Income Tax Act 2007 (c. 3)

(The document as of February, 2008)

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(a) in a case falling within section 569(4)(b), added to what would otherwise be the price, and

(b) in a case falling within section 569(4)(c), subtracted from what would otherwise be the price.

(8) This section is subject to section 608 (exceptions) and Chapter 6 (powers to modify repo provisions: non-standard repo cases and redemption arrangements).

608 Exceptions to section 607

(1) Section 607 does not apply in a case within subsection (2) or (3).

(2) A case is within this subsection if the agreement or agreements for sale and repurchase are not what one would expect of persons dealing at arm's length.

(3) A case is within this subsection if the interim holder has all the benefits and risks from fluctuations in the market value of the securities between their sale and repurchase.

(4) This section is subject to any regulations under--

(a) section 611 (power to modify Chapter 5 in non-arm's length case), and

(b) sections 612 to 614 (powers to modify repo provisions: non-standard repo cases and redemption arrangements).

Additional tax treatment

609 Additional income tax consequences of price differences

(1) Subsections (2) and (3) apply if an amount is treated under section 607 as a payment of interest.

(2) If the repurchase price is more than the sale price, the repurchase price is treated for other income tax purposes as reduced by the amount of the payment of interest.

(3) If the sale price is more than the repurchase price, the repurchase price is treated for other income tax purposes as increased by the amount of the payment of interest.

(4) "Other income tax purposes" means income tax purposes other than the purposes of--

(a) sections 601 to 605 (deemed manufactured payments: repos), and

(b) this Chapter.

(5) The Treasury may by regulations provide for any amount which is treated under section 607 as received as a payment of interest to be treated, in such circumstances and so far as may be described in the regulations, as exempt pension income.

(6) "Exempt pension income" means income which is eligible for relief from income tax as a result of section 613(4) or 614(2), (3) or (4) of ICTA or section 186 of FA 2004 (exemptions about pensions and annuities).

(7) Section 261G of TCGA 1992 deals with the effect on the repurchase price for capital gains tax purposes of an amount being treated under section 607 as a payment of interest.

Interpretation

610 Repurchase price in deemed manufactured payment case

(1) This section applies if section 602 (deemed manufactured payments: repos) applies to a case in which section 607 applies.

(2) References in sections 607 to 609 to the repurchase price are to be read as references to the repurchase price which is applicable as a result of section 604(2), (4) or (5).

Power to modify

611 Power to modify Chapter in non-arm's length case

(1) The Treasury may by regulations provide for--

(a) sections 607 to 610 (price differences under repos), or

(b) any of those sections,

to apply with modifications if the exception in section 608(2) (agreement not at arm's length) would otherwise prevent section 607 from applying.

(2) Regulations under this section may make different provision for different cases.

(3) Regulations under this section may contain incidental, supplemental, consequential and transitional provision and savings.

(4) The incidental, supplemental and consequential provision may include modifications of--

(a) section 604 (deemed increase in repurchase price: price differences under repos), and

(b) section 605 (deemed increase in repurchase price: other income tax purposes).

(5) In this section "modifications" includes exceptions and omissions.

(6) Accordingly, the power in subsection (1) includes power to provide for any of sections 607 to 610 not to apply in relation to the case mentioned in that subsection.

Chapter 6 Powers to modify repo provisions

612 Non-standard repo cases

(1) The Treasury may by regulations provide for--

(a) sections 601 to 606 (deemed manufactured payments: repos),

(b) sections 607 to 610 (treatment of price differences under repos), or

to apply with modifications in relation to non-standard repo cases.

(2) A case is a non-standard repo case if--

(a) there is a repo in respect of securities,

(b) under the repo, there has been a sale ("the original sale") of the securities by the original owner to the interim holder, and

(3) Condition A is that--

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

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

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

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

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

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

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

(b) ending when the repurchase price becomes due.

(8) "Post-agreement fluctuations" are fluctuations in the value of --

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

(b) representative securities,

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

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

613 Redemption arrangements

(1) The Treasury may by regulations provide for--

(a) sections 601 to 606 (deemed manufactured payments: repos),

(b) sections 607 to 610 (treatment of price differences under repos), or

to apply with modifications in relation to cases involving redemption arrangements.

(2) A case involves redemption arrangements if--

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

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

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

614 Sections 612 and 613: supplementary

(1) Regulations under section 612 or 613 may make different provision for different cases.

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

(3) The incidental, supplemental and consequential provision may, in the case of regulations about sections 607 to 610, include modifications of--

(a) section 604 (deemed increase in repurchase price: price differences under repos), and

(b) section 605 (deemed increase in repurchase price: other income tax purposes).

(4) In this section and sections 612 and 613 "modifications" includes exceptions and omissions.

(5) Accordingly, a power in sections 612 and 613 to provide for a provision to apply with modifications in relation to a particular case includes power to provide for the provision not to apply in relation to that case.

Part 12 Accrued income profits

Chapter 1 Introduction

615 Overview of Part

(1) This Part makes provision about--

(a) accrued income profits and losses, and

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

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

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

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

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

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

Chapter 2 Accrued income profits and losses

Charge to tax

616 Charge to tax on accrued income profits

Income tax is charged on accrued income profits.

617 Income charged

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

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

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

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

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

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

618 Person liable

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

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

Securities to which Chapter applies

619 Meaning of "securities" and when securities are of the same kind

(1) In this Chapter "securities" includes--

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

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

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

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

(a) whether the security is of the government of the United Kingdom, any other government, any public or local authority in the United Kingdom or elsewhere, or any company or other body,

(b) whether or not the security is secured,

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

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

(3) In this section "excluded securities" means--

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

(b) war savings certificates,

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

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

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

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

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

(5) The redemption conditions are that--

(a) the security is redeemable,

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

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

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

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

Transfers to which Chapter applies

620 Transactions which are transfers: general

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

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

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

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

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

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

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

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

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

(2) But subsection (1)(a) does not include--

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

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

(3) For the purposes of this Chapter--

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

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

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

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

(6) Subsection (1) is subject to--

section 648(7) (transactions forming part of exchanges concerning strips of gilt-edged securities),
section 653 (stock lending), and
section 655 (transfers under sale and repurchase arrangements).

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

621 Transferors and transferees

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

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

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

(b) no one is treated as the transferee.

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

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

(b) no one is treated as the transferee.

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

section 648(1) to (4) (strips of gilt-edged securities),
section 649(4) and (5) (new securities issued with extra return),
section 650 (trading stock appropriations etc),
section 651(2) and (3) (owner becoming entitled to securities as trustee),
section 652(2) and (3) (securities ceasing to be held on charitable trusts), and
section 666 (certain transfers by or to nominees or trustees treated as made by or to others).

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

622 Application of Chapter to different kinds of transfer

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

(2) The transfers are--

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

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

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

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

623 Transfers with accrued interest

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

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

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

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

(3) The transfers are those treated as made under--

(a) section 620(1)(b) (conversion),

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

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

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

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

(6) See also--

section 648(6) (certain exchanges of strips treated as transfers with accrued interest), and
section 649(4) (issue of new securities with extra return treated as transfer with accrued interest).

624 Transfers without accrued interest

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

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

(3) The transfers are those treated as made under--

(a) section 620(1)(b) (conversion),

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

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

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

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

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

625 Transfers with unrealised interest

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

(2) Such interest is referred to in this Chapter as "unrealised interest".

626 Transfers of variable rate securities

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

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

627 Meaning of "variable rate securities"

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

(2) The categories are--

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

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

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

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

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

Calculating accrued income profits and losses

628 Making accrued income profits and losses: general rule

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

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

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

(4) Each such calculation is to find--

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

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

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

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

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

section 632 (payment on transfer with accrued interest),
section 633 (payment on transfer without accrued interest),
section 634 (payment on transfer with unrealised interest),
section 635 (payment on transfer of variable rate securities), and
section 637(2) (accrued income losses treated as payment on transfer in next interest period).

(8) See also--

section 638(2) (no account to be taken of any payment treated as made by or to excluded transferor or transferee), and
Chapter 3 (exemptions relating to interest on securities).

629 Calculating accrued income profits and losses where section 628 applies

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

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

630 Making accrued income profits: settlement day outside interest period

(1) This section applies if--

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

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

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

(3) See also--

section 638(3) (no account to be taken of transfer if transferor is excluded transferor), and
section 681 (exemption for unrealised interest received by transferee after transfer).

631 Amount of accrued income profits where section 630 applies

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

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

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