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

(The document as of February, 2008)

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(2) In subsection (1)--

(a) for the words from "a person resident" to "year of assessment or" substitute "a company resident in the United Kingdom which in any",

(b) omit "for the purposes of income tax, or as the case may be",

(d) omit "year or" in both places where it occurs.

(3) In subsection (2)--

(a) omit the words from "brought into account" to "may be,", and

(b) for "subsection (2)" substitute "subsection (3)".

(4) Omit subsection (4).

107 (1) Amend section 125 (annual payments for non-taxable consideration) as follows.

(2) In subsection (2) for paragraph (a) and the word "and" at the end of the paragraph substitute--

" (a) is not interest but is--

(i) an annuity or other annual payment charged with income tax under Part 5 of ITTOIA 2005 otherwise than as relevant foreign income; or

(ii) an annuity or other annual payment charged with corporation tax under Case III of Schedule D; and " .

(3) In subsection (3)(a) for "section 660A(8) or (9)(a)" substitute "section 627(1) or (2)(a) of ITTOIA 2005".

108 Omit section 127 (enterprise allowance).

109 Omit section 127A (futures and options: transactions with guaranteed returns).

110 In section 128 (commodity and financial futures etc: losses and gains) omit subsection (1).

111 (1) Amend section 214 (chargeable payments connected with exempt distributions) as follows.

(2) In subsection (1)--

(a) in paragraph (a) omit "chargeable to tax under Case VI of Schedule D", and

(b) after that paragraph insert--

" (ab) that income shall be chargeable to tax; " .

(3) After subsection (1) insert--

" (1A) Income tax chargeable by virtue of subsection (1) shall be charged on the full amount or value of the payment made in the year of assessment; and the person liable for any tax so charged is the person receiving or entitled to the payment.

(1B) Corporation tax chargeable by virtue of subsection (1) shall be charged under Case VI of Schedule D. "

112 In section 230 (stock dividends: distributions) for the words from "as mentioned" to "that section)" substitute "in a case where section 410(2), (3) or (4) of ITTOIA 2005 applies".

113 (1) Amend section 231 (tax credits for certain recipients of qualifying distributions) as follows.

(2) In subsection (1)--

(a) for "sections" to "1993" substitute "sections 231AA and 231AB of this Act",

(b) for the words from "where" to "charged" substitute "for corporation tax purposes where", and

(3) Omit subsections (3) and (3AA).

(4) In subsection (4) for "he" in both places where it occurs substitute "that person".

114 (1) Amend section 231AA (no tax credit for borrower under stock lending arrangement or interim holder under repurchase agreement) as follows.

(2) In subsection (1) after "section 231" insert "above or section 397(1) of ITTOIA 2005".

(3) In subsection (1A)--

(a) for "a relevant person", "section 233(1)" and "Schedule F" substitute "a person resident in the United Kingdom", "section 399(2) of ITTOIA 2005" and "dividend" respectively, and

(b) omit the second sentence.

115 (1) Amend section 231AB (no tax credit for original owner under repurchase agreement in respect of certain manufactured dividends) as follows.

(2) In subsection (1) after "section 231" insert "above or section 397(1) of ITTOIA 2005".

(3) In subsection (1A)--

(a) for "a relevant person", "section 233(1)" and "Schedule F" substitute "a person resident in the United Kingdom", "section 399(2) of ITTOIA 2005" and "dividend" respectively, and

(b) omit the second sentence.

116 In section 231B(4)(b) (consequences of certain arrangements to pass on value of a tax credit) for "section 231(3)" substitute "section 397(2) of ITTOIA 2005".

117 Omit section 232 (tax credits for non-UK residents).

118 Omit section 233 (taxation of certain recipients of distributions and in respect of non-qualifying distributions).

119 (1) Amend section 249 (stock dividends treated as income) as follows.

(2) In subsection (1) for "subsections (7) to (9) below, this section applies" substitute "subsections (8) and (9) below, this section applies (and accordingly section 230 above and section 410 of ITTOIA 2005 apply)".

(3) Omit subsections (4) to (7).

(4) In subsection (8)--

(a) for "subsection (4)" substitute "section 410(2), (3) or (4) of ITTOIA 2005", and

(b) omit the words from "and subsections (5)" onwards.

(5) In subsection (9)(b) for "an individual" to "an amount of income" substitute "income to be treated as arising to an individual as a result of section 410(2) of ITTOIA 2005".

120 (1) Amend section 250 (returns) as follows.

(2) In subsection (5)(c) for "the appropriate amount in cash" substitute "the cash equivalent of the share capital in accordance with section 412 of ITTOIA 2005".

(3) In subsection (7) at the end insert "of this Act or Chapter 5 of Part 4 of ITTOIA 2005".

121 In section 251 (interpretation of sections 249 and 250), omit subsections (2) to (6).

122 Omit sections 251A to 251D (approved share incentive plans).

123 In section 271(1)(a) (deemed surrender in cases of certain loans) for "under section 547" substitute "by virtue of section 465 of ITTOIA 2005".

124 In section 273 (payments securing annuities)--

(a) renumber the existing text as subsection (1),

(b) in that subsection after "Subject to" insert "subsection (2) and",

(d) after that subsection insert--

" (2) No deduction may be made under this section in respect of any contribution paid by any person under Part 1 of the Social Security Contributions and Benefits Act 1992 or Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992. "

125 In section 282A(4)(b) (jointly held property) for "section 111" substitute "Part 9 of ITTOIA 2005 (partnerships)".

126 In section 291A(3)(f) (connected persons: directors)--

(a) in sub-paragraph (i) after "trade or profession" insert "carried on wholly or partly in the United Kingdom", and

(b) in sub-paragraph (ii) for the words from "in computing" to the end substitute "in calculating for tax purposes the profits of that trade or profession".

127 In section 307(1) (withdrawal of enterprise investment scheme relief) for "to tax under Case VI of Schedule D" substitute "to income tax".

128 Omit section 314 (divers and diving supervisors).

129 Omit section 322 (consular officers and employees).

130 Omit section 324 (designated international organisations).

131 Omit section 325 (interest on deposits with National Savings Bank).

132 Omit section 326 (interest etc. under contractual savings schemes).

133 Omit sections 326A to 326D (tax-exempt special savings accounts).

134 Omit section 327 (disabled person's vehicle maintenance grant).

135 Omit section 327A (payments to adopters).

136 Omit sections 329 to 329AB (exemption of interest on damages for personal injury and personal injury damages in the form of periodical payments).

137 Omit section 331 (scholarship income).

138 Omit section 331A (student loans: certain interest to be disregarded).

139 Omit section 332(3) (expenditure and houses of ministers of religion).

140 In section 332A (venture capital trusts: reliefs) omit "and distributions by such trusts".

141 For section 333 substitute--

" 333 Investment plan regulations

Regulations under Chapter 3 of Part 6 of ITTOIA 2005 (income from individual investment plans) may include provision generally for the purpose of the administration of corporation tax in relation to plans. "

142 Omit section 333A (personal equity plans: tax representatives).

143 (1) Amend section 333B (involvement of insurance companies with plans and accounts) as follows.

(2) In subsections (1), (2)(b) and (3) for "section 333 business" substitute "plan business".

(3) In subsection (4)--

(a) after "this section" insert "or Chapter 3 of Part 6 of ITTOIA 2005 (except sections 697 and 698)", and

(b) for "section 333A" substitute "section 697 or 698 of ITTOIA 2005 (requirements concerning foreign plan managers)".

(4) In subsection (5)(a) and (b) for "section 333 business" substitute "plan business".

(5) In subsection (8) for "section 333 business" substitute "plan business".

(6) In subsection (9)--

(a) after the definition of "long-term insurance fund" insert--

" "plan business", in relation to an insurance company, means the business of the company that is attributable to the making of investments with that company under plans for which provision is made by regulations under Chapter 3 of Part 6 (except sections 697 and 698) of ITTOIA 2005 (income from individual investment plans) " , and

(b) omit the definition of "section 333 business".

144 In section 336(1A) (exception from certain charges for temporary residents in the United Kingdom) for paragraph (a) substitute--

" (a) any charge under ITTOIA 2005 on relevant foreign income, " .

145 (1) Amend section 337 (company beginning or ceasing to carry on trade) as follows.

(2) In subsection (1) after "shall be computed" insert "for the purposes of corporation tax".

(3) In subsection (2) after "overseas property business" insert "(within the meaning given by section 70A(4))".

146 (1) Amend section 347A (general rule: annual payments) as follows.

(2) In subsection (1)(b)--

(a) after "not" insert ", for the purposes of corporation tax,",

(b) for "the person" substitute "any company", and

(3) After subsection (2) insert--

" (2A) This section applies to any annual payment made by an individual which--

(a) arises in the United Kingdom, and

(b) is exempt from any charge under Part 5 of ITTOIA 2005 (miscellaneous income) as a result of section 727 of that Act. "

(4) Omit subsections (4) and (5).

(5) In subsection (6) after "(2)" insert "or (2A)".

147 (1) Amend section 348 (payments out of profits or gains brought into charge to income tax: deduction of tax) as follows.

(2) In subsection (1A), after paragraph (a), insert--

" (aa) which--

(i) is charged with tax under Chapter 7 of Part 4 of ITTOIA 2005 (purchased life annuity payments), Chapter 10 of that Part (distributions from unauthorised unit trusts), section 579 of that Act (royalties etc. from intellectual property), Chapter 4 of Part 5 of that Act (certain telecommunication rights: non-trading income) or Chapter 7 of Part 5 of that Act (annual payments not otherwise charged), and

(ii) is not relevant foreign income, " .

(3) After subsection (3) insert--

" (4) For the purposes of this section and section 349(1), the following income shall be treated as not brought into charge to income tax--

(a) income on which income tax is treated as paid under section 399(2) or 400(2) of ITTOIA 2005 (distributions from UK resident companies etc. on which there is no tax credit),

(b) income on which an individual is liable to income tax as a result of section 413(2) of that Act or trustees are so liable as a result of section 413(3) of that Act (stock dividend income),

(c) income on which any person is liable to income tax under Chapter 6 of Part 4 of that Act (release of loan to participator in close company),

(d) income on which an individual is liable to income tax as a result of section 465 of that Act or trustees are so liable as a result of section 467 of that Act (gains from contracts for life insurance etc.), being income to which section 530 of that Act applies (income tax treated as paid etc.), and

(e) income which is included in the aggregate income of an estate as a result of section 664(2)(c), (d) or (e) of that Act (income arising to personal representatives and corresponding to income within paragraph (b), (c) or (d)). "

148 (1) Amend section 349 (payments not out of profits or gains brought into charge to income tax, and annual interest) as follows.

(2) In subsection (1A), after paragraph (a), insert--

" (aa) which--

(ii) is not relevant foreign income, " .

(3) In subsection (2) for "chargeable to" substitute "which falls within Chapter 2 of Part 4 of ITTOIA 2005 (interest) (excluding anything specially exempted from income tax and discounts treated as interest by section 381 of that Act) or which is chargeable to corporation".

(4) In subsection (3) before paragraph (a) insert--

" (za) to interest chargeable to income tax as relevant foreign income; or " .

(5) In subsection (4)--

(a) insert the following definitions in the appropriate places--

" "certificate of deposit" means a document falling within the definition of that expression in section 56(5) above or section 552(2) of ITTOIA 2005; " ,

" "uncertificated eligible debt security units" has the same meaning as in section 552(2) of ITTOIA 2005; " ,

(b) in the definition of "qualifying certificate of deposit"--

(i) omit ", as defined in section 56(5),", and

(ii) after "under which" insert ", or uncertificated eligible debt security units under which", and

(i) at the end of paragraph (a) insert "above or is an uncertificated right, as defined in section 552(2) of ITTOIA 2005", and

(ii) in paragraph (b) omit ", as defined in section 56(5)," and after "issued" insert ", and no uncertificated eligible debt security units have been issued,".

(6) For subsection (7) substitute--

" (7) This section is subject to section 101 of the Finance Act 2004 (payment of royalties without deduction at source). "

149 After section 349 insert--

" 349ZA Extension of section 349: proceeds of sale of UK patent rights

(1) Subsection (2) applies if--

(a) a person who is a non-UK resident is chargeable to tax under section 587 of ITTOIA 2005 on profits from the sale of the whole or part of any patent rights, and

(b) the net proceeds of the sale consist wholly or partly of a capital sum.

(2) Subsection (1) of section 349 of this Act applies to any payment of the net proceeds of sale, or of an instalment of them, as if the net proceeds or instalment were, so far as consisting of the capital sum--

(a) an annual sum to which paragraph (a) of that subsection applies, and

(b) payable otherwise than out of profits or gains charged to income tax.

(3) For the purposes of this section the net proceeds of the sale is the amount of the proceeds net of any incidental expenses of the sale which are deducted before payment.

(4) Sections 597 to 599 of ITTOIA 2005 (licences connected with patents etc.) apply for the purposes of this section as they apply for the purposes of sections 587 to 596 of that Act.

(5) Section 4 of the Capital Allowances Act 2001 (meaning of "capital sums" etc.) applies in relation to this section as it applies in relation to Chapter 2 of Part 5 of ITTOIA 2005 (receipts from intellectual property).

(6) In this section "a non-UK resident" means a person who is not resident in the United Kingdom. "

150 In section 349A(3) (exceptions to section 349 for payments between companies etc.) for "524(3)(b)" substitute "349ZA(2)".

151 (1) Amend section 349B (conditions mentioned in section 349A(1)) as follows.

(2) In subsection (4)(b) for "section 333 (personal equity plans and individual savings accounts)" substitute "Chapter 3 of Part 6 of ITTOIA 2005 (income from individual investment plans)".

(3) Omit subsection (5).

152 In section 353(1) (relief for payments of interest) after "sections 359 to 368" insert "of this Act and section 52 of ITTOIA 2005".

153 In section 360A(2)(b) (meaning of "material interest" in section 360) for "Chapter 1A of Part XV (see section 660G(1) and (2))" substitute "Chapter 5 of Part 5 of ITTOIA 2005 (see section 620 of that Act)".

154 (1) Amend section 368 (exclusion of double relief etc) as follows.

(2) In subsection (3) for "for the purposes of Schedule A or Case I or II of Schedule D" substitute "of any trade, profession or vocation, or of any UK property business or overseas property business,".

(3) Omit subsection (4).

(4) In subsection (5)--

(a) for "subsections (3) and (4)" substitute "subsection (3)", and

(b) for "those subsections" substitute "that subsection".

(5) For subsection (6) substitute--

" (6) Any reference in subsection (3) above to an amount taken into account is a reference to an amount taken into account in an assessment which has been finally determined. "

155 In section 370(2)(b) (relevant loan interest) for the words from "either" to the end substitute "would be eligible for relief under section 353".

156 (1) Amend section 379A (Schedule A losses) as follows.

(2) In subsection (1) for "Schedule A business" substitute "UK property business".

(3) In subsection (2) for "Schedule A business", in both places where it occurs, substitute "UK property business".

(4) In subsection (3) for "Schedule A business" substitute "UK property business".

(5) In subsection (4) for "Schedule A business" substitute "UK property business".

(6) In subsection (7)--

(a) for "Schedule A business" substitute "UK property business", and

(b) for "applicable to" to the end substitute "applicable to UK property businesses".

(7) In the side-note for "Schedule A losses" substitute "Losses from UK property business".

(8) In the italic cross-heading before the section for "Schedule A" substitute "UK property".

157 In section 379B (losses from overseas property business)--

(a) after "overseas property business" insert "(within the meaning given by Chapter 2 of Part 3 of ITTOIA 2005)", and

(b) for "Schedule A business" substitute "UK property business".

158 In section 382(3) (provisions supplementary to sections 380 and 381) omit "under the provisions of the Income Tax Acts applicable to Case I or II of Schedule D".

159 (1) Amend section 384 (restrictions on right of set-off for trade etc. losses) as follows.

(2) In subsection (4) for the words from "a trade" to "subsections (1) to (3) above" substitute " --

(a) a trade is carried on for part only of a year of assessment by reason of its being set up and commenced, or discontinued, or both, in that year, or

(b) a person carries on, or is treated as carrying on, a trade for part only of a year of assessment by reason of--

(i) a succession to the trade during the year which involves all the persons carrying it on before the succession permanently ceasing to carry it on, or

(ii) a change of residence within section 17 of ITTOIA 2005,

subsections (1) to (3) above " .

(3) In subsection (8) for "under Case VI of Schedule D" substitute "to income tax".

160 In section 384A(6) (restriction of set-off of allowances against general income) for "under Case VI of Schedule D" substitute "to income tax".

161 In section 385(4) (carry-forward against subsequent profits) omit "under Case I of Schedule D" and, in both places where it occurs, "under that Case".

162 In section 386(1) (carry-forward where business transferred to a company) omit "under Schedule D".

163 In section 387(3)(d) (carry-forward as losses of amounts taxed under section 350) for "under section 349(1) by virtue of section 524" substitute "under section 349(1) of this Act by virtue of section 595 of ITTOIA 2005".

164 (1) Amend section 388 (carry-back of terminal losses) as follows.

(2) In subsection (1) omit "under Schedule D".

(3) In subsection (4) omit "under Schedule D" and, in both places where it occurs, "under Case I of Schedule D".

(4) In subsection (7) for "under the provisions of the Income Tax Acts applicable to Cases I and II of Schedule D" substitute "of a trade, profession or vocation under Part 2 of ITTOIA 2005".

165 In section 389 (supplementary provisions relating to carry-back of terminal losses) for subsection (4) substitute--

" (4) For the purposes of this section and section 388 references to the permanent discontinuance of a trade, profession or vocation include--

(a) a person permanently ceasing to carry on a trade, profession or vocation, and

(b) a partner permanently ceasing to carry on a notional trade in accordance with section 852(4) of ITTOIA 2005. "

166 In section 390(a) (treatment of interest as a loss for purposes of carry-forward and carry-back) for "the profits of which are chargeable to tax under Case I or II of Schedule D" substitute "carried on wholly or partly in the United Kingdom".

167 For section 391 (losses from trade etc carried on abroad) substitute--

" 391 Losses from trade etc. carried on abroad

In the case of a loss sustained in a trade, profession or vocation carried on wholly outside the United Kingdom, relief under any of sections 380 to 386, 388 and 389 is given only on--

(a) the profits of a trade, profession or vocation carried on wholly outside the United Kingdom, or

(b) income falling within section 23, 355, 575, 613, 615, 631 or 635 of ITEPA 2003,

but no relief is to be given on income which is charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis). "

168 For section 392 (Case VI losses) substitute--

" 392 Losses from miscellaneous transactions

(1) A person may make a loss relief claim if --

(a) in any year of assessment he sustains a loss in any transaction (whether he was engaged in it solely or in partnership), and

(b) the transaction is of such a nature that, if any profits or other income had arisen from it, he would have been liable to be assessed to income tax in respect of the income under or by virtue of any provision to which section 836B applies.

(2) A loss relief claim is a claim requiring--

(a) that the amount of the loss sustained by him is, as far as may be, to be deducted from or set off against the total of the amount of any profits or other income or gains arising from any transaction in respect of which he is assessed for that year under or by virtue of any such provision, and

(b) that any portion of the loss for which relief is not so given is, as far as may be, to be carried forward and deducted from or set off against the total of the amount of any profits or other income or gains arising from any transaction in respect of which he is assessed for a subsequent year of assessment under or by virtue of any such provision.

(3) If a partner in a partnership sustains a loss, the expression "the amount of any profits or other income or gains arising from any transaction in respect of which he is assessed" is to be read in accordance with subsection (4).

(4) In respect of any year that expression means such portion of the amount on which the partnership is assessed under or by virtue of any provision to which section 836B applies in respect of any transaction as falls to be taken into account in computing the partner's total income for that year.

(5) Any relief under this section by way of the carrying forward of the loss is to be given as far as possible--

(a) from the first subsequent assessment in respect of any profits or other income or gains arising from any transaction in respect of which he is assessed under or by virtue of any provision to which section 836B applies for any year, and

(b) so far as it cannot be so given, from the next such assessment, and so on.

(6) So far as a loss relief claim concerns the amount of the loss for any year of assessment it must be made on or before the fifth anniversary of the 31st January next following the year of assessment in question.

(7) But the question whether and, if so, how much relief on that amount should be given under this section against tax for any year of assessment may be the subject of a separate claim made on or before the fifth anniversary of the 31st January next following that year of assessment.

(8) Any portion of a loss sustained by any person in any transaction (whether he was engaged in it solely or in partnership)--

(a) which was of such a nature that, if any profits had arisen from it, he would have been liable to be assessed to income tax in respect of the profits under Case VI of Schedule D for any year of assessment before the year 2005-06, and

(b) which did not fall within section 34, 35 or 36,

is (so far as relief for that portion has not previously been given) to be treated as a loss to be carried forward and deducted in accordance with subsection (2)(b) above. "

169 (1) Amend section 397 (restriction of relief in case of farming and market gardening) as follows.

(2) In subsection (5) (restriction of relief in case of farming and market gardening) for the definitions of "farming" and "market gardening" substitute--

" "farming" and "market gardening" shall be construed--

(a) for income tax purposes, in accordance with the definitions in section 876 of ITTOIA 2005, and

(b) for corporation tax purposes, in accordance with the definitions in section 832 but as if those definitions were not restricted to activities in the United Kingdom. "

(3) In subsection (7) after "the rules applicable to" insert "the calculation of the profits of a trade in Part 2 of ITTOIA 2005 or to".

(4) In subsection (8) for the words from ", a trade shall be treated" to the end substitute " --

(a) a trade shall be treated as discontinued, and a new trade set up, in any event which under any of the provisions of the Tax Acts is to be treated as equivalent to the permanent discontinuance or setting up of a trade; and

(b) without prejudice to paragraph (a), a trade shall be treated as discontinued, and a new trade set up, at any time when there is a change in the persons carrying on the trade which involves all of the persons carrying it on before the change permanently ceasing to carry it on. "

(5) In subsection (10) for the words from the beginning to "any discontinuance, and as if" substitute "Where at any time there has been a change in the persons carrying on a trade, this section shall, notwithstanding subsection (8) above, apply as if".

170 In section 398 (loss relief for transactions in deposits with and without certificates or in debts)--

(a) after "56(2)", in the first place where it occurs, insert "above or Chapter 11 of Part 4 of ITTOIA 2005 (transactions in deposits)",

(b) after "56(2)", in the second place where it occurs, insert "above or that Chapter", and

171 (1) Amend section 399 (dealings in commodity futures etc: withdrawal of loss relief) as follows.

(2) Omit subsections (1) and (1A).

(3) In subsection (3) for "under Case VI of Schedule D" substitute "(in the case of corporation tax, under Case VI of Schedule D)".

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