What does section 651 of the Income Tax Act 2007 do?

Section 651 creates a deemed transfer for accrued income purposes when someone who personally owns securities becomes a trustee of those same securities. Without this provision, the change from personal ownership to trust ownership could escape the accrued income scheme entirely, as there is no conventional sale or third-party transfer involved.

How does the deemed transfer under section 651 work in practice?

The person is treated as having transferred the securities at the moment they become trustee. The deemed transfer is treated as made by the individual in their personal capacity as beneficial owner and received by themselves and any co-trustees acting in their trustee capacity. The law effectively treats these as two different parties.

How does section 651 interact with the accrued income scheme?

Once the deemed transfer is established, normal accrued income rules apply. The transfer is categorised as either with or without accrued interest depending on the circumstances. This determines whether an accrued income profit or loss arises and who is taxable on interest that has built up but not yet been paid at the deemed transfer date.

Can you give an example of section 651 applying to a gilt settled into a trust?

If Sarah owns £100,000 nominal of a gilt paying interest on 1 June and 1 December, and she settles it into a family trust on 1 September, section 651 deems a transfer on that date. Three months of accrued interest has built up since 1 June, and normal accrued income rules then determine any profit or loss Sarah must recognise.

Income Tax Act 2007 section 651

Owner becoming entitled to securities as trustee

Section 651 deals with the tax treatment under the accrued income scheme when someone who owns securities in their own right subsequently becomes a trustee of those same securities.

When an individual who owns securities personally places them into a trust and becomes a trustee, this is treated as a transfer of those securities for accrued income purposes.
The deemed transfer is treated as occurring at the moment the person becomes trustee of the securities.
The transfer is treated as being made by the person in their personal (non-trustee) capacity, and received by themselves and any other trustees in their capacity as trustees.
The deemed transfer then falls to be assessed under the normal accrued income rules to determine whether it is a transfer with or without accrued interest.

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