Section 506: Special rules for trustees affected by section 733 of ICTA
1491.This section is based on section 733(2) of ICTA.
1492.Sections 731 to 735 of ICTA are anti-avoidance provisions. They are concerned with cases where:
a person (“the first buyer”) buys securities and subsequently sells them to someone else; and
the first buyer becomes entitled to receive any interest payable on them.
1493.Section 733(2) of ICTA addresses the case where:
interest is payable to the UUT trustees as the first buyer;
that interest, or some part of it, would be exempt, but is not so, because section 733(1) of ICTA cancels the exemption; and
the trustees of the UUT are treated as making one or more deemed payments in the same tax year as that in which the interest arises.
1494.The source legislation provides that an annual payment is to be treated as “paid out of profits or gains not brought into charge”. It follows that, even though the exemption is cancelled by section 733(1) of ICTA, leaving interest in charge to income tax, the payment must not be treated as paid out of that interest.
1495.This is rewritten so that relief is only given if, and to the extent that, the trustees have “non-affected income” equal to the payment treated as made. Non-affected income is defined as modified net income less affected income. On modified net income, see the commentary on sections 448 and 1025.
1496.Because this is a rule relating to a very specific type of income, it is necessary to apply it before applying section 505(7).
