ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change has no implications for the amount of tax paid, who pays it or when. It is a change in the law that makes the legislation clearer and easier to understand. Change 103: Accrued income profits: relief for unremittable transfer proceeds: transfers with unrealised interest: sections 668 and 669
This change extends relief from tax on accrued income scheme profits if the proceeds of the transfer of foreign securities are unremittable to cases where securities are transferred with unrealised interest.
Section 723 of ICTA provides a relief if a person is treated under section 713(2)(a) of ICTA as entitled to a sum or sums in respect of a transfer or transfers of securities of a particular kind which are situated outside the United Kingdom and the proceeds are unremittable. Section 723(1) of ICTA provides:
“This section applies where in an interest period a person is treated as entitled to a sum or sums under section 713(2)(a) in respect of a transfer or transfers of securities of a particular kind which are situated outside the United Kingdom.”
So the relief is only available if a person is treated as entitled to a sum or sums under section 713(2)(a) of ICTA and the person is so entitled in an interest period.
These conditions create problems if securities are transferred with the right to receive interest (“unrealised interest”) payable on an interest payment day before the settlement day. Such transfers are dealt with under section 716 of ICTA.
If (as is normally the case) the settlement day for such a transfer falls within an interest period, section 716(2) of ICTA provides that section 714 of ICTA applies as if the transferor were entitled under section 713 of ICTA in the interest period to a sum equivalent to the unrealised interest. The effect is that section 714(2) of ICTA applies so that the person is treated as receiving profits, equal to that sum, that are chargeable to income tax.
But section 716(2) of ICTA only provides that section 714 of ICTA applies as if the transferor were entitled to a sum under section 713 of ICTA; it does not treat the transferor as being so entitled for all purposes. So the condition in section 723(1) of ICTA, that the transferor must be treated as entitled to a sum or sums under section 713(2)(a) of ICTA, is not satisfied. Moreover, if securities are transferred with unrealised interest and the settlement day falls outside an interest period, the second condition is not satisfied either.
In practice, however, relief is given under section 723 of ICTA if securities are transferred with unrealised interest and the proceeds of the transfer cannot be remitted to the United Kingdom, whether the settlement day falls inside or outside the interest period. So sections 668 and 669, which are based on section 723 of ICTA, cover all such transfers.