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Income Tax Act 2007 (c. 3)

(The document as of February, 2008)

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Losses on disposal of shares

  • Part 7

    Enterprise investment scheme

  • Part 8

    Venture capital trusts

  • Part 9

    Other reliefs

  • Part 10

    Special rules about settlements and trustees

  • Part 11

    Special rules about charitable trusts etc

  • Part 12

    Manufactured payments and repos

  • Part 13

    Accrued income profits

  • Part 14

    Tax avoidance

  • Part 15

    Deduction of income tax at source

  • Part 16

    Other provisions

  • Schedule 3

    Repeals and revocations

    1. Part 1

      Repeals and revocations: general

    2. Part 2

      Repeals having effect in relation to shares issued after 5 April 2007

  • Schedule 4

    Index of defined expressions

  • An Act to restate, with minor changes, certain enactments relating to income tax; and for connected purposes.

    [20th March 2007]

    Be it enacted by the Queen's most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:--



    Part 1 Overview

    1 Overview of Income Tax Acts

    (1) The following Acts make provision about income tax--

    (a) ITEPA 2003 (which is about charges to tax on employment income, pension income and social security income),

    (b) ITTOIA 2005 (which is about charges to tax on trading income, property income, savings and investment income and some other miscellaneous income), and

    (c) this Act (which contains the other main provisions about income tax).

    (2) There are also provisions about income tax elsewhere: see in particular--

    (a) Part 18 of ICTA (double taxation relief),

    (b) CAA 2001 (allowances for capital expenditure), and

    (c) Part 4 of FA 2004 (pension schemes etc).

    (3) Schedule 1 to the Interpretation Act 1978 (c. 30) defines "the Income Tax Acts" (as all enactments relating to income tax).

    2 Overview of Act

    (1) This Act has 17 Parts.

    (2) Part 2 contains basic provisions about income tax including--

    (a) provision about the annual nature of income tax (Chapter 1),

    (b) the rates at which income tax is charged (Chapter 2), and

    (c) the calculation of income tax liability (Chapter 3).

    (3) Part 3 is about taxpayers' personal reliefs including--

    (a) personal allowances (Chapter 2),

    (b) blind persons' allowances (Chapter 2), and

    (c) tax reductions for married couples and civil partners (Chapter 3).

    (4) Part 4 is about loss relief including relief for--

    (a) trade losses (Chapters 2 and 3),

    (b) losses from property businesses (Chapter 4),

    (c) losses in an employment or office (Chapter 5),

    (d) losses on disposal of shares (Chapter 6), and

    (e) losses from miscellaneous transactions (Chapter 7).

    (5) Part 5 is about relief under the enterprise investment scheme.

    (6) Part 6 is about--

    (a) relief for investment in venture capital trusts, and

    (b) other matters relating to venture capital trusts.

    (7) Part 7 is about community investment tax relief.

    (8) Part 8 is about a variety of reliefs including relief for--

    (a) interest payments (Chapter 1),

    (b) gifts to charity including gift aid (Chapters 2 and 3),

    (c) annual payments and patent royalties (Chapter 4), and

    (d) maintenance payments (Chapter 5).

    (9) Part 9 contains special rules about settlements and trustees including--

    (a) general provision about settlements and trustees (Chapter 2),

    (b) special income tax rates for trusts (Chapters 3, 4, 5 and 6),

    (c) rules about trustees' expenses (Chapters 4 and 8),

    (d) rules about trustees' discretionary payments (Chapter 7),

    (e) rules about unauthorised unit trusts (Chapter 9), and

    (f) rules about heritage maintenance settlements (Chapter 10).

    (10) Part 10 contains special rules about charitable trusts etc.

    (11) Part 11 is about manufactured payments and repos.

    (12) Part 12 is about accrued income profits.

    (13) Part 13 is about tax avoidance in relation to--

    (a) transactions in securities (Chapter 1),

    (b) transfers of assets abroad (Chapter 2),

    (c) transactions in land (Chapter 3),

    (d) sales of occupation income (Chapter 4), and

    (e) trade losses (Chapter 5).

    (14) Part 14 deals with some miscellaneous rules about income tax liability, including--

    (a) limits on liability to income tax for non-UK residents (Chapter 1),

    (b) special rules about residence (Chapter 2), and

    (c) rules about jointly held property (Chapter 3).

    (15) Part 15 is about the deduction of income tax at source.

    (16) Part 16 contains definitions which apply for the purposes of the Income Tax Acts and other general provisions which apply for the purposes of those Acts.

    (17) Part 17--

    (a) contains provisions to be used in interpreting this Act,

    (b) introduces Schedule 1 (minor and consequential amendments),

    (c) introduces Schedule 2 (transitional provisions and savings),

    (d) introduces Schedule 3 (repeals and revocations, including of spent enactments),

    (e) introduces Schedule 4 (index of defined expressions that apply for the purposes of this Act),

    (f) confers powers on the Treasury to make orders, and

    (g) makes provision about the coming into force of this Act.



    Part 2 Basic provisions

    Chapter 1 Charges to income tax

    3 Overview of charges to income tax

    (1) Income tax is charged under--

    (a) Part 2 of ITEPA 2003 (employment income),

    (b) Part 9 of ITEPA 2003 (pension income),

    (c) Part 10 of ITEPA 2003 (social security income),

    (d) Part 2 of ITTOIA 2005 (trading income),

    (e) Part 3 of ITTOIA 2005 (property income),

    (f) Part 4 of ITTOIA 2005 (savings and investment income), and

    (g) Part 5 of ITTOIA 2005 (miscellaneous income).

    (2) Income tax is also charged under other provisions, including--

    (a) Chapter 5 of Part 4 of FA 2004 (registered pension schemes: tax charges),

    (b) section 7 of F(No.2)A 2005 (social security pension lump sums),

    (c) Part 10 of this Act (special rules about charitable trusts etc),

    (d) Chapter 2 of Part 12 of this Act (accrued income profits), and

    (e) Part 13 of this Act (tax avoidance).

    4 Income tax an annual tax

    (1) Income tax is charged for a year only if an Act so provides.

    (2) A year for which income tax is charged is called a "tax year".

    (3) A tax year begins on 6 April and ends on the following 5 April.

    (4) "The tax year 2007-08" means the tax year beginning on 6 April 2007 (and any corresponding expression in which two years are similarly mentioned is to be read in the same way).

    (5) Every assessment to income tax must be made for a tax year.

    (6) Subsection (5) is subject to Chapter 15 of Part 15 (by virtue of which an assessment may relate to a return period).

    5 Income tax and companies

    (1) Income tax is not charged on income of a company so far as the company is within the charge to corporation tax in respect of the income.

    (2) See in particular sections 6(2) and 11(1) of ICTA for the circumstances in which a company is within the charge to corporation tax in respect of its income.



    Chapter 2 Rates at which income tax is charged

    The rates

    6 The starting rate, basic rate and higher rate

    (1) The main rates at which income tax is charged are--

    (a) the starting rate,

    (b) the basic rate, and

    (c) the higher rate.

    (2) The starting rate, basic rate and higher rate for a tax year are the rates determined as such by Parliament for the tax year.

    (3) For other rates at which income tax is charged see--

    (a) section 7 (savings rate),

    (b) section 8 (dividend ordinary rate and dividend upper rate), and

    (c) section 9 (trust rate and dividend trust rate).

    7 The savings rate

    The savings rate is 20%.

    8 The dividend ordinary rate and dividend upper rate

    (1) The dividend ordinary rate is 10%.

    (2) The dividend upper rate is 32.5%.

    9 The trust rate and dividend trust rate

    (1) The trust rate is 40%.

    (2) The dividend trust rate is 32.5%.



    Income charged at particular rates

    10 Income charged at the starting, basic and higher rates: individuals

    (1) Income tax is charged at the starting rate on an individual's income up to the starting rate limit.

    (2) Income tax is charged at the basic rate on an individual's income above the starting rate limit and up to the basic rate limit.

    (3) Income tax is charged at the higher rate on an individual's income above the basic rate limit.

    (4) This section is subject to--

    • section 12 (income charged at the savings rate),

    • section 13 (income charged at the dividend ordinary and dividend upper rates: individuals), and

    • any other provisions of the Income Tax Acts which provide for income of an individual to be charged at different rates of income tax in some circumstances.

    (5) See section 20 for the starting rate limit and the basic rate limit.

    11 Income charged at the basic rate: other persons

    (1) Income tax is charged at the basic rate on the income of persons other than individuals.

    (2) This section is subject to--

    • section 12 (income charged at the savings rate),

    • section 14 (income charged at the dividend ordinary rate: other persons),

    • Chapters 3 to 6 of Part 9 (which provide for some income of trustees to be charged at the dividend trust rate or at the trust rate), and

    • any other provisions of the Income Tax Acts which provide for income of persons other than individuals to be charged at different rates of income tax in some circumstances.

    12 Income charged at the savings rate

    (1) Income tax is charged at the savings rate on a person's income which--

    (a) is savings income, and

    (b) would otherwise be charged at the basic rate.

    (2) This is subject to--

    • Chapters 3 to 6 of Part 9 (which provide for some income of trustees to be charged at the dividend trust rate or at the trust rate),

    • section 504(3) (treatment of income of unauthorised unit trust), and

    • any other provisions of the Income Tax Acts (apart from sections 10 and 11) which provide for income to be charged at different rates of income tax in some circumstances.

    (3) Section 16 has effect for determining the extent to which a person's savings income would otherwise be charged at the basic rate.

    13 Income charged at the dividend ordinary and dividend upper rates: individuals

    (1) Income tax is charged at the dividend ordinary rate on an individual's income which--

    (a) is dividend income,

    (b) would otherwise be charged at the starting or basic rate, and

    (c) is not relevant foreign income charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).

    (2) Income tax is charged at the dividend upper rate on an individual's income which--

    (a) is dividend income, and

    (b) would otherwise be charged at the higher rate.

    (3) Subsections (1) and (2) are subject to any provisions of the Income Tax Acts (apart from section 10) which provide for income to be charged at different rates of income tax in some circumstances.

    (4) Section 16 has effect for determining the extent to which an individual's dividend income would otherwise be charged at the starting, basic or higher rate.

    14 Income charged at the dividend ordinary rate: other persons

    (1) Income tax is charged at the dividend ordinary rate on the income of persons other than individuals which--

    (a) is dividend income,

    (b) would otherwise be charged at the basic rate, and

    (c) is not relevant foreign income charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).

    (2) This is subject to--

    • Chapters 3 to 6 of Part 9 (which provide for some income of trustees to be charged at the dividend trust rate or at the trust rate),

    • section 504(3) (treatment of income of unauthorised unit trust), and

    • any other provisions of the Income Tax Acts (apart from section 11) which provide for income of persons other than individuals to be charged at different rates of income tax in some circumstances.

    15 Income charged at the trust rate and the dividend trust rate

    For the circumstances in which income tax is charged at the trust rate and the dividend trust rate, see Chapters 3 to 6 of Part 9.

    16 Savings and dividend income to be treated as highest part of total income

    (1) This section has effect for determining the rate at which income tax would be charged on a person's savings or dividend income apart from sections 12 and 13.

    (2) It also has effect for all other income tax purposes except for the purposes of--

    (a) section 491 (special rates not to apply to first slice of trustees' trust rate income), and

    (b) sections 535 to 537 of ITTOIA 2005 (gains from contracts for life insurance etc: top slicing relief).

    (3) If a person has savings income but no dividend income, the savings income is treated as the highest part of the person's total income.

    (4) If a person has dividend income but no savings income, the dividend income is treated as the highest part of the person's total income.

    (5) If a person has both savings income and dividend income--

    (a) the savings income and dividend income are together treated as the highest part of the person's total income, and

    (b) the dividend income is treated as the higher part of that part of the person's total income.

    (6) See section 1012 for the relationship between--

    (a) the rules in this section, and

    (b) other rules requiring particular income to be treated as the highest part of a person's total income.

    (7) References in this section to dividend income do not include dividend income which is relevant foreign income charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).

    17 Repayment: tax paid at basic rate instead of starting or savings rate

    (1) This section applies if income tax at the basic rate has been paid on income on which income tax is chargeable at the starting or savings rate.

    (2) If a claim is made, any necessary repayment of tax must be made.

    18 Meaning of "savings income"

    (1) This section applies for the purposes of the Income Tax Acts.

    (2) "Savings income" is income--

    (a) which is within subsection (3) or (4), and

    (b) which is not relevant foreign income charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).

    (3) Income is within this subsection if it is--

    (a) income chargeable under Chapter 2 of Part 4 of ITTOIA 2005 (interest),

    (b) income chargeable under Chapter 7 of Part 4 of ITTOIA 2005 (purchased life annuity payments), other than income from annuities specified in section 718(2) of that Act (annuities purchased from certain life assurance premium payments or under wills etc),

    (c) income chargeable under Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted securities), or

    (d) income chargeable under Chapter 2 of Part 12 of this Act (accrued income profits).

    (4) Income is within this subsection if--

    (a) it is chargeable under Chapter 9 of Part 4 of ITTOIA 2005 (gains from contracts for life insurance etc), and

    (b) an individual is, or personal representatives are, liable for income tax on it (under section 465 or 466 of that Act).

    19 Meaning of "dividend income"

    (1) This section applies for the purposes of the Income Tax Acts.

    (2) "Dividend income" is income which is--

    (a) chargeable under Chapter 3 of Part 4 of ITTOIA 2005 (dividends etc from UK resident companies),

    (b) chargeable under Chapter 4 of that Part (dividends from non-UK resident companies),

    (c) chargeable under Chapter 5 of that Part (stock dividends from UK resident companies),

    (d) chargeable under Chapter 6 of that Part (release of loan to participator in close company), or

    (e) a relevant foreign distribution chargeable under Chapter 8 of Part 5 of ITTOIA 2005 (income not otherwise charged).

    (3) In subsection (2) "relevant foreign distribution" means a distribution of a non-UK resident company which--

    (a) is not chargeable under Chapter 4 of Part 4 of ITTOIA 2005, but

    (b) would be chargeable under Chapter 3 of that Part if the company were UK resident.



    Starting rate limit and basic rate limit

    20 The starting rate limit and the basic rate limit

    (1) The starting rate limit is £2,150.

    (2) The basic rate limit is £33,300.

    (3) The basic rate limit is increased in some circumstances: see--

    (a) section 414(2) (gift aid relief), and

    (b) section 192(4) of FA 2004 (relief for pension contributions).

    21 Indexation of the starting rate limit and the basic rate limit

    (1) This section applies if the retail prices index for the September before the start of a tax year is higher than it was for the previous September.

    (2) The starting rate limit for the tax year is the amount found as follows.

    Step 1

    Increase the starting rate limit for the previous tax year by the same percentage as the percentage increase in the retail prices index.

    Step 2

    If the result of Step 1 is a multiple of £10, it is the starting rate limit for the tax year.

    If the result of Step 1 is not a multiple of £10, round it up to the nearest amount which is a multiple of £10.

    That amount is the starting rate limit for the tax year.

    (3) The basic rate limit for the tax year is the amount found as follows.

    Step 1

    Increase the basic rate limit for the previous tax year by the same percentage as the percentage increase in the retail prices index.

    Step 2

    If the result of Step 1 is a multiple of £100, it is the basic rate limit for the tax year.

    If the result of Step 1 is not a multiple of £100, round it up to the nearest amount which is a multiple of £100.

    That amount is the basic rate limit for the tax year.

    (4) Subsections (2) and (3) do not require a change to be made in the amounts deductible or repayable under PAYE regulations during the period beginning on 6 April and ending on 17 May in the tax year.

    (5) Before the start of the tax year the Treasury must make an order replacing the amounts specified in section 20 with the amounts which, as a result of subsections (2) and (3), are the starting rate limit and the basic rate limit for the tax year.



    Chapter 3 Calculation of income tax liability

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    22 Overview of Chapter

    (1) This Chapter deals with the calculation of a person's income tax liability for a tax year.

    (2) But it does not deal with any income tax liability mentioned in section 32.

    (3) This Chapter needs to be read with Chapter 1 of Part 14 (limits on liability to income tax of non-UK residents).

    23 The calculation of income tax liability

    To find the liability of a person ("the taxpayer") to income tax for a tax year, take the following steps.

    Step 1

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