Income Tax Act 2007 (c. 3)

(The document as of February, 2008)

-- Back --

Page 28

Pages: P.1 | P.2 | P.3 | P.4 | P.5 | P.6 | P.7 | P.8 | P.9 | P.10 | P.11 | P.12 | P.13 | P.14 | P.15 | P.16 | P.17 | P.18 | P.19 | P.20 | P.21 | P.22 | P.23 | P.24 | P.25 | P.26 | P.27 | P.28 | P.29 | P.30 | P.31 | P.32 | P.33 | P.34 | P.35 | P.36 | P.37 | P.38 | P.39 | P.40 | P.41 | P.42 | P.43 | P.44 | P.45 | P.46 | P.47 | P.48 | P.49 | P.50 | P.51 | P.52 | P.53 | P.54 | P.55 | P.56 | P.57 | P.58 | P.59 | P.60 | P.61 | P.62 | P.63 | P.64 | P.65 | P.66 | P.67 | P.68 | P.69 | P.70

(2) The income referred to in subsection (1) is--

(a) the profits of a trade carried on by a charitable trust,

(b) amounts treated as adjustment income of a charitable trust under section 228 of ITTOIA 2005 in respect of a trade carried on by the trust, and

(c) post-cessation receipts arising from a trade carried on by a charitable trust which are received by the trustees of the trust or to which they are entitled.

(3) Subsection (1) does not apply in respect of--

(a) profits of a trade that are, apart from this section, exempt from income tax chargeable under Part 2 of ITTOIA 2005,

(b) amounts treated as adjustment income that are, apart from this section, exempt from income tax chargeable under Chapter 17 of Part 2 of that Act, or

(c) post-cessation receipts that are, apart from this section, exempt from income tax chargeable under Chapter 18 of Part 2 of that Act.

(4) Condition A is--

(a) in the case of the profits of a trade, that the profits are profits of a tax year in relation to which the condition specified in section 528 (condition as to trading and miscellaneous incoming resources) is met,

(b) in the case of an amount treated as adjustment income, that the amount arises in such a tax year, and

(5) Condition B is that the profits are, or the amount or post-cessation receipt is, (as the case may be) applied to the purposes of the charitable trust only.

(6) Sections 232(1) and (2), 235 and 236 of ITTOIA 2005 (when adjustment income is treated as arising) apply for the purposes of subsection (4) as they apply for the purposes of Chapter 17 of Part 2 of that Act.

(7) In this section "post-cessation receipt" means an amount that is a post-cessation receipt for the purposes of Chapter 18 of Part 2 of that Act (post-cessation receipts) (see sections 246 to 253 of that Act).

527 Exemption from charges under provisions to which section 1016 applies

(1) Any income or gains of a charitable trust that is or are chargeable to income tax under or by virtue of any provision to which section 1016 applies is not or are not taken into account in calculating total income if conditions A and B are met.

(2) Subsection (1) does not apply in respect of any income or gains chargeable to income tax by virtue of any of--

(a) section 214 of ICTA (chargeable payments connected with exempt distributions),

(b) section 804 of that Act (double taxation relief),

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

(e) section 755 (transactions in land), and

(f) any other enactment specified in an order made by the Treasury.

(3) Subsection (1) does not apply in respect of any income that is, or gains that are, apart from this section, exempt from income tax chargeable under or by virtue of any provision to which section 1016 applies.

(4) Condition A is that the income is, or the gains are, for a tax year in relation to which the condition specified in section 528 is met.

(5) Condition B is that the income is, or the gains are, applied to the purposes of the charitable trust only.

528 Condition as to trading and miscellaneous incoming resources

(1) The condition in this section is met in relation to a tax year if--

(a) the sum of the charitable trust's trading incoming resources and miscellaneous incoming resources for the tax year does not exceed the requisite limit for the tax year, or

(b) the trustees of the charitable trust had, at the beginning of the tax year, a reasonable expectation that it would not do so.

(2) The charitable trust's "trading incoming resources" for the tax year are--

(a) the incoming resources which are required to be taken into account in calculating the profits of, or losses made in, the basis period for the tax year of any non-exempt trade carried on by the charitable trust, and

(b) the incoming resources which are treated as adjustment income under section 228 of ITTOIA 2005 in respect of such a trade, or which are post-cessation receipts arising from such a trade.

"Post-cessation receipt" has the meaning given by section 526(7).

(3) For the purposes of subsection (2) a trade is a "non-exempt trade" if any profits of the trade would not, apart from section 526, be exempt from income tax chargeable under Part 2 of ITTOIA 2005.

(4) The charitable trust's "miscellaneous incoming resources" for the tax year are the incoming resources which are required to be taken into account in calculating non-exempt miscellaneous income or non-exempt miscellaneous losses for the tax year.

(5) In this section--

"non-exempt miscellaneous income" means income or gains chargeable to income tax under or by virtue of any provision to which section 1016 applies that is not, or are not, apart from section 526 or 527, exempt from income tax chargeable under or by virtue of that provision, and
"non-exempt miscellaneous losses" means losses arising from a transaction which is of such a nature that if income or gains had arisen from it the income would have been non-exempt miscellaneous income.

(6) The requisite limit--

(a) is 25% of the charitable trust's total incoming resources for the tax year, but

(b) must not be less than £5,000 or more than £50,000.

529 Exemption for profits from fund-raising events

(1) The profits of a trade carried on by a charitable trust are not taken into account in calculating total income so far as they arise from a VAT-exempt event.

(2) Subsection (1) applies so far as the profits are applied to the purposes of the charitable trust only.

(3) An event is a VAT-exempt event if the supply of goods and services by the charitable trust in connection with the event would be exempt from value added tax under Group 12 of Schedule 9 to the Value Added Tax Act 1994 (c. 23) (fund-raising events by charities and other qualifying bodies).

530 Exemption for profits from lotteries

(1) The profits accruing to a charitable trust from a lottery are not taken into account in calculating total income if conditions A and B are met.

(2) Condition A is that--

(a) the lottery is promoted and conducted in accordance with section 3 or 5 of the Lotteries and Amusements Act 1976 (c. 32), or

(b) the lottery is promoted and conducted in accordance with Article 133 or 135 of the Betting, Gaming, Lotteries and Amusements (Northern Ireland) Order 1985 (S.I. 1985/1204 (N.I. 11)).

(3) Condition B is that the profits are applied to the purposes of the charitable trust only.

531 Exemption for property income etc

(1) Income which is chargeable to income tax under Part 2 of ITTOIA 2005 (trading income) as a result of section 261 of that Act is not taken into account in calculating total income so far as--

(a) it arises in respect of rents or other receipts from an estate, interest or right in or over land, and

(b) the estate, interest or right is vested in any person in trust for a charitable trust or for charitable purposes.

(2) Income which is chargeable to income tax under Part 3 of ITTOIA 2005 (property income) is not taken into account in calculating total income so far as--

(a) it arises in respect of an estate, interest or right in or over land, and

(b) the estate, interest or right is vested in any person in trust for a charitable trust or for charitable purposes.

(3) Subsection (1) and (2) apply so far as the income is applied to charitable purposes only.

532 Exemption for savings and investment income

(1) The income mentioned in subsection (2) is not taken into account in calculating total income if--

(a) it is income of a charitable trust, or

(b) it is required, under an Act, court judgment, charter, trust deed or will, to be applied to charitable purposes only.

(2) The income referred to in subsection (1) is--

(a) interest,

(b) a dividend or other distribution of a UK resident company,

(d) an annuity payment under a purchased life annuity,

(e) profits on the disposal of deeply discounted securities, or

(f) income treated for the purposes of Chapter 10 of Part 4 of ITTOIA 2005 (distributions from unauthorised unit trusts) as received by a unit holder from a scheme to which section 547 of that Act applies (unauthorised unit trust schemes).

(3) Subsection (1) applies only so far as the income falls within, and is dealt with under, Part 4 of ITTOIA 2005 (see section 366 of that Act as to provisions given priority over Part 4).

(4) Subsection (1) applies so far as the income is applied to charitable purposes only.

(5) In this section--

"deeply discounted security" has the same meaning as in Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted securities) (see section 430 of that Act),
"disposal", in relation to a deeply discounted security, has the same meaning as in Chapter 8 of Part 4 of that Act (see section 437(1) of that Act),
"dividend", in relation to a UK resident company, has the same meaning as in Chapter 3 of Part 4 of that Act (dividends etc from UK resident companies etc) (see section 382(4) of that Act),
"interest" includes anything treated as interest for the purposes of Chapter 2 of Part 4 of that Act (interest), and
"purchased life annuity" has the same meaning as in Chapter 7 of Part 4 of that Act (purchased life annuity payments) (see section 423 of that Act).

533 Exemption for public revenue dividends

(1) Public revenue dividends on securities which are in the name of trustees are not taken into account in calculating total income so far as the dividends are applicable and applied only for the repair of--

(a) a cathedral, college, church or chapel, or

(b) a building used only for the purposes of divine worship.

(2) In this section "public revenue dividends" means--

(a) income from securities which is payable out of the public revenue of the United Kingdom or Northern Ireland, or

(b) income from securities issued by or on behalf of a government or a public or local authority in a country outside the United Kingdom.

534 Exemption for transactions in deposits

(1) Profits or gains arising to a charitable trust from the disposal of exempt deposit rights are not taken into account in calculating total income.

(2) Subsection (1) applies so far as the profits or gains are applied to charitable purposes only.

(3) For the purposes of this section, the exercise of an exempt deposit right is a disposal of it, except so far as the right is a right to receive interest.

(4) In this section "exempt deposit rights" means--

(a) a right to receive, with or without interest, a principal amount stated in, or determined in accordance with, the current terms of issue of an eligible debt security, where in accordance with those terms the issue of uncertificated units of the eligible debt security corresponds to the issue of a certificate of deposit,

(b) a right to receive the principal amount stated in a certificate of deposit, with or without interest, and

(5) In this section--

"eligible debt security" has the meaning given in regulation 3(1) of the Uncertificated Securities Regulations 2001 (S.I. 2001/3755),
"uncertificated", in relation to a unit, has the meaning given in regulation 3(1) of the Uncertificated Securities Regulations 2001,
"uncertificated right" means a right in respect of which no certificate of deposit has been issued, although the person for the time being entitled to it is entitled to call for the issue of such a certificate, and
"unit" has the meaning given in regulation 3(1) of the Uncertificated Securities Regulations 2001.

535 Exemption for offshore income gains

(1) Offshore income gains accruing to a charitable trust are not taken into account in calculating total income.

(2) Subsection (1) applies if the gain is applicable and applied to charitable purposes only.

(3) In this section "offshore income gain" has the same meaning as in Chapter 5 of Part 17 of ICTA (offshore funds) (see section 758 of, and Schedule 28 to, that Act).

(4) See section 761(6B) of ICTA, which--

(a) applies where property held on charitable trusts ceases to be subject to charitable trusts, and

(b) provides for any gain accruing under that subsection to be treated as an offshore income gain not accruing to a charity.

536 Exemption for certain miscellaneous income

(1) The income mentioned in subsection (3) is not taken into account in calculating total income if--

(a) it is income of a charitable trust, or

(b) it is required, under an Act, court judgment, charter, trust deed or will, to be applied to charitable purposes only.

(2) Subsection (1) applies so far as the income is applied to charitable purposes only.

(3) The income referred to in subsection (1) is--

(a) royalties and other income from intellectual property that do not fall within Chapter 2 of Part 2 of ITTOIA 2005 (receipts of a trade etc),

(b) income derived from a relevant telecommunication right that is not income falling within Chapter 2 of Part 2 of ITTOIA 2005 (receipts of a trade etc),

(d) relevant foreign distributions.

(4) In this section--

"intellectual property" has the same meaning as in section 579 of ITTOIA 2005,
"relevant foreign distribution" means a distribution of a non-UK resident company which--
(a)
is not chargeable to tax under Chapter 4 of Part 4 of ITTOIA 2005 (dividends from non-UK resident companies), but
(b)
would be chargeable to tax under Chapter 3 of that Part of that Act (dividends etc from UK resident companies etc) if the company were a UK resident company, and
"relevant telecommunication right" has the same meaning as in Chapter 10 of Part 2 of that Act (trade profits: certain telecommunications rights) (see section 146 of that Act).

537 Exemption for income from estates in administration

(1) If the person liable under section 659 of ITTOIA 2005 for any income tax charged under section 649 of that Act (charge to tax on estate income) is the trustee of a charitable trust, the estate income is not taken into account in calculating total income.

(2) Subsection (1) applies so far as the estate income is applied to the purposes of the charitable trust only.

(3) In this section "estate income" has the same meaning as in Chapter 6 of Part 5 of ITTOIA 2005 (beneficiaries' income from estates in administration) (see section 649(2) of that Act).

Claims

538 Requirement to make claim

(1) The exemptions under this Part require a claim.

(2) Subsection (1) does not apply to an exemption under--

(a) section 534 (exemption for transactions in deposits), or

(b) section 535 (exemption for offshore income gains).

(3) The trustees of a charitable trust are treated as having made a claim for any exemption to which they may be entitled under section 521 (gifts entitling donor to gift aid relief) if--

(a) the charitable trust receives a gift as a result of a direction under section 429(2) (giving through self-assessment return), and

(b) as a result of section 429(4), the gift is treated as a qualifying donation for the purposes of Chapter 2 of Part 8 (gift aid).

(4) See section 46C of TMA 1970 and paragraph 10 of Schedule 1A to that Act for provision about the jurisdiction of Special Commissioners over appeals concerning claims for exemption under this Part.

Restrictions on exemptions

539 Restrictions on exemptions

(1) This section applies if a charitable trust has a non-exempt amount for a tax year (see section 540).

(2) The exemptions under this Part do not apply, and are treated as never having applied, to so much of any income of the charitable trust for the tax year as is attributed under section 541 to the non-exempt amount.

(3) Section 256(4) of TCGA 1992 contains corresponding restrictions which apply in relation to section 256(1) of that Act (gains accruing to charities not to be chargeable gains).

540 The non-exempt amount

(1) A charitable trust has a non-exempt amount for a tax year if it has--

(a) non-charitable expenditure for the tax year (amount A), and

(b) attributable income and gains for the tax year (amount B).

(2) The non-exempt amount for the tax year is--

(a) amount A, or

(b) if less, amount B.

(3) For the purposes of this Part--

(a) a charitable trust's "attributable income" for a tax year is the charitable trust's income for the tax year that is exempt from income tax as a result of any of the exemptions under this Part,

(b) a charitable trust's "attributable gains" for a tax year are any gains accruing to the charitable trust in the tax year that as a result of section 261 of TCGA 1992, are not chargeable gains, and

(c) a charitable trust's "attributable income and gains" for a tax year is the sum of its attributable income for the tax year and its attributable gains for the tax year.

(4) In applying subsection (3)(a) ignore any restrictions on the exemptions under this Part which result from section 539(2).

(5) In applying subsection (3)(b) ignore any restriction on the exemption under section 256(1) of TCGA 1992 which results from section 256(4) of that Act.

541 Attributing income to the non-exempt amount

(1) This section applies if a charitable trust has a non-exempt amount for a tax year.

(2) Attributable income of the charitable trust for the tax year may be attributed to the non-exempt amount but only so far as the non-exempt amount has not been used up.

(3) The non-exempt amount can be used up (in whole or in part) by--

(a) attributable income being attributed to it under this section, or

(b) attributable gains being attributed to it under section 256A of TCGA 1992.

(4) The whole of the non-exempt amount must be used up by--

(a) attributable income being attributed to the whole of it under this section,

(b) attributable gains being attributed to the whole of it under section 256A of TCGA 1992, or

(c) a combination of attributable income being attributed to some of it under this section and attributable gains being attributed to the rest of it under section 256A of TCGA 1992.

(5) See section 542 for the way in which income is to be attributed to the non-exempt amount under this section.

542 How income is attributed to the non-exempt amount

(1) This section is about the ways in which attributable income can be attributed to a non-exempt amount under section 541.

(2) The trustees of the charitable trust may specify the attributable income that is to be attributed to the non-exempt amount.

(3) A specification under subsection (2) is made by notice to an officer of Revenue and Customs.

(4) Subsection (6) applies if--

(a) an officer of Revenue and Customs requires the trustees of a charitable trust to make a specification under this section, and

(b) the trustees have not given notice under subsection (3) of the specification before the end of the required period.

(5) The required period is 30 days beginning with the day on which the officer made the requirement.

(6) An officer of Revenue and Customs may determine the attributable income that is to be attributed to the non-exempt amount.

Non-charitable expenditure

543 Meaning of "non-charitable expenditure"

(1) For the purposes of this Part a charitable trust's non-charitable expenditure for a tax year is--

(a) any loss made in the tax year in a trade carried on by the charitable trust unless--

(i) the trade is a charitable trade in relation to the tax year, or

(ii) the trade is not a charitable trade in relation to the tax year but profits of the trade arising in the tax year would be exempt from income tax as a result of one of the exemptions in sections 526, 529 or 530,

(b) any payment made in the tax year by the charitable trust in connection with a trade in circumstances where relief is available under section 96 (post-cessation trade relief) unless--

(i) the trade was a charitable trade in relation to the tax year in which the cessation occurred, or

(ii) the trade was not a charitable trade in relation to that tax year but profits of the trade arising immediately before the cessation would have been exempt from income tax as a result of one of the exemptions in sections 526, 529 or 530,

(c) any loss made in the tax year in a trade, or in a UK property business or an overseas property business, carried on by the charitable trust, if--

(i) the loss relates to land, and

(ii) profits of the trade, or income of the business, generated from the land in the tax year would not be exempt from income tax as a result of the exemptions in section 531,

(d) any payment made in the tax year by the charitable trust in connection with a trade or UK property business in circumstances where relief is available under section 96 or 125 (post-cessation trade or property relief), if--

(i) the payment relates to land, and

(ii) profits of the trade, or income of the business, generated from the land immediately before the cessation would not have been exempt from income tax as a result of the exemptions in section 531,

(e) any loss made in the tax year in a miscellaneous transaction entered into by the charitable trust otherwise than in the course of carrying out a charitable purpose,

(f) any expenditure incurred by the charitable trust in the tax year, not falling within paragraphs (b) or (d), which is not incurred for charitable purposes only and is not required to be taken into account in calculating--

(i) the profits of, or losses made in, any trade, UK property business or overseas property business carried on by the charitable trust, or

(ii) the profit or loss made in any miscellaneous transaction entered into by the charitable trust,

(g) any payment made in the tax year by the charitable trust to a substantial donor which is treated under section 551(1) or (5) as non-charitable expenditure,

(h) any non-charitable expenditure treated as incurred under section 551(2) as a result of a transaction between the charitable trust and a substantial donor,

(i) the amount of any of the charitable trust's funds that is invested in the tax year in an investment which is not an approved charitable investment (see section 558), and

(j) any amount lent in the tax year by the charitable trust, if the loan is neither an investment nor an approved charitable loan (see section 561).

But anything which falls within more than one of the above paragraphs counts as non-charitable expenditure only once.

(2) An amount may also be non-charitable expenditure for a tax year as a result of section 562 (excess expenditure treated as non-charitable expenditure of earlier years).

(3) This section needs to be read with--

section 525 (meaning of "charitable trade"),
sections 544 to 548 (supplementary provision in relation to this section, in particular in relation to subsection (1)(f), (i) and (j)),
sections 549 to 557 (transactions with substantial donors),
section 558 (approved charitable investments), and
section 561 (approved charitable loans).

544 Section 543: supplementary

(1) This section applies for the purposes of section 543.

(2) For rules about the calculation of losses, see--

(a) section 26 of ITTOIA 2005 (losses of a trade calculated on same basis as profits),

(b) section 272 of that Act (which applies section 26 of that Act, so that losses of a UK property business or overseas property business are calculated on the same basis as profits), and

(3) A transaction is a miscellaneous transaction if it is of such a nature that, if income or gains had arisen from it--

(a) ignoring section 527 (exemption from charges under provisions to which section 1016 applies), it would have been charged to income tax under or by virtue of any provision to which section 1016 applies, and

(b) the trustees of the charitable trust would have been liable for any tax so chargeable.

(4) References to a charitable trust making a loss in a trade in a tax year are to the charitable trust making a loss in the trade in the basis period for the tax year.

545 Section 543(1)(f): meaning of expenditure

(1) For the purposes of section 543(1)(f) "expenditure" includes expenditure of a capital nature.

(2) None of the following is "expenditure" for those purposes--

(a) the investment of any of the charitable trust's funds,

(b) the making of a loan by the charitable trust, or

546 Section 543(1)(f): tax year in which certain expenditure treated as incurred

(1) This section applies for the purposes of section 543(1)(f).

(2) Subsection (3) applies to expenditure which is referable to commitments (whether or not of a contractual nature) that the charitable trust has entered into before or during a tax year.

(3) The expenditure is treated as incurred in the tax year if, had the charitable trust been required to draw up accounts that met the requirements mentioned in subsection (4), the expenditure would have been required to be taken into account in preparing those accounts.

(4) The requirements referred to in subsection (3) are--

(a) that the accounts are drawn up for the tax year, and

(b) that UK generally accepted accounting practice applies with respect to them.

547 Section 543(1)(f): payment to body outside the UK

A payment made, or to be made, to a body situated outside the United Kingdom is non-charitable expenditure under section 543(1)(f) if--

(a) it is incurred for charitable purposes only, but

(b) the trustees of the charitable trust have not taken such steps as are reasonable in the circumstances to ensure that the payment will be applied for charitable purposes.

548 Section 543(1)(i) and (j): investments and loans

(1) Subsection (2) applies if in a tax year a charitable trust--

(a) realises the whole or part of an investment which was made in the tax year and is not an approved charitable investment (see section 558), or

(b) is repaid the whole or part of a loan which was made in the tax year and is neither an investment nor an approved charitable loan (see section 561).

(2) Any further investment or lending in the tax year of the sum realised or repaid, so far as it does not exceed the sum originally invested or lent, is not non-charitable expenditure as a result of section 543(1)(i) or (j).

Substantial donor transactions

549 Transactions with substantial donors

(1) For the purposes of this section and sections 551 to 553, "substantial donor transaction" means any of the following--

(a) the sale or letting of property by a charitable trust to a substantial donor,

(b) the sale or letting of property to a charitable trust by a substantial donor,

(d) the provision of services to a charitable trust by a substantial donor,

(e) an exchange of property between a charitable trust and a substantial donor,

(f) the provision of financial assistance by a charitable trust to a substantial donor,

(g) the provision of financial assistance to a charitable trust by a substantial donor, and

(h) investment by a charitable trust in the business of a substantial donor.

(2) For the purposes of this section and sections 551 to 553, a person is a substantial donor to a charitable trust for a tax year if--

(a) the charitable trust receives relievable gifts of at least £25,000 from the person in a period of 12 months in which the tax year wholly or partly falls, or

(b) the charitable trust receives relievable gifts of at least £100,000 from the person in a period of six years in which the tax year wholly or partly falls.

(3) If a person is a substantial donor to a charitable trust for a tax year as a result of subsection (2)(a) or (b), the person is a substantial donor to the charitable trust for each of the following five tax years.

(4) A transaction entered into in a tax year with a person who is a substantial donor for that year may be a substantial donor transaction, even if it was not until after the transaction was entered into that the person first met the definition of "substantial donor" for the tax year.

550 Meaning of "relievable gift"

A gift is a "relievable gift" for the purposes of section 549(2) if relief is available in respect of it under--

(a) section 83A of ICTA (gifts in kind),

(b) section 339 of ICTA (donations by companies),

-- Back --

Stat