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HMRC internal manual

Savings and Investment Manual

Deeply discounted securities: taxation: trustees

Taxation of trustees

ITTOIA05/S457 applies to profits made by trustees on disposal of a deeply discounted security. For the purposes of the tax rules that apply to trustees

  • the profits are taken to be income arising under the settlement to the trustees from the security;
  • to the extent that the sum is chargeable on the trustees, the rate at which tax is charged is the rate applicable to trusts for the year of assessment in which the disposal took place;
  • where the trust income is treated as the settlor’s income for tax purposes a gain will be similarly treated.

These provisions do not apply where the trustees are trustees of an unauthorised unit trust to the extent that the profit is treated as income in the accounts of the unauthorised unit trust. See SAIM6000 for more on the taxation of unauthorised unit trusts.

Pre-FA03 a special rule allowed trustees (but no one else) to carry forward unused losses against future profits from deeply discounted securities. This has been repealed, and no losses whenever arising can be carried forward to any year after 2002-03.

Non-UK resident trustees

No amount is chargeable or relievable where the trustees of the settlement are not resident in the UK (ITTOIA05/S458). However, Chapter 2 of Part 13 ITA 07 (ITA07/S714 to S751 - Transfer of assets abroad) applies in determining whether a UK resident is liable to income tax in respect of profits arising on the disposal of a deeply discounted security by a person resident or domiciled outside the UK. This applies whether or not trustees are UK resident (ITTOIA05/S459). Any such cases should be referred to Charities Assets and Residence, Bootle.