Annex 1: Minor changes in the law made by the Act: Change 42: Securities held as circulating capital: section 150
This change dispenses with the requirement that securities within section 473 of ICTA must be beneficially held by the trader.
Section 473 of ICTA contains special rules for the tax treatment of certain securities held as circulating capital, the profit on the sale of which would form part of the trading profits. The effect is that that neither a profit nor a loss is crystallised on a conversion of the securities.
Persons carrying on a trade of dealing in securities on their own behalf would not normally bring a profit or loss on the sale of securities into account in calculating the profits of the trade if they were not beneficially entitled to the securities.
And there is no reason to calculate the profits of a trade carried on by a person in a fiduciary or representative capacity in a different manner from those of a trade carried on by a person beneficially.
So section 150 dispenses with the requirement that the person carrying on the business must be beneficially entitled to the shares in question. This means that section 150 will apply to transactions by trustees and by personal representatives who carry on a trade of dealing in securities as well as to individual dealers.
It also means that section 150 will apply to securities in stock lending or sale and repurchase arrangements where beneficial ownership has passed to the dealer’s counterparty but where the dealer continues to account for profits and losses as if those securities had not been disposed of.
This change affects the timing of the tax liability. It 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.