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16 October 2006
Categories: News
Tax treaties UK-Botswana, UK-Japan; tax treatment of capital receipts; negligible values

Tax treaties

The UK-Botswana double taxation convention, signed on 9 September 2005, entered into force on 4 September 2006.
The new double taxation convention between the UK and Japan, which was signed in London on 2 February 2006, entered into force on 12 October 2006.; HMRC press release dated 6 October 2006

Tax treatment of capital receipts

The Government will bring forward legislation in Finance Bill 2007 to amend an omission which has been identified in the recent trusts modernisation legislation included in the FA 2006, said Dawn Primarolo in the House of Commons.
Certain types of capital receipts received by trustees are treated for tax purposes in their hands as income. This includes where the trustees of a settlement receive a payment made by a company buying back its own shares. In that situation, the original legislation, i.e. TA 1988, s 686A, provided that what was taxable was only the distribution element, and excluded the original subscription price received by the company which issued the shares.
Finance Act 2006, Sch 13, para 3 amended the existing s 686A so that in addition to its original function it also introduces a common mechanism for the various types of capital receipt which are assessable to income tax in the hands of trustees receiving them to be charged at the special trust rates. There is, however, an omission in the wording of the new s 686A which has the result, in the situation of buy-back of shares, that the whole of the payment by the company to the trustees including the original subscription price is taxable and not just the element representing the distribution.
This result was not intended and therefore amending legislation will be brought forward, as part of Finance Bill 2007, to amend s 686A. This amending legislation will be backdated to 6 April 2006 so that the position will be as it should have been from the start. The amending legislation is being drafted and will be put out to consultation.
Malcolm Gunn of Squire Sanders and Dempsey points out that a helpful by-product of the redrafting of s 686A is that the sum of the tax paid by trustees on their life insurance gains is now stated to be available for inclusion in their pool of tax paid. Previously this was an area of doubt. He adds that there are, 'unfortunately still flaws with the redrafting of s 686A, however'. The section now includes some items charged at the dividend trust rate and others at the full 40% trust rate but the cross reference to it in s 687(3)(bc) does not recognise this and it assumes that all s 686A items are charged at the dividend rate.
Hansard, 9 October 2006, vol 450, no 196, col 1WS


Negligible values

HMRC have accepted the following security as having negligible value during September 2006 for the purposes of a claim under TCGA 1992, s 24(2).



Effective date

Cedar plc

5p ords


Where the value of shares has become negligible, an allowable loss may be established by the owner claiming that they are treated as being sold and reacquired, either on the date of the claim or at a specified time within the two tax years prior to the date of claim.
See for the full list of negligible value securities.


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