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

(The document as of February, 2008)

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

(2) The personal representatives may elect that the tax payable by reason of subsection (1) be reduced to the total amount of income tax that the seller and the estate would have been liable to pay if the amounts chargeable by reason of that subsection had been taxed in equal parts in each of the lifetime tax years.

(3) In subsection (2) "the lifetime tax years" means--

(a) the tax year in which the seller received the proceeds or, as the case may be, the instalment, and

(b) each of the next tax years up to and including that in which the seller died.

(4) 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 death occurs.

594 Winding up of a body corporate

(1) If a body corporate which is liable to income tax under section 587 commences to be wound up, any amounts falling within subsection (2) are taxed in the year in which the winding up commences.

(2) The amounts are--

(a) any amounts which would have been chargeable in later tax years under section 591(2) or 592(2), and

(b) any amounts (arising to the body in a fiduciary or representative capacity) which would have been chargeable in later tax years under section 590(2) or (4).

595 Deduction of tax from payments to non-UK residents

(1) This section applies if a person who is a non-UK resident is liable to tax under section 587 on profits from the sale of the whole or part of any patent rights.

(2) The rules in section 588 allowing the capital cost (if any) of the rights sold to be deducted in calculating the profits from the sale do not affect the amount of income tax which (by virtue of section 349ZA of ICTA: application of rules for deduction of income tax by the payer) is to be--

(a) deducted under section 349(1) of ICTA, and

(b) assessed under section 350 of that Act (assessment on the payer).

(3) No election made by the seller under section 591(2) or 592(2) (election for spreading) in relation to the proceeds of sale or any instalment affects the amount of income tax which (by virtue of section 349ZA of ICTA: application of rules for deduction of income tax by the payer) is to be--

(a) deducted from the proceeds of sale or instalment under section 349(1) of ICTA, and

(b) assessed under section 350 of that Act.

596 Adjustments where tax has been deducted

(1) Where any sum has been deducted from a payment by virtue of section 595(2), any adjustment necessary--

(a) because of section 595(2), or

(b) because of an election under section 591(2) or 592(2),

must be made by way of repayment of tax.

(2) Adjustments necessary to give effect to an election under section 591(2) or 592(2) must be made year by year, treating one-sixth of the sum deducted from the proceeds of sale or instalment as income tax paid for each of the 6 years.

(3) No repayment is to be made of any tax treated under subsection (2) as income tax paid for a particular year unless and until it is ascertained that the income tax ultimately falling to be paid for that year is less than the amount which was paid for that year.

597 Licences connected with patents

(1) The acquisition of a licence in respect of a patent is treated for the purposes of sections 587 to 596 as a purchase of patent rights.

(2) The grant of a licence in respect of a patent is treated for the purposes of sections 587 to 596 as a sale of part of patent rights.

(3) But the grant by a person entitled to patent rights of an exclusive licence is treated for the purposes of sections 587 to 596 as a sale of the whole of those rights.

(4) In subsection (3) "exclusive licence" means a licence to exercise the rights to the exclusion of the grantor and all other persons for the period remaining until the rights come to an end.

598 Rights to acquire future patent rights

(1) If a sum is paid to obtain a right to acquire future patent rights, then for the purposes of sections 587 to 596--

(a) the payer is treated as purchasing patent rights for that sum, and

(b) the recipient is treated as selling patent rights for that sum.

(2) If a person--

(a) pays a sum to obtain a right to acquire future patent rights, and

(b) subsequently acquires those rights,

the expenditure is to be treated for the purposes of sections 587 to 596 as having been expenditure on the purchase of those rights.

(3) In this section "a right to acquire future patent rights" means a right to acquire in the future patent rights relating to an invention in respect of which the patent has not yet been granted.

599 Sums paid for Crown use etc. treated as paid under licence

(1) This section applies if an invention which is the subject of a patent is used by or for the service of--

(a) the Crown under sections 55 to 59 of the Patents Act 1977 (c. 37), or

(b) the government of a country outside the United Kingdom under corresponding provisions of the law of that country.

(2) The use is treated for the purposes of sections 587 to 596 as having taken place under a licence.

(3) Sums paid in respect of the use are treated for the purposes of sections 587 to 596 as having been paid under a licence.

Relief from income tax on patent income

600 Relief for expenses: patent income

(1) Relief may be claimed under this section for--

(a) inventor's expenses, and

(b) patent application and maintenance expenses.

(2) In this section "inventor's expenses" means expenses which--

(a) have been incurred by an individual who, alone or jointly, devised an invention for which a patent has been granted, and

(b) are attributable to devising it.

(3) In this section "patent application and maintenance expenses" means expenses incurred by a person in connection with--

(a) the grant or maintenance of a patent,

(b) the extension of the term of a patent, or

but not incurred for the purposes of any trade carried on by the person.

(4) Relief may not be claimed under this section for patent application and maintenance expenses unless they are expenses which would, if incurred for the purposes of a trade, have been allowable as a deduction in calculating the profits of the trade.

(5) Relief may not be claimed under this section for any expenses if relief for them is given under--

(a) section 582 (calculation of income for the purposes of the charge to tax on royalties etc.), or

(b) any other provision of the Tax Acts.

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

601 How relief is given under section 600

(1) This section sets out how relief for expenses is given where a person makes a claim under section 600.

(2) The amount of the expenses must be deducted from or set off against the person's income from patents for the tax year in which the expenses were incurred.

(3) If the amount to be allowed is greater than the amount of the person's income from patents for that tax year, the excess must be deducted from or set off against the person's income from patents for the next tax year, and so on for subsequent tax years, without the need for a further claim.

(4) In this section "income from patents" means--

(a) royalties or other sums paid in respect of the use of a patent (whether chargeable under this Chapter or otherwise),

(b) amounts on which tax is payable under section 587, 593 or 594, and

(i) section 472(5) of CAA 2001 (patent allowances: balancing charges), or

(ii) paragraph 100 of Schedule 3 to that Act (balancing charges in respect of pre-1st April 1986 expenditure on the purchase of patent rights).

(5) In this section references to a person's income from patents are to the income after any allowance has been deducted from or set off against it under section 479 of CAA 2001 (certain allowances against income from patents).

Payments received after deduction of tax

602 Payments received after deduction of tax

Income tax deducted under either of the following sections from a payment of royalties or other income within this Chapter is treated as income tax paid by the recipient--

section 348(1) of ICTA (under which income tax may be deducted from some payments by the payer), and
section 349(1) of ICTA (under which income tax must be deducted from some payments by the payer).

Supplementary

603 Contributions to expenditure

(1) For the purposes of sections 585, 588 and 600, the general rule is that a person ("A") is to be regarded as not having incurred expenditure so far as it has been, or is to be, met (directly or indirectly) by--

(a) a public body, or

(b) a person other than A.

(2) In this Chapter "public body" means the Crown or any government, local authority or other public authority (whether in the United Kingdom or elsewhere).

(3) The general rule does not apply to the expenses mentioned in section 588(2)(b) (incidental expenses incurred by a seller of patent rights).

(4) The general rule is subject to the exception in section 604.

604 Contributions not made by public bodies nor eligible for tax relief

(1) A person ("A") is to be regarded as having incurred expenditure (despite section 603(1)) so far as the requirements in subsections (2) and (3) are met in relation to the expenditure.

(2) The first requirement is that the person meeting A's expenditure ("B") is not a public body.

(3) The second requirement is that--

(a) no allowance can be made under Chapter 2 of Part 11 of CAA 2001 (contribution allowances) in respect of B's expenditure, and

(b) the expenditure is not allowed to be deducted in calculating the profits of a trade, profession or vocation carried on by B.

(4) When determining for the purposes of subsection (3)(a) whether such an allowance can be made, assume that B is within the charge to tax.

605 Exchanges

(1) In this Chapter references to the sale of property include the exchange of property.

(2) In this section--

references to property include know-how, and
references to the sale of property include the disposal of know-how.

(3) For the purposes of subsection (1), any provision of this Chapter referring to a sale has effect with the necessary modifications, including, in particular, those in subsections (4) and (5).

(4) References to the proceeds of sale and to the price include the consideration for the exchange.

(5) References to capital sums included in the proceeds of sale include references to so much of the consideration for the exchange as would have been a capital sum if it had been a money payment.

606 Apportionment where property sold together

(1) Any reference in this Chapter to the sale of property includes the sale of that property together with other property.

(2) In this section--

references to property include know-how, and
references to the sale of property include the disposal of know-how.

(3) For the purposes of subsection (1), all property sold as a result of one bargain is to be treated as sold together even though--

(a) separate prices are, or purport to be, agreed for separate items of that property, or

(b) there are, or purport to be, separate sales of separate items of that property.

(4) If an item of property is sold together with other property, then, for the purposes of the charges under sections 583 and 587--

(a) the net proceeds of the sale of that item are treated as being so much of the net proceeds of the sale of all the property as, on a just and reasonable apportionment, is attributable to that item, and

(b) the expenditure incurred on the provision or purchase of that item is treated as being so much of the consideration given for all the property as, on a just and reasonable apportionment, is attributable to that item.

607 Questions about apportionments affecting two or more persons

(1) Any question about the way in which a sum is to be apportioned under section 606 must be determined in accordance with section 563(2) to (6) of CAA 2001 (procedure for determining certain questions affecting two or more persons) if it materially affects two or more taxpayers.

(2) For the purposes of subsection (1) a question materially affects two or more taxpayers if at the time when the question falls to be determined it appears that the determination is material to the liability to tax (for whatever period) of two or more persons.

608 Meaning of "capital sums" etc.

Section 4 of CAA 2001 (meaning of "capital sums" etc.) applies in relation to this Chapter as it applies in relation to that Act.

Chapter 3 Films and sound recordings: non-trade businesses

609 Charge to tax on films and sound recordings businesses

(1) Income tax is charged on income from a business involving the exploitation of films or sound recordings where the activities carried on do not amount to a trade.

Such a business is referred to in this Chapter as a "non-trade business".

(2) Expressions which are used in this Chapter and in Chapter 9 of Part 2 (trade profits: films and sound recordings) have the same meaning in this Chapter as they do in that Chapter.

610 Income charged

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

(2) See sections 612 and 613 for provision about the calculation of the amount of income charged under this Chapter.

(3) This section is subject to Part 8 (foreign income: special rules).

611 Person liable

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

612 Calculation of income

(1) This section applies for calculating the amount of income charged under this Chapter.

(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) Any relief given as a result of section 613 is additional to the relief under this section.

613 Application of trading income rules to non-trade businesses

The provisions of Chapter 9 of Part 2 apply in relation to non-trade businesses as they apply in relation to trades but as if--

(a) references to a basis period were to a tax year, and

(b) references to anything not constituting trading stock of a trade were omitted.

Chapter 4 Certain telecommunication rights: non-trading income

614 Charge to tax on certain telecommunication rights of a non-trader

(1) Income tax is charged on income derived from a relevant telecommunication right that is not used or held for the purposes of a trade, profession or vocation.

(2) "Relevant telecommunication right" has the same meaning as in Chapter 10 of Part 2 (see section 146).

615 Income charged

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

(2) See section 617 for provision about the calculation of the amount of certain income charged under this Chapter.

(3) This section is subject to Part 8 (foreign income: special rules).

616 Person liable

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

617 Deductions in calculating certain income charged

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

(2) The following sections apply as they apply for the purpose of calculating the profits of a trade, profession or vocation--

(a) section 147 (expenditure and receipts in respect of relevant telecommunication rights treated as revenue in nature), and

(b) section 148 (credits or debits arising from revaluation in respect of relevant telecommunication rights).

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

(4) 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.

(5) 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.

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

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

618 Payments received after deduction of tax

Income tax deducted under either of the following sections from an annual payment within this Chapter is treated as income tax paid by the recipient--

section 348(1)(b) of ICTA (under which income tax may be deducted from some payments by the payer), and
section 349(1)(a) of ICTA (under which income tax must be deducted from some payments by the payer).

Chapter 5 Settlements: amounts treated as income of settlor

Charge to tax under Chapter 5

619 Charge to tax under Chapter 5

(1) Income tax is charged on--

(a) income which is treated as income of a settlor as a result of section 624 (income where settlor retains an interest),

(b) income which is treated as income of a settlor as a result of section 629 (income paid to unmarried minor children of settlor),

(c) capital sums which are treated as income of a settlor as a result of section 633 (capital sums paid to settlor by trustees of settlement), and

(d) capital sums which are treated as income of a settlor as a result of section 641 (capital sums paid to settlor by body connected with settlement).

(2) The charge on the settlor under subsection (1)(a) or (b) above operates on distribution income by treating the income as if it were income to which section 1A of ICTA (application of lower rate to income from savings and distributions) applies as a result of subsection (2)(b) of that section (income chargeable under Chapter 3, 5 or 6 of Part 4: dividends etc. from UK resident companies etc. and release of loan to participator in close company).

(3) In subsection (2) "distribution income" means income which represents income received by the trustees of the settlement, or any other person to whom it is payable, which is--

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

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

(d) income chargeable under Chapter 6 of Part 4 (release of loan to participator in close company), or

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

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

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

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

620 Meaning of "settlement" and "settlor"

(1) In this Chapter--

"settlement" includes any disposition, trust, covenant, agreement, arrangement or transfer of assets (except that it does not include a charitable loan arrangement), and
"settlor", in relation to a settlement, means any person by whom the settlement was made.

(2) A person is treated for the purposes of this Chapter as having made a settlement if the person has made or entered into the settlement directly or indirectly.

(3) A person is, in particular, treated as having made a settlement if the person--

(a) has provided funds directly or indirectly for the purpose of the settlement,

(b) has undertaken to provide funds directly or indirectly for the purpose of the settlement, or

(4) This Chapter applies to settlements wherever made.

(5) In this section--

"charitable loan arrangement" means any arrangement so far as it consists of a loan of money made by an individual to a charity either--
(a)
for no consideration, or
(b)
for a consideration which consists only of interest, and
"charity" includes each of the bodies mentioned in section 507 of ICTA (the National Heritage Memorial Fund, the British Museum etc.).

Income charged and person liable

621 Income charged

Tax is charged under this Chapter on all income and capital sums to which section 619(1) applies.

622 Person liable

The person liable for any tax charged under this Chapter is the settlor.

Rules for calculating income

623 Calculation of income

(1) This section applies for the purpose of calculating the liability to tax of a settlor charged under this Chapter.

(2) The same deductions and reliefs are allowed as would have been allowed if the amount treated as the settlor's income as a result of this Chapter had been received by the settlor as income.

Income treated as income of settlor: retained interests

624 Income where settlor retains an interest

(1) Income which arises under a settlement is treated for income tax purposes as the income of the settlor and of the settlor alone if it arises--

(a) during the life of the settlor, and

(b) from property in which the settlor has an interest.

(2) For more on a settlor having an interest in property, see section 625.

(3) For exceptions to the rule in subsection (1), see--

section 626 (exception for outright gifts between spouses),
section 627 (exceptions for certain types of income), and
section 628 (exception for gifts to charities).

625 Settlor's retained interest

(1) A settlor is treated for the purposes of section 624 as having an interest in property if there are any circumstances in which the property or any related property--

(a) is payable to the settlor or the settlor's spouse,

(b) is applicable for the benefit of the settlor or the settlor's spouse, or

(2) Subsection (1) does not apply if the only circumstances are one or more of--

(a) the bankruptcy of a person who is, or may become, beneficially entitled to the property or any related property,

(b) the assignment of the property or any related property by such a person,

(c) the charging of (or, in Scotland, the granting of a right in security over) the property or any related property by such a person,

(d) in the case of a marriage settlement, the death of both parties to the marriage and of all or any of the children of the marriage, and

(e) the death of a child of the settlor who had become beneficially entitled to the property or any related property at not more than 25 years old.

(3) Subsection (1) does not apply if--

(a) there are no circumstances in which the property or any related property can become payable or applicable as mentioned in that subsection during the life of a person other than--

(i) the bankruptcy of the person, or

(ii) the assignment or charging of the person's interest in the property or any related property, and

(b) the person is alive and under 25 years old.

(4) In subsection (1) "the settlor's spouse" does not include--

(a) a spouse from whom the settlor is separated under an order of a court or a separation agreement,

(b) a spouse from whom the settlor is separated where the separation is likely to be permanent,

(d) a person to whom the settlor is not married but may later marry.

(5) In this section "related property", in relation to any property, means income from that property or any other property directly or indirectly representing proceeds of, or of income from, that property or income from it.

626 Exception for outright gifts between spouses

(1) The rule in section 624(1) does not apply in respect of an outright gift--

(a) of property from which income arises,

(b) made by one spouse to the other, and

(2) Condition A is that the gift carries a right to the whole of the income.

(3) Condition B is that the property is not wholly or substantially a right to income.

(4) A gift is not an outright gift for the purposes of this section if--

(a) it is subject to conditions, or

(b) there are any circumstances in which the property, or any related property--

(i) is payable to the giver,

(ii) is applicable for the benefit of the giver, or

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