Clause 63.—(UNIT TRUSTS AND INVESTMENT TRUSTS.) (Hansard, 12 July 1965)

§ Mr. Diamond
I beg to move, Amendment No. 191, Clause 63, in page 130, line 44, to leave out from the beginning to "had" in line 3 on page 131 and insert: (1A) Where in an accounting period of a unit trust the aggregate of the capital sums paid in respect of the cancellation of units exceeds the aggregate of the capital sums received in respect of the creation of units, then the amount (as computed apart from this provision) of any chargeable gain allowable loss accruing to the unit trust in that period shall be taken as reduced by the appropriate fraction of it, that is to say, by the same fraction as the said excess is of the total net consideration received by the unit trust on the disposal of chargeable assets during the period after deduction of the incidental costs of making the disposal (or, if the said excess is greater than the said total net consideration, shall be taken to be nil). (2) For purposes of section 34 of this Act the total net gains of a unit trust for an accounting period are the excess, if any, of the chargeable gains accruing to the unit trust in the period over the allowable losses deductible from those gains (as those gains and losses are computed for the charge to tax on the unit trust), after deduction from that excess of the tax which will be charged on the unit trust for the period in respect of chargeable gains, and the proportion attributable to any unit holder of the total net gains for any accounting period shall be determined by the unit trust, regard being among other things. This Amendment implements an undertaking which I gave in Committee during the debates on Clause 34. May I quote from the words which I used. I said: 125 … the trust will be assessed only on the capital gains made in respect of a continuing number of unit holders, and that the unit holders who have sold out will be assessed individually on any capital gains they have made … This is a reasonable half-way house. It will mean that the administrative problems of the trusts will be virtually extinguished."—[OFFICIAL REPORT, 31st May, 1965; Vol. 713, c. 1289.] Under the arrangement incorporated in the Amendment a unit trust will be exempted from tax on that part of its gains accruing in any accounting period which reflects a net contraction in the number of units in issue. For this purpose, the gains to be exempted are measured by means of the appropriate proportion.
I hesitate to do so, but may I give an example? If a unit trust realised £500,000 worth of investments in an accounting period on which £50,000 worth of gains accrued, and if during that period the managers of the trust received £600,000 from the sales of units but applied £800,000 to the repurchase of units, the amount of gain on which the trust would be exempted from tax would be worked out in this way.
First of all, there would be deducted from the £800,000 which was applied in the repurchase of units the £600,000 received from the sale. There is left £200,000 which is the net contraction. That is applied over the fraction of the £500,000 worth of investments which were realised in that accounting period. We have therefore a figure of two-fifths—£200,000 over £500,000. The figure to be apportioned is the gain of £50,000. Two-fifths of £50,000 is £20,000, and that is the figure in question. This result is secured by the Amendment.
The Amendment has been agreed in draft with the representatives of the Association of Unit Trust Managers. I want to make it clear that the unit trust movement has always said that its real object is to secure exemption of chargeable gains for unit trusts, and it has always reserved, quite properly, its right to press for that. Nevertheless, the formula which is incorporated in the Amendment was put forward by the Association. Certainly, it is not the ideal formula from its point of view. I think that it was the third best, to be absolutely fair and accurate, but it is one which it drew up and which, as I indicated in my previous speech, represents a reasonable halfway house.
126 That is the most that the Government can do to meet the case made by the Association.

§ Mr. Diamond
I beg to move Amendment No. 192, Clause 63, in page 131, line 6, to leave out from "trust" to "and" in line 9.
I hope that it will be convenient to discuss, at the same time, Amendments Nos. 288, 193, 194 and 195.

Mr. Deputy-Speaker
Very well.

§ Mr. Diamond
These Amendments provide what I might call even greater simplicity of the provisions in Clause 63 for apportioning the trusts' net gains among their unit holders and shareholders. Amendment No. 192 omits a complication in the apportionment and provides greater flexibility. Amendment No. 288 makes it absolutely clear who is the person entitled to receive a notice of apportionment. The notice is to be sent to the person whose name is on the register at the date when the books are closed. Amendment No. 193 deals with the provisions in Clause 63 to the effect that total net gains may be apportioned notwithstanding that any amounts are not finally ascertaining on the footing that any adjustment will be made in the apportionment for the following accounting period.
The Clause envisages the situation in which there is an over-apportionment in one accounting period but no gains in the next accounting period from which the gains over-apportioned can be deducted. The Amendment meets this point by inserting a reference to a later accounting period or periods. Amendment No. 194 deletes the references to provisional apportionment in subsection (6) because these have been inserted in subsection (4) by Amendment No. 193. Amendment No. 195 makes it clear that the apportionment is to be done by the managers with the approval of the trustee.