ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is adverse to some taxpayers and favourable to others in principle and in practice. But the numbers affected and the amounts involved are likely to be small. Change 85: Settlements: receipts not charged at special trust rates: sections 481 and 873
This change ensures that receipts within section 686A of ICTA are not liable at the special trust rates when they arise to charitable trusts or to certain pension funds. It also ensures that the special trust rates do not apply to such receipts that are accumulated or discretionary income or would be but for being excepted by section 480(3) of this Act.
Certain amounts arising to trustees are liable at either the trust rate or the dividend trust rate regardless of whether or not the trustees would otherwise have accumulation or discretionary income.
Before FA 2006, the provisions applying the special trust rates were in the parts of the income tax code dealing with the types of amount concerned and section 686A of ICTA dealt only with distributions on the purchase by a company of its own shares. With effect from 6 April 2006, substituted section 686A brings together all the charges at the special rates.
Before 6 April 2006, section 686A(4) contained express exemptions from the charge at the special rates for charitable trusts and certain pension funds. These exemptions were not replicated in the substituted section although corresponding exemptions were retained in section 686. The exemptions are re-inserted in the re-write of section 686A (see section 481 of this Act).
The exemptions now apply to all the items within substituted section 686A, not just to distributions arising on the purchase by a company of its own shares. The exemption for charitable trusts is in section 481(1) (see section 686A(4)(c) before 6 April 2006) and that for the pension funds concerned is in section 481(5)(c) (see section 686A(4)(d) before 6 April 2006).
Prior to 6 April 2006, section 686A(4)(a) also ensured that there was no overlap between sections 686 and 686A. That has been replicated in section 481(5)(a) and (b).
What was section 686A(4)(b) prior to 6 April 2006 has not been re-written on the basis that the corresponding exemption in section 686 was repealed by FA 2006.
Trustees liable at one of the special trust rates are subject to the deduction of income tax at source provisions applying to deposit-takers and building societies in Chapter 2 of Part 15 of this Act. To ensure that section 873 also applies in the same way as its source legislation in section 481(4A) of ICTA did prior to 6 April 2006, section 873(2) also reinstates corresponding exemptions.