Income Tax (Trading and Other Income) Act 2005 (c. 5)

(The document as of February, 2008)

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(6) In the case of any other party to the future or option ("P"), the disposal is taken--

(a) to be made for a nil consideration, and

(b) to involve P in incurring costs equal to the release amount.

(7) In subsection (6) "the release amount" means the amount which P might reasonably have been expected to pay, in a transaction at arm's length entered into at the relevant time, for the release of P's obligations and liabilities under the future or option.

(8) Section 144(2) and (3) of TCGA 1992 are ignored for the purposes of subsections (1) to (3).

565 Interpretation of section 564

(1) References in section 564 to the running of a future to delivery are references to performing (and so discharging) the obligations owed under the commodity or financial futures contract in question to the party to the future whose rights as a party relate to the underlying subject matter.

(2) In subsection (1) the reference to the underlying subject matter is a reference to, or to the value of, the commodities, currencies, shares, stock or securities, interest rates, indices or other matters--

(a) to which the future is referable, or

(b) to the value of which it is referable.

(3) In section 564 and this section "party", in relation to a future or option, means one of the persons who--

(a) has any right or entitlement comprised in or arising under the future or option, or

(b) is subject to any obligation or liability so comprised or arising.

(4) In section 564 "market value" has the same meaning as in TCGA 1992 (see sections 272 to 274).

566 When transactions are related

(1) For the purposes of this Chapter, two or more transactions are related if all of them are entered into in pursuance of the same scheme or arrangements.

(2) For this purpose the cases where any two or more transactions are to be taken to be entered into in pursuance of the same scheme or arrangements include any case where it would be reasonable to assume from one or more of the matters specified in subsection (3) that none of them would have been entered into independently of the others.

(3) The matters are--

(a) the likely effect of the transactions,

(b) the circumstances in which the transactions are entered into, and

(4) Nothing in this Chapter prevents transactions from being related transactions just because they are transactions--

(a) with different parties, or

(b) with parties different from the parties to the scheme or arrangements in pursuance of which they are entered into.

(5) In the case of a transaction which is a disposal, the references in this section to entering into the transaction are references to making the disposal.

(6) In this section "scheme or arrangements" includes schemes, arrangements and understandings of any kind, whether or not they are legally enforceable.

Losses

567 Losses

(1) This section applies if--

(a) losses are made by a person from a disposal, and

(b) had profits or gains arisen to the person from the disposal, they would be chargeable under this Chapter.

(2) The losses are not to be brought into account for income tax purposes, except where section 392 of ICTA (losses from miscellaneous transactions) applies.

(3) For the purposes of that section, the losses are taken to be made at the time when the disposal occurs.

(4) For the treatment of the losses for capital gains tax purposes, and how TCGA 1992 applies where a profit arises or a loss is made from a deemed disposal under section 564(4), see sections 148A to 148C of that Act.

Trustees

568 Special rule for certain income of trustees

(1) This section applies if the profits or gains charged under this Chapter and arising to trustees do not meet any of conditions A to C.

(2) Condition A is that the profits or gains fall to be treated for income tax purposes as income of a settlor.

(3) Condition B is that the profits or gains arise under a trust established for charitable purposes.

(4) Condition C is that the profits or gains are from property held for the purposes of a superannuation fund to which section 615(3) of ICTA applies.

(5) The profits or gains are to be treated for income tax purposes as if they were income to which section 686 of ICTA applies (accumulation and discretionary trusts: special rates of tax).

(6) In this section "trustees" does not include personal representatives, but where, during or at the end of the administration period, personal representatives pay trustees any sum representing profits or gains to which this section would apply if the personal representatives were trustees, that sum is treated as--

(a) being paid as income, and

(b) having borne income tax at the applicable rate.

(7) In subsection (6)--

(a) "administration period" has the meaning given by section 653, and

(b) "the applicable rate" means the rate referred to in section 663(1) (the applicable rate for grossing up basic amounts of estate income).

Transfer of assets abroad

569 Anti-avoidance: transfer of assets abroad

(1) This section applies if profits or gains arising from a transaction to which this Chapter applies are realised by a person ("A") who is resident or domiciled outside the United Kingdom.

(2) For the purpose of determining whether an individual ordinarily UK resident is liable for income tax in respect of the profits or gains, sections 739 and 740 of ICTA (transfer of assets abroad) have effect as if the profits or gains, when realised, constituted income becoming payable to A.

Chapter 13 Sales of foreign dividend coupons

570 Charge to tax under Chapter 13

(1) Income tax is charged on income treated under subsection (2) as arising from foreign holdings.

(2) Income is treated as arising from such holdings in the following cases.

(3) The first case is where a bank's office in the United Kingdom--

(a) pays over the proceeds of a sale or other realisation of dividend coupons in respect of the holdings which has been effected by the bank, or

(b) carries such proceeds into an account.

(4) The second case is where a person who is not a bank or a dealer in coupons sells dividend coupons in respect of the holdings to a person dealing in coupons in the United Kingdom.

(5) In this section "bank" has the meaning given by section 840A of ICTA.

571 Meaning of "foreign holdings" etc.

(1) In this Chapter "foreign holdings" means shares or other securities outside the United Kingdom that are--

(a) securities issued by or on behalf of a government or local or other public authority in a country outside the United Kingdom, or

(b) shares or securities issued by or on behalf of a non-UK resident body of persons.

(2) In section 570 "dividend coupons" means coupons for dividends payable in respect of foreign holdings.

(3) In this Chapter "coupons" includes--

(a) warrants, and

(b) bills of exchange that purport to be drawn or made in payment of dividends payable in respect of foreign holdings.

(4) In this section "dividends"--

(a) in the case of foreign holdings within subsection (1)(a), means interest or annual payments payable out of the revenue of the government or authority, and

(b) in the case of foreign holdings within subsection (1)(b), includes interest or other annual payments.

(5) In subsection (1) "securities" includes loan stock and similar securities.

572 Income charged

(1) In a case within section 570(3), tax is charged under this Chapter on the full amount of the proceeds that are paid over or carried into the account in the tax year.

(2) In a case within section 570(4), tax is charged under this Chapter on the full amount of the proceeds arising in the tax year.

(3) Subsections (1) and (2) are subject to Part 8 (foreign income: special rules).

573 Person liable

The person liable for any tax charged under this Chapter is the person receiving or entitled to the proceeds.

Part 5 Miscellaneous income

Chapter 1 Introduction

574 Overview of Part 5

(1) This Part imposes charges to income tax under--

(a) Chapter 2 (receipts from intellectual property),

(b) Chapter 3 (films and sound recordings: non-trade businesses),

(d) Chapter 5 (settlements: amounts treated as income of settlor),

(e) Chapter 6 (beneficiaries' income from estates in administration),

(f) Chapter 7 (annual payments not otherwise charged), and

(g) Chapter 8 (income not otherwise charged).

(2) Part 6 deals with exemptions from the charges under this Part.

(3) See, in particular, any exemptions mentioned in the Chapters of this Part.

(4) The charges under this Part apply to non-UK residents as well as UK residents but this is subject to section 577(2) (charges on non-UK residents only on UK source income).

(5) This section needs to be read with the relevant priority rules (see sections 2, 575 and 576).

575 Provisions which must be given priority over Part 5

(1) Any income, so far as it falls within--

(a) any Chapter of this Part, and

(b) Chapter 2 of Part 2 (receipts of a trade, profession or vocation),

is dealt with under Part 2.

(2) Any income, so far as it falls within--

(a) any Chapter of this Part, and

(b) Chapter 3 of Part 3 so far as the Chapter relates to a UK property business,

is dealt with under Part 3.

(3) Any income, so far as it falls within--

(a) any Chapter of this Part, and

(b) Chapter 2 or 3 of Part 4 (interest and dividends etc. from UK resident companies etc.),

is dealt with under the relevant Chapter of Part 4.

(4) Any income, so far as it falls within--

(a) any Chapter of this Part, and

(b) Part 2, 9 or 10 of ITEPA 2003 (employment income, pension income or social security income),

is dealt with under the relevant Part of ITEPA 2003.

576 Priority between Chapters within Part 5

Any income, so far as it falls within Chapter 2 (receipts from intellectual property) and Chapter 3 (films and sound recordings: non-trade businesses), is dealt with under Chapter 3.

577 Territorial scope of Part 5 charges

(1) Income arising to a UK resident is chargeable to tax under this Part whether or not it is from a source in the United Kingdom.

(2) Income arising to a non-UK resident is chargeable to tax under this Part only if it is from a source in the United Kingdom.

(3) References in this section to income which is from a source in the United Kingdom include, in the case of any income which does not have a source, references to income which has a comparable connection to the United Kingdom.

(4) This section is subject to any express or implied provision to the contrary in this Part (or elsewhere in the Income Tax Acts).

Chapter 2 Receipts from intellectual property

Introduction

578 Contents of Chapter

(1) This Chapter imposes charges to income tax under--

(a) section 579 (royalties and other income from intellectual property),

(b) section 583 (income from disposals of know-how), and

(2) For exemptions from the charge under section 579, see, in particular, sections 727 (certain annual payments by individuals) and 758 (certain interest and royalty payments).

(3) This Chapter also provides for relief from income tax on patent income (see section 600).

Charge to tax on non-trading income from intellectual property

579 Charge to tax on royalties and other income from intellectual property

(1) Income tax is charged on royalties and other income from intellectual property.

(2) In this section "intellectual property" means--

(a) any patent, trade mark, registered design, copyright, design right, performer's right or plant breeder's right,

(b) any rights under the law of any part of the United Kingdom which are similar to rights within paragraph (a),

(c) any rights under the law of any territory outside the United Kingdom which correspond or are similar to rights within paragraph (a), and

(d) any idea, information or technique not protected by a right within paragraph (a), (b) or (c).

580 Income charged under section 579

(1) Tax is charged under section 579 on the full amount of the income arising in the tax year.

(2) Subsection (1) is subject to Part 8 (foreign income: special rules).

(3) See section 582 for provision about the calculation of the amount of income charged under section 579.

(4) This section needs to be read with section 527 of ICTA (spreading of patent royalties etc. over several years).

581 Person liable for tax under section 579

The person liable for any tax charged under section 579 is the person receiving or entitled to the income.

582 Deductions in calculating certain income charged under section 579

(1) This section applies for calculating the amount of income charged under section 579 other than annual payments.

(2) Expenses wholly and exclusively incurred for the purpose of generating the income are deductible.

(3) If an expense is incurred for more than one purpose, a deduction may be made for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purpose of generating the income.

(4) Expenses which would not have been allowable as a deduction in calculating the profits of a trade, if they had been incurred for its purposes, are not deductible under this section.

(5) Expenses for which any kind of relief is given under any other provision of the Income Tax Acts are not deductible under this section.

(6) The relief given under section 600 (relief for expenses: patent income) is additional to the relief under this section.

(7) The frequency with which payments are made is ignored in determining whether they are annual payments for the purposes of subsection (1).

Disposals of know-how

583 Charge to tax on income from disposals of know-how

(1) Income tax is charged on profits arising where consideration is received by a person--

(a) for the disposal of know-how, or

(b) for giving, or wholly or partly fulfilling, an undertaking which--

(i) is given in connection with a disposal of know-how, and

(ii) restricts or is designed to restrict any person's activities in any way.

(2) For the purposes of subsection (1)(b), it does not matter whether or not the undertaking is legally enforceable.

(3) Subsection (1) is subject to the exceptions in section 584.

(4) In this Chapter "know-how" means any industrial information or techniques likely to assist in--

(a) manufacturing or processing goods or materials,

(b) working a source of mineral deposits (including searching for, discovering or testing mineral deposits or obtaining access to them), or

(5) In subsection (4)--

(a) "mineral deposits" includes any natural deposits capable of being lifted or extracted from the earth and for this purpose geothermal energy is treated as a natural deposit, and

(b) "source of mineral deposits" includes a mine, an oil well and a source of geothermal energy.

584 Exceptions to charge under section 583

(1) Section 583 does not apply in the following cases.

(2) Case A is if the consideration is brought into account under--

(a) section 579 (charge to tax on royalties etc.), or

(b) section 462 of CAA 2001 (disposal values).

(3) Case B is if the consideration is dealt with in relation to the person receiving it as a capital receipt for goodwill under section 194(2) (disposal of know-how as part of disposal of all or part of a trade).

(4) Case C is if the disposal of the know-how is by way of a sale and--

(a) the buyer is a body of persons over which the seller has control,

(b) the seller is a body of persons over which the buyer has control, or

(5) In subsection (4) "body of persons" includes a firm.

(6) See also Chapter 14 of Part 2 and section 575 (disposals of know-how used in a trade dealt with by Part 2).

585 Income charged under section 583

(1) Tax is charged under section 583 on the full amount of the profits arising in the tax year.

(2) The profits charged under section 583 are--

(a) the amount of the consideration, less

(b) any expenditure incurred by the recipient wholly and exclusively in the acquisition or disposal of the know-how.

(3) Such expenditure may not be taken into account more than once, whether under this section or otherwise.

(4) This section needs to be read with section 603 (contributions to expenditure).

586 Person liable for tax under section 583

The person liable for any tax charged under section 583 is the person receiving the consideration.

Sales of patent rights

587 Charge to tax on income from sales of patent rights

(1) Income tax is charged on profits from sales of the whole or part of any patent rights.

(2) The tax is charged if--

(a) the seller is a UK resident, or

(b) the seller is a non-UK resident and the patent is granted under the laws of the United Kingdom.

(3) Where the seller is a non-UK resident company, tax is not charged if the seller is chargeable to corporation tax in respect of the proceeds of the sale.

(4) In this Chapter "patent rights" means the right to do or authorise the doing of anything which, but for the right, would be an infringement of a patent.

588 Income charged under section 587

(1) A seller's profits from the sale of the whole or part of patent rights are--

(a) any capital sum comprised in the proceeds of the sale, less

(b) the deductible costs.

(2) The deductible costs are--

(a) the capital cost (if any) of the rights sold, and

(b) any incidental expenses incurred by the seller in connection with the sale.

(3) If--

(a) the seller acquired the rights sold, or the rights out of which they were granted, by purchase,

(b) the seller has previously sold part of the purchased rights, and

the capital cost is reduced by that capital sum.

(4) References in this Chapter to the capital cost of patent rights are to any capital sum included in any price paid by the seller to purchase--

(a) the rights, or

(b) the rights out of which they were granted.

(5) This section needs to be read with sections 600 (relief for expenses: patent income) and 603 (contributions to expenditure).

589 Person liable for tax under section 587

The person liable for any tax charged under section 587 is the seller of the patent rights.

590 UK resident sellers: spreading rules

(1) This section applies if the person liable under section 587 is a UK resident.

(2) If the person does not receive the proceeds of sale in instalments, one-sixth of the amount chargeable is taxed in the tax year in which the person receives the proceeds of the sale and in each of the next 5 tax years.

(3) The person may elect to be taxed instead on the whole of the amount chargeable under section 587 in the tax year in which the person receives the proceeds of sale.

(4) If the person receives the proceeds of sale in instalments, one-sixth of the amount chargeable in respect of each instalment is taxed in the tax year in which the person receives the instalment and in each of the next 5 tax years.

(5) The person may elect to be taxed instead on the whole of any instalment in the tax year in which the person receives it.

(6) An election under subsection (3) or (5) must be made on or before the first anniversary of the normal self-assessment filing date for that tax year.

591 Non-UK resident sellers: election for spreading

(1) If the person liable under section 587--

(a) is a non-UK resident, and

(b) does not receive the proceeds of sale in instalments,

the whole amount chargeable is taxed in the tax year in which the person receives the proceeds.

(2) The person may elect to be taxed instead on one-sixth of the amount chargeable in the tax year in which the person receives the proceeds of sale and in each of the next 5 tax years.

(3) An election under subsection (2) must be made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the proceeds of sale are received.

(4) Such repayments and assessments are to be made for each of the tax years affected as are necessary to give effect to the election.

(5) Subsection (4) is subject to the qualifications in section 596 (adjustments where tax has been deducted).

592 Further provision about elections for spreading: instalments

(1) If the person liable under section 587--

(a) is a non-UK resident, and

(b) receives the proceeds of sale in instalments,

the amount chargeable in respect of each instalment is taxed in the tax year in which the person receives the instalment.

(2) The person may, for any instalment, elect to be taxed instead on one-sixth of the amount chargeable in respect of the instalment in the tax year in which the person receives it and in each of the next 5 tax years.

(3) An election under subsection (2) must be made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the instalment is received.

(4) Such repayments and assessments are to be made for each of the tax years affected as are necessary to give effect to the election.

(5) Subsection (4) is subject to the qualifications in section 596 (adjustments where tax has been deducted).

593 Death of seller

(1) If a seller who is liable to income tax under section 587 dies, any amounts which would have been chargeable in later tax years under--

(a) section 590(2) or (4) (UK resident sellers: spreading rules), or

(b) section 591(2) or 592(2) (non-UK resident sellers: elections for spreading),

are taxed in the tax year in which the seller dies.

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