Commentary on Sections Structure of Chapters Overview Section 437: Transactions which are disposals
1767.This section defines the events giving rise to the income tax charge (or loss relief) relating to deeply discounted securities. It is based on paragraphs 1, 4 and 5 of Schedule 13 to FA 1996.
1768.Subsection (1) brings together the occasions in Schedule 13 to FA 1996 which give rise to profits. The subsection includes occasions when someone “transfers” a deeply discounted security or “becomes entitled ... to any amount on its redemption” (paragraph 1(2) of that Schedule) and a profit is realised. It also includes the conversion of the security into shares or other securities.
1769.The essential point is that the person no longer owns the security and has realised a profit, or sustained a loss, when ownership ceases. The events giving rise to the tax charge are referred to by the section as “disposals” and all the circumstances in which a disposal occurs (apart from under the special rules applying for strips of government securities) are described in this one section.
1770.Subsection (3) deals with a deemed transfer of a deeply discounted security to personal representatives immediately before death, in the source legislation found in paragraph 4(2) of Schedule 13 to FA 1996. It crystallises the increase in value at the time of death. “Personal representatives” is defined in section 878(1) of this Act.