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

(The document as of February, 2008)

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(4) Condition B is that the person is not ordinarily UK resident.

(5) This section does not apply to relevant foreign income arising in the Republic of Ireland.

832 Relevant foreign income charged on the remittance basis

(1) If a person makes a claim under section 831(1) for a tax year in respect of relevant foreign income, income tax is charged on the full amount of the sums received in the United Kingdom in the tax year in respect of the income.

(2) For the purposes of subsection (1), it does not matter whether the income arises in the year for which the claim is made or arose in an earlier year in which the person was UK resident.

(3) The only case in which deductions are allowed is where the income is from a trade, profession or vocation carried on outside the United Kingdom.

(4) In that case the same deductions are allowed as are allowed under the Income Tax Acts where the trade, profession or vocation is carried on in the United Kingdom.

(5) This section is subject to section 835 (relief for delayed remittances).

833 Income treated as remitted: repayment of UK-linked debts

(1) For the purposes of section 832, if a person who is ordinarily resident, but is not domiciled, in the United Kingdom uses relevant foreign income outside the United Kingdom to satisfy a UK-linked debt, the person is treated as receiving the income in the United Kingdom at the time when it is so used.

(2) Subsection (1) is subject to subsection (5).

(3) In subsection (1) "UK-linked debt", in relation to a person, means--

(a) a debt for money lent to the person in the United Kingdom, or for interest on money so lent,

(b) a debt for money lent to the person outside the United Kingdom and received in the United Kingdom, or

(i) a debt falling within paragraph (a) or (b), or

(ii) another debt falling within this paragraph.

(4) In the case of a debt (within subsection (3)(b) or (c)) for money lent to the person outside the United Kingdom, it does not matter whether the money lent is received in the United Kingdom before or after the income is used to satisfy the debt.

(5) But in the case of such a debt if the money lent is not received in the United Kingdom until after the income is so used, the person is treated as receiving the income in the United Kingdom when the money lent is received there (instead of at the time provided in subsection (1)).

(6) For the purposes of this section, if any of the money lent is used to satisfy a debt, the debt for the money so used is treated as incurred for satisfying that other debt.

(7) In subsections (3) to (5) any reference to money lent being received in the United Kingdom includes a reference to its being brought there.

(8) Section 834 sets out circumstances in which a person is treated as using income to satisfy a debt for the purposes of this section.

(9) In this section and that section "satisfy", in relation to a debt, means satisfy wholly or in part.

834 Arrangements treated as repayment of UK-linked debts

(1) A person to whom money has been lent ("the borrower") is treated for the purposes of section 833 as using relevant foreign income to satisfy a debt if conditions A and B are met.

(2) Condition A is that the borrower uses the income in such a way that the lender holds money or property representing the income on behalf or on account of the borrower in such circumstances that it is available to the lender to satisfy the debt (by set-off or otherwise).

(3) Condition B is that under an arrangement between the borrower and the lender--

(a) the amount for the time being owed by the borrower to the lender, or

(b) the time at which the debt is to be satisfied,

depends in any respect, directly or indirectly, on the amount or value the lender holds on behalf or on account of the borrower as mentioned in subsection (2).

(4) In this section "lender", in relation to money lent, includes any person for the time being entitled to repayment.

Relief for delayed remittances

835 Relief for delayed remittances

(1) If section 832 (relevant foreign income charged on the remittance basis) applies to income for a tax year, the person liable for the tax may make a claim for relief under this section in respect of any of the income which meets conditions A and B ("delayed income").

(2) Condition A is that the income arose before the tax year for which relief is claimed.

(3) Condition B is that the income could not have been transferred by the person to the United Kingdom before the tax year because of--

(a) the laws of the territory where the income arose,

(b) executive action of its government, or

(4) If a person claims relief for a tax year in respect of delayed income, that income is to be deducted from the income charged to tax for that year in accordance with section 832.

(5) The delayed income is to be treated as if it were income received in the United Kingdom in the tax year in which it arose.

836 Relief for delayed remittances: backdated pensions

(1) This section applies if--

(a) section 832 applies to a pension or annuity, or an increase in a pension or annuity, that is treated as relevant foreign income as a result of section 575(3), 613(4) or 635(4) of ITEPA 2003,

(b) the pension, annuity or increase was granted retrospectively, and

(c) an amount of pension, annuity or increase is paid in respect of a tax year ("the earlier year") before the tax year in which it was granted.

(2) For the purposes of section 835 that amount of pension, annuity or increase is treated as income arising in the earlier year from a source that the person liable for the tax possessed in the earlier year.

(3) The condition in section 835(3) only applies to the pension, annuity or increase in the period after it becomes payable.

837 Claims for relief on delayed remittances

(1) A claim under section 835 must be made on or before the fifth anniversary of the normal self-assessment filing date for the tax year for which the relief is claimed.

(2) All adjustments (by way of repayment of tax, assessment or otherwise) are to be made which are necessary to give effect to section 835.

(3) Those adjustments may be made at any time, despite anything to the contrary in the Income Tax Acts.

(4) A person's personal representatives may make any claim under section 835 which the person might have made.

(5) If a person dies--

(a) any tax paid by the person and repayable because of a claim under section 835 is to be repaid to the personal representatives, and

(b) the person's personal representatives are liable for any additional tax which arises because of a claim under that section.

(6) If subsection (5)(b) applies, the additional tax--

(a) is to be assessed on the personal representatives, and

(b) is a debt due from and payable out of the estate.

Chapter 3 Relevant foreign income charged on arising basis: deductions and reliefs

838 Expenses attributable to collection or payment of relevant foreign income

(1) In calculating the amount of relevant foreign income to be charged to income tax for a tax year, a deduction is allowed for expenses incurred outside the United Kingdom that are attributable to the collection or payment of the income.

(2) Subsection (1) does not apply to income charged for the tax year in accordance with section 832 (relevant foreign income charged on the remittance basis).

839 Annual payments payable out of relevant foreign income

(1) In calculating the amount of relevant foreign income to be charged to income tax for a tax year, a deduction is to be allowed for an annual payment other than interest if it meets conditions A to C.

(2) Condition A is that the payment is payable out of the relevant foreign income.

(3) Condition B is that, had the payment arisen in the United Kingdom, it would have been chargeable to income tax under one of the following provisions or to corporation tax under Case III of Schedule D--

Chapter 10 of Part 4 (distributions from unauthorised unit trusts),
section 579 (charge to tax on royalties and other income from intellectual property),
Chapter 4 of Part 5 (certain telecommunication rights: non-trading income), or
Chapter 7 of Part 5 (annual payments not otherwise charged).

(4) Condition C is that the payment is made to a non-UK resident.

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

(a) the relevant foreign income is received in the United Kingdom, or

(b) it is charged for the tax year in accordance with section 832 (relevant foreign income charged on remittance basis).

(6) In the case of relevant foreign income chargeable under Chapter 2 or 17 of Part 2 (trading income) that arises in the Republic of Ireland, this section applies with the omission of condition B and subsection (5)(a).

840 Relief for backdated pensions charged on the arising basis

(1) This section applies if--

(a) as a result of section 575(3), 613(4) or 635(4) of ITEPA 2003 a pension or annuity or an increase in a pension or annuity is treated as relevant foreign income,

(b) the pension, annuity or increase is paid in respect of a tax year ("the earlier year") before the tax year in which the pension, annuity or increase arose, and

(2) If the person liable for the income tax makes a claim for relief under this section for the tax year in which the pension, annuity or increase paid in respect of the earlier year arises, that pension, annuity or increase is treated as income arising in the earlier year from a source that the person possessed in the earlier year.

(3) But subsection (2) does not affect the calculation of the full amount of the income so arising under section 575(2), 613(3) or 635(3) of ITEPA 2003 (under which the full amount of that income is to be calculated on the basis that the pension or annuity is 90% of its actual amount).

(4) Section 837 (claims for relief on delayed remittances) applies to claims under this section as it applies to claims under section 835.

Chapter 4 Unremittable income

841 Unremittable income: introduction

(1) This Chapter applies if--

(a) a person is liable for income tax on income arising in a territory outside the United Kingdom, and

(b) the income is unremittable.

(2) For the purposes of this Chapter, income is unremittable if conditions A and B are met.

(3) Condition A is that the income cannot be transferred to the United Kingdom by the person who is liable for income tax in respect of the income because of--

(a) the laws of the territory where the income arises,

(b) executive action of its government, or

(4) Condition B is that the person who is liable for income tax in respect of the income has not realised it outside that territory for an amount in sterling or in another currency which the person is not prevented from transferring to the United Kingdom.

(5) This Chapter does not apply to profits which a person is treated as receiving under section 714(2) of ICTA (accrued income profits), but see section 723 of that Act (which makes similar provision).

842 Claim for relief for unremittable income

(1) If a person liable for income tax on unremittable income makes a claim for relief under this section in respect of that income, it is not taken into account for income tax purposes.

(2) Subsection (1) is subject to section 843.

(3) No claim under this section may be made in respect of any income so far as an ECGD payment has been made in relation to it.

(4) In subsection (3) "ECGD payment" means a payment made by the Export Credit Guarantee Department under an agreement entered into as a result of arrangements made under--

(a) section 2 of the Export and Investment Guarantees Act 1991 (c. 67) (insurance in connection with overseas investment), or

(b) section 11 of the Export Guarantees and Overseas Investment Act 1978 (c. 18).

(5) A claim under this section must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the income would be charged to tax if no claim were made.

843 Withdrawal of relief

(1) This section applies if--

(a) a claim under section 842 has been made in relation to any income, and

(b) either--

(i) the income ceases to be unremittable, or

(ii) an ECGD payment is made in relation to it.

(2) In this section "ECGD payment" has the meaning given by section 842(4).

(3) If income ceases to be unremittable, the income is treated as arising on the date on which it ceases to be unremittable.

(4) If an ECGD payment is made in relation to income, the income is treated, to the extent of the payment, as arising on the date on which the ECGD payment is made.

(5) The income treated as arising under subsection (3) or (4), and any tax payable in respect of it under the law of the territory where it arises, are taken into account for income tax purposes at their value at the date on which the income is treated as arising.

(6) Subsections (3) to (5) do not apply so far as the income has already been treated as arising as a result of this section.

(7) If a person who would have become liable for income tax as a result of this section has died--

(a) the personal representatives are liable for the tax instead, and

(b) the tax is a debt due from and payable out of the estate.

844 Income charged on withdrawal of relief after source ceases

(1) This section applies if--

(a) income is treated as arising as a result of section 843, and

(b) at the time it is so treated the person who would have become liable for income tax as a result of that section--

(i) has permanently ceased to carry on the trade, profession, vocation or property business from which the income arises, or

(ii) in the case of income from another source, has ceased to possess that source.

(2) In the case of income from a trade, profession or vocation--

(a) the income is treated as a post-cessation receipt for the purposes of Chapter 18 of Part 2 (trading income: post-cessation receipts), but

(b) in the application of that Chapter to that income, section 243 (extent of charge to tax) is omitted.

(3) In the case of income from a property business--

(a) the income is treated as a post-cessation receipt from a UK property business for the purposes of Chapter 10 of Part 3 (property income: post-cessation receipts), but

(b) in the application of that Chapter to that income, section 350 (extent of charge to tax) is omitted.

(4) In the case of income from another source, the income is taxed as if the person continued to possess that source.

845 Valuing unremittable income

(1) If no claim is made under section 842 in relation to unremittable income arising in a territory outside the United Kingdom, the amount of the income to be taken into account for income tax purposes is determined as follows.

(2) If the currency in which the income is denominated has a generally recognised market value in the United Kingdom, the amount is determined by reference to that value.

(3) In any other case, the amount is determined according to the official rate of exchange of the territory where the income arises.

Part 9 Partnerships

Introduction

846 Overview of Part 9

This Part contains some special rules about partnerships.

847 General provisions

(1) In this Act persons carrying on a trade in partnership are referred to collectively as a "firm".

(2) The provisions of this Part are expressed to apply to trades but unless otherwise indicated (whether expressly or by implication) also apply--

(a) to professions, and

(b) in the case of this section and sections 849, 850, 857 and 858 to businesses that are not trades or professions.

(3) In those sections as applied by subsection (2)(b)--

(a) references to a trade are references to a business, and

(b) references to the profits of a trade are references to the income arising from a business.

848 Assessment of partnerships

Unless otherwise indicated (whether expressly or by implication), a firm is not to be regarded for income tax purposes as an entity separate and distinct from the partners.

Calculation of partners' shares

849 Calculation of firm's profits or losses

(1) If--

(a) a firm carries on a trade, and

(b) any partner in the firm is chargeable to income tax,

the profits or losses of the trade are calculated on the basis set out in subsection (2) or (3), as the case may require.

(2) For any period of account in which the partner is a UK resident individual, the profits or losses of the trade are calculated as if the firm were a UK resident individual.

(3) For any period of account in which the partner is non-UK resident, the profits or losses of the trade are calculated as if the firm were a non-UK resident individual.

850 Allocation of firm's profits or losses between partners

(1) For any period of account a partner's share of a profit or loss of a trade carried on by a firm is determined for income tax purposes in accordance with the firm's profit-sharing arrangements during that period.

This is subject to subsections (2) and (4).

(2) If for the period of account the calculation under section 849 in relation to the partner produces a profit, but there is at least one loss-making partner--

(a) each loss-making partner's share is neither a profit nor a loss, and

(b) each profit-making partner's share is given by the formula in subsection (3).

(3) The formula is--

---

where--

FP is the amount of the firm's profit calculated under section 849 in relation to the partner,
PP is the amount determined under subsection (1) to be the profit of the profit-making partner in question, and
TP is the total of the amounts determined under subsection (1) to be the profits of all the profit-making partners.

(4) If for the period of account the calculation under section 849 in relation to the partner produces a loss, but there is at least one profit-making partner--

(a) each profit-making partner's share is neither a profit nor a loss, and

(b) each loss-making partner's share is given by the formula in subsection (5).

(5) The formula is--

---

where--

FL is the amount of the firm's loss calculated under section 849 in relation to the partner,
PL is the amount determined under subsection (1) to be the loss of the loss-making partner in question, and
TL is the total of the amounts determined under subsection (1) to be the losses of all the loss-making partners.

(6) In this section--

"loss-making partner" means a partner whose share is determined under subsection (1) to be a loss,
"partner", in relation to a firm, means any partner in the firm, whether or not chargeable to income tax,
"profit-making partner" means a partner whose share is determined under subsection (1) to be a profit, and
"profit-sharing arrangements" means the rights of the partners to share in the profits of the trade and the liabilities of the partners to share in the losses of the trade.

851 Calculations etc. where firm has other income or losses

(1) This section applies if--

(a) sections 849 and 850 apply in relation to the profits or losses of a trade carried on by a firm, and

(b) the firm has other income or losses.

(2) Those sections also apply as if references to the profits or losses of the trade were references to the other income or losses.

Firms with trading income

852 Carrying on by partner of notional trade

(1) For each tax year in which a firm carries on a trade (the "actual trade"), each partner's share of the firm's trading profits or losses is treated, for the purposes of Chapter 15 of Part 2 (basis periods), as profits or losses of a trade carried on by the partner alone (the "notional trade").

(2) A partner starts to carry on a notional trade at the later of--

(a) when becoming a partner in the firm, and

(b) when the firm starts to carry on the actual trade.

This is subject to subsection (3).

(3) If the partner carries on the actual trade alone before the firm starts to carry it on, the partner starts to carry on the notional trade when the partner starts to carry on the actual trade.

(4) A partner permanently ceases to carry on a notional trade at the earlier of--

(a) when the partner ceases to be a partner in the firm, and

(b) when the firm permanently ceases to carry on the actual trade.

This is subject to subsections (5) and (6).

(5) If the partner carries on the actual trade alone after the firm permanently ceases to carry it on, the partner permanently ceases to carry on the notional trade when the partner permanently ceases to carry on the actual trade.

(6) If--

(a) the firm carries on the actual trade wholly or partly outside the United Kingdom, and

(b) the partner becomes or ceases to be UK resident,

the partner is treated as permanently ceasing to carry on one notional trade when the change of residence occurs and starting to carry on another immediately afterwards.

(7) Subsection (6) does not prevent a loss made before the change of residence from being carried forward under section 385 of ICTA and set against profits arising after the change.

853 Basis periods for partners' notional trades

(1) The basis period of a partner's notional trade is determined by applying the rules in Chapter 15 of Part 2 as if--

(a) the trade were carried on by an individual, and

(b) its accounts were drawn up to the same dates as the accounts of the actual trade.

This is subject to subsection (2).

(2) If, on the assumption that the actual trade is carried on by an individual,--

(a) section 216 (change of accounting date in later tax year) would apply in relation to the actual trade, but

(b) the basis period for the actual trade would be given by subsection (4) of that section (ineffective change of accounting date), because the conditions in section 217 (conditions for basis period to end with new accounting date) would not be met in relation to that trade,

the accounts of the actual trade are treated for the purposes of subsection (1) as drawn up to the old accounting date.

(3) For the purposes of determining whether, on the assumption that the actual trade is carried on by an individual, the conditions in section 217 would be met in relation to that trade--

(a) a notice under section 217(2) must be given by one of the partners in the firm nominated by them for the purposes of this subsection, and

(b) any appeal under section 218(4) against a notice by the Inland Revenue must be made by a partner so nominated.

(4) Section 207 (treatment of business start-up payments received in overlap period) applies as a result of this section in relation to a partner's notional trade so that--

(a) the requirement in subsection (1)(a) of that section becomes a requirement that the partner's share of the firm's profits so far as attributable to a business start-up payment falls within two basis periods, and

(b) the reference in subsection (2) of that section to the payment is a reference to any part of the partner's share of the firm's profits which is so attributable.

Firms with trading and other source income

854 Carrying on by partner of notional business

(1) For each tax year in which a firm--

(a) carries on a trade, and

(b) has untaxed income or relievable losses from other sources,

each partner's share of the firm's untaxed income or relievable losses other than trading profits or losses is treated, for the purposes of Chapter 15 of Part 2, as profits or losses of a trade carried on by the partner alone (the "notional business").

(2) A partner starts to carry on a notional business at the later of--

(a) when becoming a partner in the firm, and

(b) when the firm starts to carry on a trade.

(3) A notional business continues even if either or both of the following occur--

(a) separate sources of income that comprise the business start and cease, and

(b) no income arises during a particular tax year.

This is subject to subsections (4) and (5).

(4) A partner permanently ceases to carry on a notional business at the earlier of--

(a) when the partner ceases to be a partner in the firm, and

(b) when the firm permanently ceases to carry on a trade.

(5) If--

(a) the firm carries on the trade wholly or partly outside the United Kingdom, and

(b) the partner becomes or ceases to be UK resident,

the partner is treated as permanently ceasing to carry on one notional business when the change of residence occurs and starting to carry on another immediately afterwards.

(6) In this section "untaxed income" means any income that is not--

(a) income from which income tax has been deducted,

(b) income from or on which income tax is treated as having been deducted or paid, or

855 Basis periods for partners' notional businesses

(1) The general rule is that the basis period for a partner's notional business is the same as the basis period for a partner's notional trade, but subject to the exceptions in subsections (2) and (3).

(2) If the partner carries on the actual trade alone before the firm starts to carry it on the partner is treated as starting to carry on the notional business when the partnership is set up.

(3) If the partner carries on the actual trade alone after the firm permanently ceases to carry it on the partner is treated as permanently ceasing to carry on the notional business when the firm permanently ceases to carry on the actual trade.

856 Overlap profits from partners' notional businesses

(1) This section applies if--

(a) the basis period for a partner's notional business for a tax year is given by--

(i) section 215 (change of accounting date in third tax year), or

(ii) section 216(3) (change of accounting date in later tax year),

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