions as to computation of profits and non-allowance of credit for foreign tax are satisfied) the words "on a stock exchange outside the United Kingdom" shall be omitted.

(5) For the definition of "overseas securities" in subsection (4) there shall be substituted--

" In this subsection "overseas securities" means securities issued--

(a) by a government or public or local authority of a territory outside the United Kingdom; or

(b) by any other body of persons not resident in the United Kingdom. "

(6) Subsections (5) and (5A) (exceptions from subsection (1) for Eurobonds bought by dealers and for rights in a unit trust scheme where first buyer sells as manager) shall cease to have effect.

(7) Subsections (6) and (7) (definitions for the purposes of subsections (2) and (2A)) shall cease to have effect.

(8) This section has effect where, for the purposes of section 731(2) of the Taxes Act 1988, the interest receivable by the first buyer is paid on or after 2nd July 1997.

27 Payments to companies under section 687 of the Taxes Act 1988

(1) After section 687 of the Taxes Act 1988 (payments under discretionary trusts) there shall be inserted--

" 687A Payments to companies under section 687

(1) This section applies where--

(a) trustees make a payment to a company;

(b) section 687 applies to the payment; and

(2) A company falls within this subsection if it is--

(a) a charity, as defined in section 506(1);

(b) a body mentioned in section 507 (heritage bodies); or

(3) Where this section applies--

(a) none of the following provisions, namely--

(i) section 7(2),

(ii) section 11(3),

(iii) paragraph 5(1) of Schedule 16,

shall apply in the case of the payment;

(b) the payment shall be left out of account in calculating the profits of the company for the purposes of corporation tax; and

(c) no repayment shall be made of the amount treated under section 687(2) as income tax paid by the company in the case of the payment.

(4) If the company is not resident in the United Kingdom, this section applies only in relation to so much (if any) of the payment as is comprised in the company's chargeable profits for the purposes of corporation tax. "

(2) This section has effect in relation to payments made by trustees to companies on or after 2nd July 1997.

28 Arrangements to pass on value of tax credit

(1) After section 231A of the Taxes Act 1988 (which is inserted by section 19 of this Act) there shall be inserted--

" 231B Consequences of certain arrangements to pass on the value of a tax credit

(1) This section applies in any case where--

(a) a person ("A") is entitled to a tax credit in respect of a qualifying distribution;

(b) arrangements subsist such that another person ("B") obtains, whether directly or indirectly, a payment representing any of the value of the tax credit;

(d) the condition in subsection (2) below is satisfied.

(2) The condition is that if B had been the person entitled to the tax credit and the qualifying distribution to which it relates, and had received the distribution when it was made, then--

(a) B would not have been entitled to obtain any payment under section 231(2) or (3) in respect of the tax credit; and

(b) if B is a company, B could not have used the income consisting of the distribution to frank a distribution actually made in the accounting period in which it would have received the distribution to which the tax credit relates.

(3) This section does not apply if and to the extent that any other provision of the Tax Acts has the effect of cancelling or reducing the tax advantage which would otherwise be obtained by virtue of the arrangements.

(4) Where this section applies--

(a) no claim shall be made under section 231(2) for payment of the amount of the tax credit;

(b) no claim shall be made under section 231(3) or 441A(7) in respect of the tax credit;

(c) the income consisting of the distribution in respect of which A is entitled to the tax credit shall not be regarded for the purposes of section 241 as franked investment income; and

(d) no claim shall be made under section 35 of the Finance (No. 2) Act 1997 (transitional relief) for payment of an amount determined by reference to that distribution.

(5) For the purposes of this section, the question whether any arrangements were entered into for an "unallowable purpose" shall be determined in accordance with subsections (6) and (7) below.

(6) Arrangements are entered into for an unallowable purpose if the purposes for which at least one person is a party to the arrangements include a purpose which is not amongst the business or other commercial purposes of that person.

(7) Where one of the purposes for which a person enters into any arrangements is the purpose of securing that that person or another obtains a tax advantage, that purpose shall be regarded as a business or other commercial purpose of the person only if it is neither the main purpose, nor one of the main purposes, for which the person enters into the arrangements.

(8) Any reference in this section to a person obtaining a tax advantage includes a reference to a person obtaining a payment representing any of the value of a tax credit in circumstances where, had the person obtaining the payment been entitled to the tax credit and the qualifying distribution to which it relates, that person--

(a) would not have been entitled to obtain any payment under section 231(2) or (3) in respect of the tax credit; and

(b) if that person is a company, could not have used the income consisting of the distribution to frank a distribution actually made in the accounting period in which it would have received the distribution to which the tax credit relates.

(9) If an amount representing any of the value of a tax credit to which a person is entitled is applied at the direction of, or otherwise in favour of, some other person (whether by way of set off or otherwise), the case shall be treated for the purposes of this section as one where that other person obtains a payment representing any of the value of the tax credit.

(10) In determining for the purposes of subsections (2)(b) and (8)(b) b above whether a company could have used the income consisting of the distribution in question to frank a distribution of the company, the company shall be taken to use its actual franked investment income to frank distributions before using the income consisting of the distribution in question.

(11) References in this section to using franked investment income to frank a distribution of a company have the same meaning as in Chapter V of Part VI.

(12) In this section--

"arrangements" means arrangements of any kind, whether in writing or not (and includes a series of arrangements, whether or not between the same parties);
"business or other commercial purposes" includes the efficient management of investments;
"franked investment income" has the same meaning as in Chapter V of Part VI and references to income consisting of a distribution shall be construed accordingly;
"tax advantage" has the same meaning as in Chapter I of Part XVII. "

(2) This section has effect in relation to distributions made on or after 2nd July 1997.

29 Unauthorised unit trusts

(1) Where a qualifying distribution--

(a) is made on or after 2nd July 1997 but before 6th April 1999 by a company resident in the United Kingdom, and

(b) falls to be regarded by virtue of subsection (2) of section 469 of the Taxes Act 1988 (unit trusts other than authorised unit trusts) as income of the trustees of a unit trust scheme to which that section applies, and

(c) is not a foreign income dividend and does not fall to be regarded by virtue of any provision of the Tax Acts apart from this section as a foreign income dividend arising to the trustees,

the trustees shall be treated for all purposes of the Tax Acts (apart from this section) as if the qualifying distribution were a foreign income dividend.

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

(a) if the unit trust scheme is a common investment fund established under section 42 of the [1982 c. 53.] Administration of Justice Act 1982; or

(b) if, apart from section 469(2) of the Taxes Act 1988, the whole of the qualifying distribution would fall to be regarded as income of section 505 bodies.

(3) In this section--

"foreign income dividend" shall be construed in accordance with Chapter VA of Part VI of the Taxes Act 1988;
"section 505 body" means--

(a) a charity, as defined in section 506(1) of the Taxes Act 1988;

(b) a body mentioned in section 507 of that Act (heritage bodies); or

Distributions, tax credits etc in and after 1999-00

30 Tax credits

(1) Section 231 of the Taxes Act 1988 (tax credits for certain recipients of qualifying distributions) shall be amended in accordance with subsections (2) to (7) below.

(2) In subsection (1) (recipient of certain distributions to be entitled to tax credit equal to proportion of distribution corresponding to rate of ACT in force)--

(a) after "where" there shall be inserted ", in any year of assessment for which income tax is charged,"; and

(b) for "the rate of advance corporation tax in force for the financial year in which" there shall be substituted "the tax credit fraction in force when".

(3) After subsection (1) there shall be inserted--

" (1A) The tax credit fraction is one-ninth. "

(4) Subsection (2) (payment of tax credit to company resident in UK) shall cease to have effect.

(5) In subsection (3) (which includes provision for payment of excess of tax credit over income tax liability to person not being a company resident in the UK)--

(a) for "Subject to section 231A," there shall be substituted "Subject to subsection (3AA) below,"; and

(b) the words "and subject to subsections (3A) and (3D) below where the credit exceeds that income tax, to have the excess paid to him" shall cease to have effect.

(6) After subsection (3) there shall be inserted--

" (3AA) For any year of assessment, the aggregate amount of the tax credits in respect of which claims are made under subsection (3) above by any person must not exceed the aggregate amount of the tax credits in respect of such qualifying distributions (if any) as are brought into charge to tax in the case of that person. "

(7) In consequence of subsection (5) above, subsections (3A) to (3D) shall cease to have effect.

(8) Section 231A of the Taxes Act 1988 (which is superseded by the foregoing provisions of this section) shall cease to have effect.

(9) The amendments made by subsections (5) and (6) above do not affect the entitlement of a person who is not resident in the United Kingdom to payment in respect of a tax credit by virtue of arrangements having effect under section 788 of the Taxes Act 1988 (relief by agreement with other countries).

(10) Where--

(a) arrangements having effect by virtue of section 788 of the Taxes Act 1988 confer on a person not resident in the United Kingdom the right to a tax credit under section 231 of the Taxes Act 1988 in respect of a dividend of a company resident in the United Kingdom, and

(b) the arrangements contain provision for permitting--

(i) tax to be charged or deducted, or

(ii) a reduction in the amount of the tax credit that is paid to be made,

by reference to the aggregate of the dividend and the tax credit, and

that provision shall only have the effect of reducing to nil the amount of the payment to which the person is entitled in respect of the tax credit.

(11) This section has effect in relation to distributions made on or after 6th April 1999.

31 Rates of tax applicable to Schedule F income etc

(1) Section 1A of the Taxes Act 1988 (application of lower rate to income from savings and distributions) shall be amended in accordance with subsections (2) to (4) below.

(2) In subsection (1) (certain savings and distribution income to be charged at the lower rate to the exclusion of basic rate) for "lower rate" there shall be substituted "rate applicable in accordance with subsection (1A) below".

(3) After subsection (1) there shall be inserted--

" (1A) The rate applicable in accordance with this subsection is--

(a) in the case of income chargeable under Schedule F, the Schedule F ordinary rate;

(b) in the case of equivalent foreign income falling within subsection (3)(b) below and chargeable under Case V of Schedule D, the Schedule F ordinary rate; and

(4) For subsection (5) (income to which section 1A applies to be treated as the highest part of a person's income) there shall be substituted--

" (5) For the purposes of subsection (1)(b) above and any other provisions of the Income Tax Acts--

(a) so much of any person's income as comprises income to which this section applies shall be treated as the highest part of his income; and

(b) so much of that part as consists of--

(i) income chargeable under Schedule F (if any), and

(ii) equivalent foreign income falling within subsection (3)(b) above and chargeable under Case V of Schedule D (if any),

shall be treated as the highest part of that part. "

(5) After section 1A of the Taxes Act 1988 there shall be inserted--

" 1B Rates of tax applicable to Schedule F income etc

(1) In the case of so much of an individual's income which consists of--

(a) income chargeable under Schedule F (if any), and

(b) equivalent foreign income falling within section 1A(3)(b) and chargeable under Case V of Schedule D (if any),

as is income falling within section 1(2)(b), income tax shall, by virtue of this subsection, be charged at the Schedule F upper rate, instead of at the rate otherwise applicable to it in accordance with section 1(2)(b).

(2) In relation to any year of assessment for which income tax is charged--

(a) the Schedule F ordinary rate is 10 per cent., and

(b) the Schedule F upper rate is 32.5 per cent.,

or, in either case, such other rate as Parliament may determine. "

(6) This section has effect in relation to distributions made on or after 6th April 1999.

32 Trusts

(1) Section 686 of the Taxes Act 1988 (income arising to trustees which is to be chargeable at the rate applicable to trusts) shall be amended as follows.

(2) In subsection (1) (income to which the section applies to be chargeable at the rate applicable to trusts instead of at the basic rate or, in accordance with section 1A, the lower rate)--

(a) for "at the rate applicable to trusts" there shall be substituted "at the rate applicable in accordance with subsection (1AA) below"; and

(b) after "at the lower rate" there shall be inserted "or the Schedule F ordinary rate".

(3) After subsection (1) there shall be inserted--

" (1AA) The rate applicable in accordance with this subsection is--

(a) in the case of so much of any income to which this section applies as is Schedule F type income, the Schedule F trust rate; and

(b) in the case of any other income to which this section applies, the rate applicable to trusts. "

(4) In subsection (1A) (the rate applicable to trusts etc) for the words from the beginning to "Parliament may determine" there shall be substituted--

" (1A) In relation to any year of assessment for which income tax is charged--

(a) the Schedule F trust rate shall be 25 per cent., and

(b) the rate applicable to trusts shall be 34 per cent.,

or, in either case, such other rate as Parliament may determine. "

(5) In subsection (1A), so as to make the words following "as Parliament may determine" into a separate paragraph, for the words "and, for the purposes of assessments" there shall be substituted--

" For the purposes of assessments " .

(6) In subsection (2AA) (income treated by s.689B as applied in defraying trustees' expenses to be taxed at the rate that would apply apart from s.686, instead of the rate applicable to trusts) after "instead of the rate applicable to trusts" there shall be inserted "or the Schedule F trust rate (as the case may be)".

(7) Before subsection (6) there shall be inserted--

" (5A) In this section "Schedule F type income", in relation to trustees, means--

(a) income chargeable under Schedule F;

(b) income to which section 1A applies by virtue of its being equivalent foreign income falling within subsection (3)(b) of that section and chargeable under Case V of Schedule D;

(d) a non-qualifying distribution, within the meaning of section 233(1B);

(e) income treated as arising to the trustees by virtue of section 249(6)(b);

(f) income treated as received by the trustees by virtue of section 421(1)(a);

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