Income Tax Act 2007 (c. 3)

(The document as of February, 2008)

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(3) If an individual is entitled to a tax reduction under subsection (1), the tax reduction to which the individual's spouse or civil partner is entitled under section 45 or 46 is calculated for the tax year as if the appropriate amount were reduced by half the minimum amount.

(4) In subsection (3) "the appropriate amount" means--

(a) if the individual's spouse is entitled to a tax reduction under section 45, the amount specified in section 45(3)(a) or (b) (as applicable), after any reductions under section 45(4) and 54(2), or

(b) if the individual's spouse or civil partner is entitled to a tax reduction under section 46, the amount specified in section 46(3)(a) or (b) (as applicable), after any reductions under sections 46(4) and 54(2).

48 Joint election to transfer relief under section 45 or 46

(1) If--

(a) an individual's spouse or civil partner is entitled to a tax reduction under section 45 or 46 for a tax year, and

(b) the conditions set out in subsection (2) are met,

the individual is entitled to a tax reduction for that tax year of 10% of the minimum amount.

(2) The conditions are that--

(a) the individual and the individual's spouse or civil partner have made a joint election which is in force for the tax year,

(b) the individual makes a claim, and

(4) In subsection (3) "the appropriate amount" means--

(a) if the individual's spouse is entitled to a tax reduction under section 45, the amount specified in section 45(3)(a) or (b) (as applicable), after any reductions under section 45(4) and 54(2), or

49 Election for partial transfer back of relief

(1) If an individual whose spouse or civil partner is entitled under section 48(1) to a tax reduction for a tax year--

(a) has made an election which is in force for the tax year, and

(b) makes a claim,

the individual is entitled to a tax reduction for that tax year of 10% of half the minimum amount (in addition to any tax reduction to which the individual is entitled under section 45 or 46).

(2) The amount of the tax reduction to which the individual's spouse or civil partner is entitled under section 48(1) for that tax year is 10% of half the minimum amount (instead of 10% of the minimum amount).

50 Procedure for making and withdrawing elections under sections 47 to 49

(1) This section applies to elections under sections 47 to 49.

(2) An election--

(a) must, except in the cases dealt with by subsection (3), be made before the first tax year in which it is to be in force, and

(b) continues in force in each subsequent tax year until it is withdrawn.

(3) An election--

(a) may be made in the first tax year in which it is to be in force if that is the tax year in which the marriage takes place or the civil partnership is formed, and

(b) may be made in the first 30 days of the first tax year in which it is to be in force if appropriate notice is given before the tax year.

(4) In subsection (3), "appropriate notice" means notice given to an officer of Revenue and Customs by the individual or (in the case of a joint election) individuals concerned that it is intended to make the election.

(5) An election may be withdrawn only by--

(a) a notice given by the individual or individuals by whom the election was made, or

(b) a subsequent election under section 47, 48 or 49.

(6) If an election is withdrawn under subsection (5)(a), the withdrawal does not have effect until the tax year after the one in which the notice is given.

(7) A notice under subsection (5)(a)--

(a) must be given to an officer of Revenue and Customs, and

(b) must be in the form specified by the Commissioners for Her Majesty's Revenue and Customs.

Transfer of unused relief

51 Transfer of unused relief

(1) If--

(a) an individual's spouse or civil partner is entitled to a tax reduction under section 45 or 46 for a tax year,

(b) the spouse or civil partner's MCA tax reductions are greater than the spouse or civil partner's comparable tax liability, and

the individual is entitled to a tax reduction for that tax year equal to the unused part of the spouse or civil partner's MCA tax reductions.

(2) The spouse or civil partner's MCA tax reductions are the sum of--

(a) the tax reduction to which the spouse or civil partner is entitled under section 45 or 46, and

(b) any tax reduction under section 49 to which the spouse or civil partner is entitled for the tax year.

(3) The unused part of the spouse or civil partner's MCA tax reductions is equal to--

(a) the spouse or civil partner's MCA tax reductions, less

(b) the spouse or civil partner's comparable tax liability.

(4) The conditions are that--

(a) the spouse or civil partner gives notice to an officer of Revenue and Customs that subsection (1) is to apply for the tax year,

(b) the individual makes a claim, and

(5) The tax reduction to which the individual is entitled under subsection (1) is in addition to any tax reduction to which the individual is entitled under section 47 or 48.

(6) The meaning of "comparable tax liability" is given in section 53.

52 Transfer back of unused relief

(1) If--

(a) an individual's spouse or civil partner is entitled to a tax reduction under section 47 or 48 for a tax year,

(b) the tax reduction is greater than the spouse or civil partner's comparable tax liability, and

the individual is entitled to a tax reduction for that tax year equal to the unused part of the spouse or civil partner's tax reduction.

(2) The unused part of the spouse or civil partner's tax reduction is equal to--

(a) the tax reduction to which the spouse or civil partner is entitled, less

(b) the spouse or civil partner's comparable tax liability.

(3) The conditions are that--

(a) the spouse or civil partner gives notice to an officer of Revenue and Customs that subsection (1) is to apply for the tax year, and

(b) the individual makes a claim.

(4) The tax reduction to which the individual is entitled under subsection (1) is in addition to any tax reduction to which the individual is entitled under section 45, 46 or 49.

(5) The meaning of "comparable tax liability" is given in section 53.

53 Transfer of unused relief: general

(1) For the purposes of sections 51 and 52, the comparable tax liability of an individual is the amount of the individual's tax left after Step 6 of the calculation in section 23 for the tax year, making that calculation with the modifications set out in subsections (2) and (3).

(2) In making that calculation, do not deduct any tax reduction under--

(a) section 788 of ICTA (double taxation arrangements: relief by agreement), or

(b) section 790(1) of ICTA (relief for foreign tax where there are no double taxation arrangements).

(3) If the individual's entitlement to a tax reduction under this Chapter is extinguished under section 423(4) (gift aid: restriction of reliefs) to any extent, deduct from the amount calculated in accordance with subsections (1) and (2) the amount by which the tax reduction is reduced.

(4) A notice under section 51 or 52--

(a) must be given on or before the fifth anniversary of the normal self-assessment filing date for the tax year to which it relates,

(b) must be in the form specified by the Commissioners for Her Majesty's Revenue and Customs, and

(5) For the purposes of this section a person is treated as being entitled to a tax reduction under section 788 of ICTA if the person is entitled to credit against income tax under double taxation arrangements.

Supplementary

54 Tax reductions in the year of marriage or entry into civil partnership

(1) Subsection (2) applies if an individual--

(a) gets married or enters into a civil partnership in a tax year, and

(b) claims a tax reduction under section 45 or 46 for that tax year.

(2) In calculating the amount of the tax reduction (if any) to which the individual is entitled under that section, the amounts specified in section 45(3) or 46(3) (as applicable) are reduced by one twelfth for each month of the tax year which is a month ending before the date on which--

(a) the marriage took place, or

(b) the civil partnership was formed.

(3) The reference in subsection (2) to the amounts specified in section 45(3) or 46(3) is to those amounts after any reduction under section 45(4) or 46(4).

(4) But if--

(a) the individual has previously been married or in a civil partnership in the same tax year, and

(b) the conditions in section 45(2) or 46(2) are met in relation to the earlier marriage or civil partnership,

subsection (2) applies only if the claim is in respect of the later marriage or civil partnership.

(5) If a claim under section 47, 48 or 49 is for the tax year in which the marriage takes place, or the civil partnership is formed, the references in those sections to the minimum amount are to be read as references to the minimum amount reduced by one twelfth for each month of the tax year which is a month ending before the date on which--

(a) the marriage took place, or

(b) the civil partnership was formed.

(6) In this section, "month" means a period beginning with the sixth day of a calendar month and ending with the fifth day of the next calendar month.

55 Sections 45 to 53: supplementary

(1) An individual is not entitled to more than one tax reduction under sections 45 to 48 for a tax year (regardless of whether the individual is a party to more than one marriage or civil partnership in the tax year).

(2) For the purposes of sections 45 and 46 an individual is treated as having reached the age of 75 in a tax year if the individual was due to reach the age of 75 in the tax year, but dies in the tax year before reaching that age.

(3) Unless this Chapter provides otherwise, a tax reduction to which an individual is entitled under this Chapter for a tax year, including the tax year in which the individual dies, is given in full.

Chapter 4 General

56 Residence etc of claimants

(1) This section applies in relation to an individual who claims--

(a) an allowance under Chapter 2 (personal allowance and blind person's allowance) for a tax year, or

(b) a tax reduction under Chapter 3 (tax reductions for married couples and civil partners) for a tax year.

(2) The individual meets the requirements of this section if the individual--

(a) is UK resident for the tax year, or

(b) meets the condition in subsection (3).

(3) An individual meets the condition in this subsection if, at any time in the tax year, the individual--

(a) is resident in the Isle of Man or the Channel Islands,

(b) has previously resided in the United Kingdom and is resident abroad for the sake of the health of--

(i) the individual, or

(ii) a member of the individual's family who is resident with the individual,

(d) is employed in the service of any territory under Her Majesty's protection,

(e) is employed in the service of a missionary society, or

(f) is a person whose late spouse or late civil partner was employed in the service of the Crown.

57 Indexation of allowances

(1) This section provides for increases in the amounts specified in--

(a) section 35 (personal allowance for those aged under 65),

(b) section 36(1) (personal allowance for those aged 65 to 74),

(d) section 38(1) (blind person's allowance),

(e) section 43 (tax reductions for married couples and civil partners: the minimum amount),

(f) section 45(3)(a) and (b) (marriages before 5 December 2005),

(g) section 46(3)(a) and (b) (marriages and civil partnerships on or after 5 December 2005), and

(h) sections 36(2), 37(2), 45(4) and 46(4) (adjusted net income limit).

(2) It applies if the retail prices index for the September before the start of a tax year is higher than it was for the previous September.

(3) For the tax year--

(a) the allowances specified in sections 35, 36(1), 37(1), 38(1),

(b) the amounts specified in sections 45(3)(a) and (b) and 46(3)(a) and (b), and

are found as follows.

Step 1

Multiply the allowance, amount or (as the case may be) the minimum amount for the previous tax year by the same percentage as the percentage increase in the retail prices index.

Step 2

If the result of Step 1 is a multiple of £10, it is the increase for the tax year.

If the result of Step 1 is not a multiple of £10, round it up to the nearest amount which is a multiple of £10.

That amount is the increase for the tax year.

Step 3

Add the increase for the tax year to the allowance, amount or (as the case may be) the minimum amount for the previous tax year.

The result is the allowance, amount or (as the case may be) the minimum amount for the tax year.

(4) For the tax year, the adjusted net income limits specified in sections 36(2), 37(2), 45(4) and 46(4) are found as follows.

Step 1

Increase the adjusted net income limit for the previous tax year by the same percentage as the percentage increase in the retail prices index.

Step 2

If the result of Step 1 is a multiple of £100, it is the adjusted net income limit for the tax year.

If the result of Step 1 is not a multiple of £100, round it up to the nearest amount which is a multiple of £100.

That amount is the adjusted net income limit for the tax year.

(5) Subsections (1) to (4) do not require a change to be made in the amounts deductible or repayable under PAYE regulations during the period beginning on 6 April and ending on 17 May in the tax year.

(6) Before the start of the tax year the Treasury must make an order replacing the amounts specified in the provisions listed in subsection (1) with the amounts which, as a result of this section, are the allowances, amounts, the minimum amount and the adjusted net income limits for the tax year.

58 Meaning of "adjusted net income"

(1) For the purposes of Chapters 2 and 3, an individual's adjusted net income for a tax year is calculated as follows.

Step 1

Take the amount of the individual's net income for the tax year.

Step 2

If in the tax year the individual makes, or is treated under section 426 as making, a gift that is a qualifying donation for the purposes of Chapter 2 of Part 8 (gift aid) deduct the grossed up amount of the gift.

Step 3

If the individual is given relief in accordance with section 192 of FA 2004 (relief at source) in respect of any contribution paid in the tax year under a pension scheme, deduct the gross amount of the contribution.

Step 4

Add back any relief under section 457 or 458 (payments to trade unions or police organisations) that was deducted in calculating the individual's net income for the tax year.

The result is the individual's adjusted net income for the tax year.

(2) The grossed up amount of a gift is the amount of the gift grossed up by reference to the basic rate for the tax year.

(3) The gross amount of a contribution is the amount of the contribution before deduction of tax under section 192(1) of FA 2004.

Part 4 Loss relief

Chapter 1 Introduction

59 Overview of Part

(1) This Part provides for income tax relief for--

(a) losses in a trade, profession or vocation (and certain post-cessation payments and events) (see Chapters 2 and 3),

(b) losses in a UK property business or overseas property business (and, in the case of a UK property business, certain post-cessation payments and events) (see Chapter 4),

(d) losses on a disposal of certain shares (see Chapter 6), and

(e) losses in certain miscellaneous transactions (see Chapter 7).

(2) This Part needs to be read with Chapter 3 of Part 2 (calculation of income tax liability).

(3) For rules about the calculation of losses for the purposes of this Part, see--

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

(b) section 272 of ITTOIA 2005 (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),

(d) section 872 of ITTOIA 2005 (losses from miscellaneous transactions calculated on same basis as miscellaneous income).

Chapter 2 Trade losses

Introduction

60 Overview of Chapter

(1) This Chapter--

(a) provides for trade loss relief against general income (see sections 64 to 70),

(b) provides for early trade losses relief (see sections 72 to 74),

(d) provides for carry-forward trade loss relief (see sections 83 to 88),

(e) provides for terminal trade loss relief (see sections 89 to 94),

(f) contains restrictions on the above reliefs for trades, professions and vocations carried on wholly outside the United Kingdom (see section 95), and

(g) provides for post-cessation trade relief (see sections 96 to 100).

(2) This Chapter is subject to paragraph 2 of Schedule 1B to TMA 1970 (claims for loss relief involving two or more years).

(3) For a rule treating an individual as starting or permanently ceasing to carry on a trade, profession or vocation for income tax purposes (including those of this Part), see--

(a) section 17 of ITTOIA 2005 (effect of becoming or ceasing to be a UK resident), and

(b) section 852(6) and (7) of ITTOIA 2005 (corresponding rule in the case of a trade or profession carried on by a firm).

(4) For the purposes of this Chapter sideways relief is--

(a) trade loss relief against general income, or

(b) early trade losses relief.

(5) References in this Chapter to a firm are to be read in the same way as references to a firm in Part 9 of ITTOIA 2005 (which contains special provision about partnerships).

61 Non-partners: losses of a tax year

(1) This section applies if a trade, profession or vocation is carried on by a person otherwise than as a partner in a firm.

(2) For the purposes of this Chapter any reference to the person making a loss in the trade, profession or vocation in a tax year is to the person making a loss in the trade, profession or vocation in the basis period for the tax year.

(3) This section is subject to section 70 (restriction on trade loss relief against general income in case of farming or market gardening).

(4) For the rules about basis periods, see Chapter 15 of Part 2 of ITTOIA 2005.

(5) In particular, see the rule in section 206 of ITTOIA 2005 (restriction on bringing losses into account twice).

62 Partners: losses of a tax year etc

(1) This section applies if a trade or profession is carried on by a person as a partner in a firm.

(2) Any reference to a person making a loss in a trade or profession in a tax year is to the partner making a loss in the partner's notional trade in the basis period for the tax year (as to which, see sections 852 and 853 of ITTOIA 2005).

(3) Further--

(a) any reference to a person making a claim for relief for a loss made in a trade or profession is to the partner making a claim for relief for a loss made in the partner's notional trade,

(b) any reference to a basis period for a tax year is to the basis period for the partner's notional trade for the tax year,

(c) any reference to the profits or losses of a partner's notional trade of a tax year is to the partner's share of the firm's profits or losses of the trade or profession treated for the purposes of Chapter 15 of Part 2 of ITTOIA 2005 as the profits or losses of the partner's notional trade in the basis period for the tax year,

(d) any reference to a person starting to carry on a trade or profession is to the partner starting to carry on the notional trade in accordance with section 852(2) or (3) of ITTOIA 2005, and

(e) any reference to a person permanently ceasing to carry on a trade or profession is to the partner permanently ceasing to carry on the notional trade in accordance with section 852(4) to (6) of ITTOIA 2005.

(4) In this section a partner's "notional trade" has the same meaning as in Part 9 of ITTOIA 2005.

(5) This section applies for the purposes of this Chapter and Chapter 3, except that it does not apply for the purposes of section 67(2) or sections 68 to 70 (restriction on trade loss relief against general income in case of farming or market gardening).

63 Prohibition against double counting

If relief is given under any provision of this Chapter for a loss or part of a loss, relief is not to be given for--

(a) the same loss, or

(b) the same part of the loss,

under any other provision of this Chapter or of the Income Tax Acts.

Trade loss relief against general income

64 Deduction of losses from general income

(1) A person may make a claim for trade loss relief against general income if the person--

(a) carries on a trade in a tax year, and

(b) makes a loss in the trade in the tax year ("the loss-making year").

(2) The claim is for the loss to be deducted in calculating the person's net income--

(a) for the loss-making year,

(b) for the previous tax year, or

(See Step 2 of the calculation in section 23.)

(3) If the claim is made in relation to both tax years, the claim must specify the tax year for which a deduction is to be made first.

(4) Otherwise the claim must specify either the loss-making year or the previous tax year.

(5) The claim must be made on or before the first anniversary of the normal self-assessment filing date for the loss-making year.

(6) Nothing in this section prevents a person who makes a claim specifying a particular tax year in respect of a loss from making a further claim specifying the other tax year in respect of the unused part of the loss.

(7) This section applies to professions and vocations as it applies to trades.

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

(a) section 65 (how relief works),

(b) sections 66 to 70 (restrictions on the relief),

(d) section 80 (restrictions on those reliefs in relation to ring fence income),

(e) section 81 (restrictions on those reliefs in relation to dealings in commodity futures), and

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