Income Tax Act 2007 (c. 3)

(The document as of February, 2008)

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(d) section 257 of TCGA 1992 (gifts of chargeable assets),

(e) section 63 of CAA 2001 (gifts of plant and machinery),

(f) sections 713 to 715 of ITEPA 2003 (payroll giving),

(g) section 108 of ITTOIA 2005 (gifts of trading stock),

(h) sections 628 and 630 of ITTOIA 2005 (gifts from settlor-interested trusts), or

(i) Chapters 2 or 3 of Part 8 of this Act (gift aid and gifts of shares, securities and real property).

551 Non-charitable expenditure in substantial donor transactions

(1) A payment made by a charitable trust to a substantial donor in the course of, or for the purposes of, a substantial donor transaction is treated for the purposes of section 543 as non-charitable expenditure.

(2) If the terms of a substantial donor transaction are less beneficial to the charitable trust than terms which might be expected in a transaction at arm's length, the charitable trust is treated for the purposes of section 543 as incurring non-charitable expenditure.

(3) The amount of the non-charitable expenditure that the charitable trust is treated as incurring under subsection (2) is equal to the amount which an officer of Revenue and Customs determines as the cost to the charitable trust of the difference in terms.

(4) A charity is treated as incurring non-charitable expenditure under subsection (2) at such time (or times) as an officer of Revenue and Customs may determine.

(5) A payment by a charitable trust of remuneration to a substantial donor is treated for the purposes of section 543 as non-charitable expenditure unless it is remuneration, for services as a trustee, which is approved by--

(a) the Charity Commission,

(b) another body with responsibility for regulating charities by virtue of legislation having effect in respect of any part of the United Kingdom, or

(6) If remuneration is paid otherwise than in money, subsection (5) applies as if it had been paid in money of an amount that would, under Part 3 of ITEPA 2003, be the cash equivalent of the remuneration as a benefit.

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

(1) Either or both of subsections (1) and (2) of section 551 may be applied to a single transaction between a charitable trust and a substantial donor.

(2) But if they are both applied, the amount of non-charitable expenditure that the charitable trust would, apart from this subsection, be treated as incurring under section 551(2) in respect of the transaction, is reduced by the section 551(1) amount (but is not to be reduced below nil).

(3) The "section 551(1) amount" means the amount of any payment made by the charitable trust, in the course of, or for the purposes of, the transaction, that is treated as non-charitable expenditure under section 551(1).

553 Section 551: certain payments and benefits to be ignored

(1) In the application of section 551, payments by a charitable trust, or benefits arising to a substantial donor from a transaction, are to be ignored so far as--

(a) they relate to a donation by the donor, and

(b) either condition A or condition B is met.

(2) Condition A is that--

(a) the donation is made by an individual, and

(b) the payments or benefits do not prevent the donation being a qualifying donation for the purposes of section 416 because of subsection (7)(b) of that section (restrictions on associated benefits).

(3) Condition B is that--

(a) the donation is made by a company, and

(b) the payments or benefits do not prevent the donation being a qualifying donation for the purposes of section 339 of ICTA because of subsection (3B)(b) of that section (restrictions on associated benefits).

554 Transactions: exceptions

(1) A transaction within section 549(1)(b) or (d) is not a substantial donor transaction if an officer of Revenue and Customs determines that the transaction--

(a) takes place in the course of a business carried on by the substantial donor,

(b) is on terms which are no less beneficial to the charitable trust than those which might be expected in a transaction at arm's length, and

(2) The provision of services to a substantial donor is not a substantial donor transaction if an officer of Revenue and Customs determines that those services are provided--

(a) in the course of carrying out a primary purpose of the charitable trust, and

(b) on terms which are no more beneficial to the substantial donor than those on which services are provided to others.

(3) The provision of financial assistance to a charitable trust by a substantial donor is not a substantial donor transaction if an officer of Revenue and Customs determines that the assistance--

(a) is on terms which are no less beneficial to the charitable trust than those which might be expected in a transaction at arm's length, and

(b) is not part of an arrangement for the avoidance of any tax.

(4) Investment by a charitable trust in the business of a substantial donor is not a substantial donor transaction if the investment takes the form of the purchase of shares or securities listed on a recognised stock exchange.

(5) The following are not substantial donor transactions--

(a) a disposal at an undervalue in respect of which relief is available under section 431 or section 587B of ICTA (gifts of shares, securities and real property), or

(b) a disposal at an undervalue to which section 257(2) of TCGA 1992 (gifts of chargeable assets) applies,

but such disposals may be taken into account in the application of section 549(2).

555 Donors: exceptions

(1) A company which is wholly owned by a charity within the meaning of section 339(7AB) of ICTA is not a substantial donor in relation to a charitable trust which owns it (or which owns any part of it).

(2) A registered social landlord or housing association is not a substantial donor in relation to a charitable trust with which it is connected.

(3) "Registered social landlord or housing association" means a body entered on a register maintained under--

(a) section 1 of the Housing Act 1996 (c. 52),

(b) section 57 of the Housing (Scotland) Act 2001 (asp. 10), or

(4) For the purposes of subsection (2), a body and a charity are connected if (and only if)--

(a) one is wholly owned, or subject to control, by the other, or

(b) both are wholly owned, or subject to control, by the same person.

556 Connected charities

(1) A charitable trust and any other charities with which it is connected are to be treated as a single charitable trust for the purposes of section 549 to 555.

(2) For this purpose "connected" means connected in a matter relating to the structure, administration or control of a charity.

557 Substantial donor transactions: supplementary

(1) In sections 549 to 555--

(a) a reference to a substantial donor or other person includes a reference to a person connected with the donor or other person,

(b) "financial assistance" includes, in particular--

(i) the provision of a loan, guarantee or indemnity, and

(ii) entering into alternative finance arrangements within the meaning of section 46 of FA 2005, and

(2) On an appeal against an assessment the Special Commissioners may affirm or replace a decision of an officer of Revenue and Customs under section 551 or 554.

(3) The Treasury may by regulations vary a sum, or a period of time, specified in section 549(2).

Approved charitable investments and loans

558 Approved charitable investments

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 1

An investment to which section 559 applies.

Type 2

An investment in a common investment fund established under--

(a)

section 22 of the Charities Act 1960 (c. 58),

(b)

section 24 of the Charities Act 1993 (c. 10), or

(c)

section 25 of the Charities Act (Northern Ireland) 1964.

Type 3

An investment in a common deposit fund established under--

(a)

section 22A of the Charities Act 1960, or

(b)

section 25 of the Charities Act 1993.

Type 4

An investment in a fund which--

(a)

is similar to a fund mentioned in relation to Type 2 or 3, and

(b)

is 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 5

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

Type 6

Any of the following issued by Her Majesty's Government in the United Kingdom--

(a)

bills,

(b)

Certificates of Tax Deposit,

(c)

Savings Certificates, and

(d)

Tax Reserve Certificates.

Type 7

Northern Ireland Treasury Bills.

Type 8

Units 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 9

A deposit with a bank (as defined in section 991)--

(a)

in respect of which interest is payable at a commercial rate, and

(b)

which is not made as part of an arrangement under which a loan is made by the bank to some other person.

Type 10

A deposit with--

(a)

the National Savings Bank,

(b)

a building society, or

(c)

a 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 11

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

Type 12

A 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).

559 Securities which are approved charitable investments

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

(a) issued or guaranteed 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--
(a)
debenture stock and bonds (whether constituting a charge on assets or not), and
(b)
loan stock or notes,
"open-ended investment company" is to be read in accordance with section 468A(2) to (4) of ICTA,
"securities" includes shares and debentures, and
"shares" includes stocks.

560 Conditions to be met for some securities

(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

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

(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.

561 Approved charitable loans

(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

562 Excess expenditure treated as non-charitable expenditure of earlier years

(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),

(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.

563 Rules for attributing excess expenditure to earlier years

(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.

564 Adjustments in consequence of section 562

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

565 Overview of Part

(1) This Part is about the income tax treatment of some arrangements for the transfer of securities.

(2) Chapter 2 deals with arrangements for the transfer of securities under which provision is made for the payment of amounts representative of dividends or interest in respect of the securities.

(3) Chapter 3 prevents parties to stock lending arrangements (see section 568) and repos (see section 569) from being entitled to tax credits in some circumstances.

(4) Chapter 4 brings within the rules in Chapters 2 and 3--

(a) some stock lending arrangements under which the dividends or interest in respect of the transferred securities are paid to a person other than the lender, and

(b) some repos where the original owner is not entitled to the dividends or interest in respect of the transferred securities.

(5) Chapter 5 deals with differences between the sale and repurchase price under repos.

(6) Chapter 6 contains powers to modify some of the provisions about repos.

566 Meaning of "UK shares" and "UK securities"

(1) This section applies for the purposes of this Part.

(2) "UK shares" means shares in a UK resident company.

(3) "UK securities" means securities of--

(a) the government of the United Kingdom,

(b) a local authority in the United Kingdom,

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

(4) But "UK securities" does not include UK shares.

(5) In this section "securities" includes loan stock or any similar security.

567 Meaning of "overseas securities" and "overseas dividend"

(1) This section applies for the purposes of this Part.

(2) "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.

(3) "Overseas dividend" means any interest, dividend or other annual payment payable in respect of overseas securities.

(4) In this section "securities" includes loan stock or any similar security.

568 Meaning of "stock lending arrangement"

(1) For the purposes of this Part there is a stock lending arrangement in respect of securities if--

(a) a person ("the lender") has transferred the securities to another person ("the borrower") otherwise than by way of sale,

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

(d) under the arrangement, the borrower is required to transfer the securities back to the lender otherwise than by way of sale.

(2) The reference in subsection (1)(d) to the transfer of the securities back to the lender includes a reference to--

(a) a transfer within subsection (3), and

(b) a payment within subsection (5).

(3) A transfer is within this subsection if it is a transfer to the lender of securities of the same description as the securities--

(a) in accordance with a requirement to do so, or

(b) in exercise of a power to substitute securities of the same description for the securities that are required to be transferred back.

(4) For the purposes of subsection (3), securities are taken to be of the same description as other securities if (and only if) they--

(a) are in the same quantities,

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