Annex 1: Minor Changes in the Law Change 33: Trading income: securities held as circulating capital: section 129
This change dispenses with the requirement that securities within section 473 of ICTA must be securities to which the company is beneficially entitled.
It brings the income tax and corporation tax codes back into line.
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 of a company. The effect is that neither a profit nor a loss is crystallised on a conversion of the securities.
It is not clear why section 473 of ICTA applies only to securities to which a company is beneficially entitled.
There is no reason to calculate a company’s profits from dealing in securities in a fiduciary or representative capacity in a different way from a company’s profits from dealing in securities beneficially held by the company.
So section 129 dispenses with the requirement that the company must be beneficially entitled to the shares in question. This means that section 129 applies to transactions by companies acting in a fiduciary or representative capacity as well as to companies dealing on their own behalf.
It also means that section 129 applies to securities in stock lending or sale and repurchase arrangements where beneficial ownership has passed to the company’s counterparty but where the company continues to account for profits and losses as if those securities had not been disposed of.
A profit or loss on the conversion of securities to which this change applies is not recognised for tax purposes until the replacement securities are 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.