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Income Tax Act 2007 (c. 3) Laws UK
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Income Tax Act 2007 (c. 3)

(The document as of February, 2008)

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(1) For the purposes of section 728(1), the capital receipt conditions are met in respect of the individual in a tax year ("the relevant year") if--

(a) either--

(i) in the relevant year the individual receives or is entitled to receive any capital sum, whether before or after the relevant transfer, or

(ii) in any earlier tax year the individual has received any capital sum, whether before or after the relevant transfer, and

(b) the payment of that sum is (or, in the case of an entitlement, would be) in any way connected with any relevant transaction.

(2) But subsection (1)(a)(ii) does not apply merely because of the receipt of a sum by way of loan if the loan is wholly repaid before the relevant year begins.

(3) In subsection (1) "capital sum" means--

(a) any sum paid or payable by way of loan or repayment of a loan, and

(b) any other sum paid or payable--

(i) otherwise than as income, and

(ii) not for full consideration in money or money's worth.

(4) For the purposes of subsection (1), a sum is treated as a capital sum which the individual ("A") receives or is entitled to receive if another person receives or is entitled to receive it--

(a) at A's direction, or

(b) as a result of the assignment by A of A's right to receive it.

730 Non-domiciled individuals

(1) An individual is not chargeable to income tax under section 727 in respect of any income treated as arising to the individual under section 728 if conditions A and B are met.

(2) Condition A is that the individual is domiciled outside the United Kingdom.

(3) Condition B is that if the income had in fact been the individual's income, because of being so domiciled the individual would not have been chargeable to income tax in respect of it.



Charge where benefit received

731 Charge to tax on income treated as arising under section 732

(1) Income tax is charged on income treated as arising to an individual under section 732 (non-transferors receiving a benefit as a result of relevant transactions).

(2) Tax is charged under this section on the amount of income treated as arising for the tax year.

(3) The person liable for any tax charged under this section is the individual to whom the income is treated as arising.

(4) For exemptions from the charge under this section, see sections 736 to 742 (exemptions where no tax avoidance purpose or genuine commercial transaction).

732 Non-transferors receiving a benefit as a result of relevant transactions

(1) This section applies if--

(a) a relevant transfer occurs,

(b) an individual who is ordinarily UK resident receives a benefit,

(c) the benefit is provided out of assets which are available for the purpose as a result of--

(i) the transfer, or

(ii) one or more associated operations,

(d) the individual is not liable to income tax under section 720 or 727 by reference to the transfer and would not be so liable if the effect of sections 726 and 730 were ignored, and

(e) the individual is not liable to income tax on the amount or value of the benefit (apart from section 731).

(2) Income is treated as arising to the individual for income tax purposes for any tax year for which section 733 provides that income arises.

(3) Also see that section for the amount of income treated as arising for any such tax year.

733 Income charged under section 731

(1) To find the amount (if any) of the income treated as arising under section 732(2) for any tax year in respect of benefits provided as mentioned in section 732(1)(c) take the following steps.

Step 1

Identify the amount or value of such benefits received by the individual in the tax year and in any earlier tax years in which section 732 has applied.

The sum of those amounts and values is "the total benefits".

Step 2

Deduct from the total benefits the total amount of income treated as arising to the individual under section 732(2) for earlier tax years as a result of the relevant transfer or associated operations.

The result is "the total untaxed benefits".

Step 3

Identify the amount of any income which--

(a)

arises in the tax year to a person abroad, and

(b)

as a result of the relevant transfer or associated operations can be used directly or indirectly for providing a benefit for the individual.

That amount is "the relevant income of the tax year" in relation to the individual and the tax year.

Step 4

Add together the relevant income of the tax year and the relevant income of earlier tax years in relation to the individual (identified as mentioned in Step 3).

The sum of those amounts is "total relevant income".

Step 5

Deduct from total relevant income--

(a)

the amount deducted at Step 2, and

(b)

any other amount which may not be taken into account because of section 743(1) and (2) (no duplication of charges).

The result is "the available relevant income".

Step 6

Compare the total untaxed benefits and the available relevant income.

The amount of the income treated as arising under section 732(2) for any tax year is the total untaxed benefits unless the available relevant income is lower.

If the available relevant income is lower, it is the amount of income treated as so arising.

(2) Subsection (1) is subject to section 734 (reduction in amount charged: previous capital gains tax charge).

(3) See also section 740(5) to (7) (which makes provision about relevant income and benefits where relevant transactions include both transactions before 5 December 2005 and transactions after 4 December 2005 and exemptions under this Chapter cease to apply).

734 Reduction in amount charged: previous capital gains tax charge

(1) This section applies if--

(a) benefits provided as mentioned in section 732(1)(c) are received in a tax year,

(b) for that tax year the whole or part of any benefits so provided is a capital payment to which section 87 or 89(2) of, or paragraph 8 of Schedule 4C to, TCGA 1992 applies (chargeable gains: gains attributed to beneficiaries),

(c) it is such a payment because the total untaxed benefits exceed the available relevant income (see Step 6 in section 733(1)) and so it is not treated as income arising to the individual under section 732(2), and

(d) because of that capital payment chargeable gains are treated as accruing to the individual in that or a subsequent tax year under any of the provisions referred to in paragraph (b).

(2) For any tax year after one in which such chargeable gains are so treated, the amount of income treated as arising to the individual under section 732(2) in respect of benefits provided as mentioned in section 732(1)(c) as a result of the transfer or operations in question is calculated as follows.

(3) The amount is calculated under section 733(1) as if the total untaxed benefits were reduced by the amount of those gains.

(4) In this section "the total untaxed benefits" and "the available relevant income" have the same meaning as in section 733(1) (see Steps 2 and 5).

735 Non-domiciled individuals

(1) This section applies if--

(a) apart from this section, an individual receiving a benefit would be chargeable to income tax under section 731 in respect of any income treated as arising to the individual ("the chargeable amount"), and

(b) conditions A to C are met.

(2) Condition A is that the individual is domiciled outside the United Kingdom.

(3) Condition B is that the benefit is not received in the United Kingdom.

(4) Condition C is that, if the individual had received any of the relevant income by reference to which the chargeable amount is determined under section 733, because of being domiciled outside the United Kingdom the individual would not have been chargeable to income tax in respect of it.

(5) If this section applies, the individual is not chargeable to income tax under section 731 on so much of the chargeable amount as is determined by reference to the relevant income to which condition C applies.

(6) Sections 833 and 834 of ITTOIA 2005 (income treated as remitted to the United Kingdom) apply for the purposes of this section as they would apply for the purposes of section 832 of that Act (remittance basis) if the benefit were relevant foreign income.



Exemptions: no tax avoidance purpose or genuine commercial transaction

736 Exemptions: introduction

(1) Sections 737 to 742 deal with exemptions from liability under this Chapter.

(2) Some exemptions apply according to whether the relevant transactions are all pre-5 December 2005 transactions or all post-4 December 2005 transactions or include both (see sections 737, 739 and 740).

(3) In this section and sections 737 to 742--

  • "post-4 December 2005 transaction" means a relevant transaction effected on or after 5 December 2005, and

  • "pre-5 December 2005 transaction" means a relevant transaction effected before 5 December 2005.

737 Exemption: all relevant transactions post-4 December 2005 transactions

(1) This section applies if all the relevant transactions are post-4 December 2005 transactions.

(2) An individual is not liable to income tax under this Chapter for the tax year by reference to the relevant transactions if the individual satisfies an officer of Revenue and Customs--

(a) that Condition A is met, or

(b) in a case where Condition A is not met, that Condition B is met.

(3) Condition A is that it would not be reasonable to draw the conclusion, from all the circumstances of the case, that the purpose of avoiding liability to taxation was the purpose, or one of the purposes, for which the relevant transactions or any of them were effected.

(4) Condition B is that--

(a) all the relevant transactions were genuine commercial transactions (see section 738), and

(b) it would not be reasonable to draw the conclusion, from all the circumstances of the case, that any one or more of those transactions was more than incidentally designed for the purpose of avoiding liability to taxation.

(5) In determining the purposes for which the relevant transactions or any of them were effected, the intentions and purposes of any person within subsection (6) are to be taken into account.

(6) A person is within this subsection if, whether or not for consideration, the person--

(a) designs or effects, or

(b) provides advice in relation to,

the relevant transactions or any of them.

(7) In this section--

  • "revenue" includes taxes, duties and national insurance contributions,

  • "taxation" includes any revenue for whose collection and management the Commissioners for Her Majesty's Revenue and Customs are responsible.

(8) If--

(a) apart from this subsection, an associated operation would not be taken into account for the purposes of this section, and

(b) the conditions in subsections (2) to (4) are not met if it is taken into account, because of--

(i) the associated operation, or

(ii) the associated operation taken together with any other relevant transactions,

it must be taken into account for those purposes.

738 Meaning of "commercial transaction"

(1) For the purposes of section 737, a relevant transaction is a commercial transaction only if it meets the conditions in subsections (2) and (3).

(2) It must be effected--

(a) in the course of a trade or business and for its purposes, or

(b) with a view to setting up and commencing a trade or business and for its purposes.

(3) It must not--

(a) be on terms other than those that would have been made between persons not connected with each other dealing at arm's length, or

(b) be a transaction that would not have been entered into between such persons so dealing.

(4) For the purposes of subsection (2), making investments, managing them or making and managing them is a trade or business only so far as--

(a) the person by whom it is done, and

(b) the person for whom it is done,

are persons not connected with each other and are dealing at arm's length.

739 Exemption: all relevant transactions pre-5 December 2005 transactions

(1) This section applies if all the relevant transactions are pre-5 December 2005 transactions.

(2) An individual is not liable for income tax under this Chapter for the tax year by reference to the relevant transactions if the individual satisfies an officer of Revenue and Customs that condition A or B is met.

(3) Condition A is that the purpose of avoiding liability to taxation was not the purpose, or one of the purposes, for which the relevant transactions or any of them were effected.

(4) Condition B is that the transfer and any associated operations--

(a) were genuine commercial transactions, and

(b) were not designed for the purpose of avoiding liability to taxation.

740 Exemption: relevant transactions include both pre-5 December 2005 and post-4 December 2005 transactions

(1) This section applies if the relevant transactions include both pre-5 December transactions and post-4 December transactions.

(2) An individual is not liable to tax under this Chapter for the tax year by reference to the relevant transactions if--

(a) the condition in section 737(2) (exemption where all relevant transactions are post-4 December 2005 transactions) is met by reference to the post-4 December 2005 transactions, and

(b) the condition in section 739(2) (exemption where all relevant transactions are pre-5 December 2005 transactions) is met by reference to the pre-5 December transactions.

(3) If subsection (2)(b) applies but subsection (2)(a) does not, this Chapter applies with the modifications in subsections (4) to (6).

(4) For the purposes of sections 720 to 730, any income arising before 5 December 2005 must not be brought into account as income of the person abroad.

(5) In determining the relevant income of an earlier tax year for the purposes of section 733(1) (see Step 4), it does not matter whether that year was a year for which the individual was not liable under section 731 because of section 739 or this section.

(6) For the purposes of Step 1 in section 733(1), a benefit received by the individual in or before the tax year 2005-06 is to be left out of account.

(7) But, in the case of a benefit received in the tax year 2005-06, subsection (6) applies only so far as, on a time apportionment basis, the benefit fell to be enjoyed in any part of the year that fell before 5 December 2005.

741 Application of section 742 (partial exemption)

(1) Section 742 (partial exemption where later associated operations fail conditions) applies if--

(a) an individual is liable to tax because of section 720 or 727 for a tax year (the "taxable year") because condition B in section 737(4) (genuine commercial transaction: post-4 December 2005 transactions) is not met, and

(b) subsections (2) and (3) apply.

(2) This subsection applies if--

(a) since the relevant transfer there has been at least one tax year for which the individual was not so liable by reference to the relevant transactions effected before the end of the year, and

(b) the individual was not so liable for that year because--

(i) condition B in section 737(4) was met, or

(ii) condition B in section 739(4) (genuine commercial transaction: pre-5 December 2005 transactions) was met.

(3) This subsection applies if the income by reference to which the individual is liable to tax for the taxable year is attributable--

(a) partly to relevant transactions by reference to which one of those conditions was met for the last exempt tax year, and

(b) partly to associated operations not falling within paragraph (a).

(4) For the purposes of this section a tax year is exempt if--

(a) it is one of the tax years mentioned in subsection (2), and

(b) there is no earlier tax year for which the individual was liable to tax because of section 720 or 727 by reference to the relevant transactions or any of them.

(5) References in this section to a person being liable to tax for a tax year because of section 720 or 727 include references to the individual being so liable had any income been treated as arising to the individual for that year under section 721 or 728.

742 Partial exemption where later associated operations fail conditions

(1) If this section applies, the individual is liable to tax under this Chapter only in respect of part of the income for which the individual would otherwise be liable.

(2) That part is so much of the income as appears to an officer of Revenue and Customs to be justly and reasonably attributable to the operations mentioned in section 741(3)(b) in all the circumstances of the case.

(3) Those circumstances include how far those operations or any of them directly or indirectly affect--

(a) the nature or amount of any person's income, or

(b) any person's power to enjoy any income.



General

743 No duplication of charges

(1) No amount of income may be taken into account more than once in charging income tax under this Chapter.

(2) If there is a choice about the persons in relation to whom any amount of income may be taken into account in charging income tax under this Chapter, it is to be taken into account--

(a) in relation to such one or more of them as appears to an officer of Revenue and Customs to be just and reasonable, and

(b) if more than one, in such respective proportions as appears to the officer to be just and reasonable.

(3) For the meaning of references in subsections (1) and (2) to an amount of income taken into account in charging tax, see section 744.

(4) If income treated as arising to an individual is charged to income tax under section 720 or 727 and the individual subsequently receives that income, it is treated as not being the individual's income again for income tax purposes.

744 Meaning of taking income into account in charging income tax for section 743

(1) References in section 743(1) and (2) (no duplication of charges) to an amount of income taken into account in charging income tax are to be read as follows.

(2) In the case of tax charged on income under section 720 (charge where income enjoyed as a result of relevant transactions)--

(a) if section 724(1) (benefit provided out of income of person abroad) applies, they are references to an amount of the income out of which the benefit is provided equal to the amount or value of the benefit charged, and

(b) otherwise they are references to the amount of income charged.

(3) In the case of tax charged on income under section 727 (charge where capital sums received as a result of relevant transactions), they are references to the amount of that income.

(4) In the case of tax charged under section 731 (charge to tax on income treated as arising to non-transferors where benefit received as a result of relevant transfers), they are references to the amount of relevant income taken into account under section 733 (income charged under section 731) in calculating the amount to be charged in respect of the benefit for the tax year in question.

745 Rates of tax applicable to income charged under sections 720 and 727 etc

(1) Income tax at the basic rate, the savings rate or the dividend ordinary rate is not charged under section 720 or 727 in respect of any income so far as it has borne tax at that rate by deduction or otherwise.

(2) Subsection (1) does not affect the tax charged if section 724(2) applies (benefit provided out of income of person abroad charged in year of receipt).

(3) Subsection (4) applies to any income that--

(a) is treated as arising to an individual under section 721 or 728, and

(b) apart from this Chapter is dividend income,

so far as subsection (1) does not apply to the income.

(4) The charge to income tax under section 720 or, as the case may be, section 727 operates by treating the income as if it were income within section 19(2) (meaning of "dividend income").

746 Deductions and reliefs where individual charged under section 720 or 727

(1) This section applies for the purpose of calculating the liability to income tax of an individual charged under section 720 or 727.

(2) The same deductions and reliefs are allowed as would have been allowed if the income treated as arising to the individual under section 721 or 728 had actually been received by the individual.

747 Amounts corresponding to accrued income profits and related interest

(1) This subsection applies if a person--

(a) would have been treated as--

(i) making qualifying accrued income profits, or

(ii) making qualifying accrued income profits of a greater amount,

in an interest period, but

(b) is not so treated because of being resident or domiciled outside the United Kingdom throughout any tax year in which the interest period (or part of it) falls.

(2) If subsection (1) applies, this Chapter applies as if the amount which the person would be treated as making or, as the case may be, the additional amount were income becoming payable to the person.

(3) Accordingly, any reference in this Chapter to income of (or payable or arising to) a person abroad must be read as including a reference to such an amount.

(4) This subsection applies if income consisting of interest which falls due at the end of an interest period--

(a) would have been income as respects which a person is entitled to an exemption, or an exemption of a greater amount, from liability to income tax under section 679 (interest on securities involving accrued income losses: general), but

(b) is not such income because it is income of a person who is resident or domiciled outside the United Kingdom throughout any tax year in which the interest period (or part of it) falls.

(5) If subsection (4) applies, for the purposes of this Chapter the interest is treated as reduced by the amount of the exemption or, as the case may be, the additional exemption.

(6) In this section--

(a) expressions which are also used in Chapter 2 of Part 12 (accrued income profits) have the same meaning as in that Chapter (but see subsection (7)), and

(b) "qualifying accrued income profits" means accrued income profits which are treated as made--

(i) under section 628(5), or

(ii) under section 630(2) in respect of a transfer of variable rate securities.

(7) In the case of qualifying accrued income profits within sub-paragraph (ii) of the definition of that expression in subsection (6)(b)--

(a) references in subsection (1)(a) to making qualifying accrued income profits in an interest period are to be read as making them in the tax year in which the settlement day falls, and

(b) the reference in subsection (1)(b) to the interest period is to the period--

(i) beginning with the day after the last day of the only or last interest period of the securities, and

(ii) ending with the settlement day.



Supplementary

748 Power to obtain information

(1) An officer of Revenue and Customs may by notice require any person to provide the officer with such particulars as the officer may reasonably require for the purposes of this Chapter.

(2) The officer may direct the time within which the particulars must be provided and that time must be at least 30 days.

(3) The particulars which a person must provide under this section, if required to do so by a notice under subsection (1), include particulars about--

(a) transactions with respect to which the person is or was acting on behalf of others,

(b) transactions which in the opinion of the officer should properly be investigated for the purposes of this Chapter even though in the person's opinion no liability to income tax arises under this Chapter, and

(c) whether the person has taken or is taking any part and, if so, what part in transactions of a description specified in the notice.

(4) A solicitor is not treated as having taken part in a transaction for the purposes of subsection (3)(c) merely because of giving professional advice to a client about it.

(5) This section is subject to--

  • section 749 (restrictions on particulars to be provided by solicitors), and

  • section 750 (restrictions on particulars to be provided by banks).

749 Restrictions on particulars to be provided by solicitors

(1) In relation to anything done by a solicitor on behalf of a client who does not consent to the information otherwise required from the solicitor under section 748 being provided, the solicitor may not be compelled under that section to do more than--

(a) state that the solicitor is or was acting on behalf of a client, and

(b) give the name and address of the client and any relevant person.

(2) In the case of anything done by the solicitor in connection with the transfer of any asset by or to an individual who is ordinarily UK resident to or by a body corporate to which subsection (6) applies, the transferor and the transferee are relevant persons.

(3) In the case of anything done by the solicitor in connection with any associated operation in relation to any such transfer, the persons concerned in the associated operations are relevant persons.

(4) In the case of anything done by the solicitor in connection with the formation or management of a body corporate to which subsection (6) applies, the body corporate is a relevant person.

(5) In the case of anything done by the solicitor in connection with--

(a) the creation of any settlement as a result of which income becomes payable to a person abroad, or

(b) the execution of the trusts of any such settlement,

the settlor and that person are relevant persons.

(6) This subsection applies to bodies corporate resident or incorporated outside the United Kingdom which--

(a) are, or if UK resident would be, close companies, and

(b) are not companies whose business consists wholly or mainly of the carrying on of a trade or trades.

(7) In this section "settlement" and "settlor" have the meanings given by section 620 of ITTOIA 2005.

(8) In the application of this section to Scotland, any reference to the trusts of a settlement is a reference to the purposes of the settlement.

750 Restrictions on particulars to be provided by banks

(1) Section 748 does not oblige a bank to provide any particulars of any ordinary banking transactions between the bank and a customer carried out in the ordinary course of banking business, unless subsection (2) or (3) applies.

(2) This subsection applies if the bank has acted or is acting on behalf of the customer in connection with--

(a) the creation of any settlement as a result of which income becomes payable to a person abroad, or

(b) the execution of the trusts of any such settlement.

(3) This subsection applies if the bank has acted or is acting on behalf of the customer in connection with the formation or management of a body corporate to which section 749(6) applies.

(4) In this section--

  • "bank" has the meaning given by section 991, and

  • "settlement" has the meaning given by section 620 of ITTOIA 2005.

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