ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is in taxpayers’ favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small. It also affects administrative requirements, in particular in relation to building societies. Change 128: Deduction of tax: deposit-takers and building societies: deduction by reference to beneficiary of payments: section 856
This change aligns the way the deposit-taker and building society regimes take account of the identity of the beneficiaries of the payments concerned. It ensures that payments made by building societies will be subject to deduction at source only if the person beneficially entitled to the payment is an individual or a Scottish partnership (where all the partners are individuals) or the person is a personal representative or a trustee of a discretionary or accumulation settlement.
This means that payments made through third parties will be subject to deduction of sums representing income tax where the beneficiary falls into one of those categories.
The source legislation for building societies requires deduction from all payments (without focusing on the beneficial owner), unless the recipient falls into a gross payment category set out in regulation 4 of the Income Tax (Building Societies) (Dividends and Interest) Regulations 1990 (SI 1990/2231) (the building society regulations) (or the payment is referred to in section 477A(1A) of ICTA).
But, as part of the alignment of the gross payment category rules for building societies with deposit-takers (see Change 127), deduction will apply only to payments falling within the four categories of payee identified by section 481(4) of ICTA. In this context, regulation 4(1)(b) of the building society regulations (gross payments made to trustees where the beneficiary is an individual or Scottish partnership) has not been rewritten, as it makes no difference whether a payment is made to a trustee where the income of the trustee is payable to an individual or a Scottish partnership, or the payment is itself one to which an individual or Scottish partnership is beneficially entitled.