Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
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Other Bills before Parliament

Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 4 — Certain telecommunication rights: non-trading income
265

(2)
See sections 612 and 613 for provision about the calculation of the amount of
income charged under this Chapter.
(3)
This section is subject to Part 8 (foreign income: special rules).
611
Person liable
The person liable for any tax charged under this Chapter is the person
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receiving or entitled to the income.
612
Calculation of income
(1)
This section applies for calculating the amount of income charged under this
Chapter.
(2)
Expenses wholly and exclusively incurred for the purpose of generating the
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income are deductible.
(3)
If an expense is incurred for more than one purpose, a deduction may be made
for any identifiable part or identifiable proportion of the expense which is
incurred wholly and exclusively for the purpose of generating the income.
(4)
Expenses which would not have been allowable as a deduction in calculating
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the profits of a trade, if they had been incurred for its purposes, are not
deductible under this section.
(5)
Expenses for which any kind of relief is given under any other provision of the
Income Tax Acts are not deductible under this section.
(6)
Any relief given as a result of section 613 is additional to the relief under this
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section.
613
Application of trading income rules to non-trade businesses
The provisions of Chapter 9 of Part 2 apply in relation to non-trade businesses
as they apply in relation to trades but as if—
(a)
references to a basis period were to a tax year, and
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(b)
references to anything not constituting trading stock of a trade were
omitted.
Chapter 4
Certain telecommunication rights: non-trading income
614
Charge to tax on certain telecommunication rights of a non-trader
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(1)
Income tax is charged on income derived from a relevant telecommunication
right that is not used or held for the purposes of a trade, profession or vocation.
(2)
“Relevant telecommunication right” has the same meaning as in Chapter 10 of
Part 2 (see section 146).
615
Income charged
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(1)
Tax is charged under this Chapter on the full amount of the income arising in
the tax year.

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 4 — Certain telecommunication rights: non-trading income
266

(2)
See section 617 for provision about the calculation of the amount of certain
income charged under this Chapter.
(3)
This section is subject to Part 8 (foreign income: special rules).
616
Person liable
The person liable for any tax charged under this Chapter is the person
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receiving or entitled to the income.
617
Deductions in calculating certain income charged
(1)
This section applies for calculating the amount of income charged under this
Chapter other than annual payments.
(2)
The following sections apply as they apply for the purpose of calculating the
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profits of a trade, profession or vocation—
(a)
section 147 (expenditure and receipts in respect of relevant
telecommunication rights treated as revenue in nature), and
(b)
section 148 (credits or debits arising from revaluation in respect of
relevant telecommunication rights).
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(3)
Expenses wholly and exclusively incurred for the purpose of generating the
income are deductible.
(4)
If an expense is incurred for more than one purpose, a deduction may be made
for any identifiable part or identifiable proportion of the expense which is
incurred wholly and exclusively for the purpose of generating the income.
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(5)
Expenses which would not have been allowable as a deduction in calculating
the profits of a trade, if they had been incurred for its purposes, are not
deductible under this section.
(6)
Expenses for which any kind of relief is given under any other provision of the
Income Tax Acts are not deductible under this section.
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(7)
The frequency with which payments are made is ignored in determining
whether they are annual payments for the purposes of this Chapter.
618
Payments received after deduction of tax
Income tax deducted under either of the following sections from an annual
payment within this Chapter is treated as income tax paid by the recipient—
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section 348(1)(b) of ICTA (under which income tax may be deducted from
some payments by the payer), and
section 349(1)(a) of ICTA (under which income tax must be deducted from
some payments by the payer).

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 5 — Settlements: amounts treated as income of settlor
267

Chapter 5
Settlements: amounts treated as income of settlor
Charge to tax under Chapter 5
619
Charge to tax under Chapter 5
(1)
Income tax is charged on—
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(a)
income which is treated as income of a settlor as a result of section 624
(income where settlor retains an interest),
(b)
income which is treated as income of a settlor as a result of section 629
(income paid to unmarried minor children of settlor),
(c)
capital sums which are treated as income of a settlor as a result of
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section 633 (capital sums paid to settlor by trustees of settlement), and
(d)
capital sums which are treated as income of a settlor as a result of
section 641 (capital sums paid to settlor by body connected with
settlement).
(2)
The charge on the settlor under subsection (1)(a) or (b) above operates on
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distribution income by treating the income as if it were income to which section
1A of ICTA (application of lower rate to income from savings and
distributions) applies as a result of subsection (2)(b) of that section (income
chargeable under Chapter 3, 5 or 6 of Part 4: dividends etc. from UK resident
companies etc. and release of loan to participator in close company).
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(3)
In subsection (2) “distribution income” means income which represents
income received by the trustees of the settlement, or any other person to whom
it is payable, which is—
(a)
income chargeable under Chapter 3 of Part 4 (dividends etc. from UK
resident companies etc.),
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(b)
income chargeable under Chapter 4 of Part 4 (dividends from non-UK
resident companies),
(c)
income chargeable under Chapter 5 of Part 4 (stock dividends from UK
resident companies),
(d)
income chargeable under Chapter 6 of Part 4 (release of loan to
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participator in close company), or
(e)
a relevant foreign distribution chargeable under Chapter 8 of this Part
(income not otherwise charged).
(4)
In subsection (3) “relevant foreign distribution” means any distribution of a
non-UK resident company which—
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(a)
is not chargeable under Chapter 4 of Part 4, but
(b)
would be chargeable under Chapter 3 of that Part if the company were
UK resident.
620
Meaning of “settlement” and “settlor”
(1)
In this Chapter—
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“settlement” includes any disposition, trust, covenant, agreement,
arrangement or transfer of assets (except that it does not include a
charitable loan arrangement), and

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 5 — Settlements: amounts treated as income of settlor
268

“settlor”, in relation to a settlement, means any person by whom the
settlement was made.
(2)
A person is treated for the purposes of this Chapter as having made a
settlement if the person has made or entered into the settlement directly or
indirectly.
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(3)
A person is, in particular, treated as having made a settlement if the person—
(a)
has provided funds directly or indirectly for the purpose of the
settlement,
(b)
has undertaken to provide funds directly or indirectly for the purpose
of the settlement, or
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(c)
has made a reciprocal arrangement with another person for the other
person to make or enter into the settlement.
(4)
This Chapter applies to settlements wherever made.
(5)
In this section—
“charitable loan arrangement” means any arrangement so far as it consists
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of a loan of money made by an individual to a charity either—
(a)
for no consideration, or
(b)
for a consideration which consists only of interest, and
“charity” includes each of the bodies mentioned in section 507 of ICTA
(the National Heritage Memorial Fund, the British Museum etc.).
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Income charged and person liable
621
Income charged
Tax is charged under this Chapter on all income and capital sums to which
section 619(1) applies.
622
Person liable
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The person liable for any tax charged under this Chapter is the settlor.
Rules for calculating income
623
Calculation of income
(1)
This section applies for the purpose of calculating the liability to tax of a settlor
charged under this Chapter.
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(2)
The same deductions and reliefs are allowed as would have been allowed if the
amount treated as the settlor’s income as a result of this Chapter had been
received by the settlor as income.
Income treated as income of settlor: retained interests
624
Income where settlor retains an interest
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(1)
Income which arises under a settlement is treated for income tax purposes as
the income of the settlor and of the settlor alone if it arises—

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 5 — Settlements: amounts treated as income of settlor
269

(a)
during the life of the settlor, and
(b)
from property in which the settlor has an interest.
(2)
For more on a settlor having an interest in property, see section 625.
(3)
For exceptions to the rule in subsection (1), see—
section 626 (exception for outright gifts between spouses),
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section 627 (exceptions for certain types of income), and
section 628 (exception for gifts to charities).
625
Settlor’s retained interest
(1)
A settlor is treated for the purposes of section 624 as having an interest in
property if there are any circumstances in which the property or any related
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property—
(a)
is payable to the settlor or the settlor’s spouse,
(b)
is applicable for the benefit of the settlor or the settlor’s spouse, or
(c)
will, or may, become so payable or applicable.
(2)
Subsection (1) does not apply if the only circumstances are one or more of—
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(a)
the bankruptcy of a person who is, or may become, beneficially entitled
to the property or any related property,
(b)
the assignment of the property or any related property by such a
person,
(c)
the charging of (or, in Scotland, the granting of a right in security over)
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the property or any related property by such a person,
(d)
in the case of a marriage settlement, the death of both parties to the
marriage and of all or any of the children of the marriage, and
(e)
the death of a child of the settlor who had become beneficially entitled
to the property or any related property at not more than 25 years old.
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(3)
Subsection (1) does not apply if—
(a)
there are no circumstances in which the property or any related
property can become payable or applicable as mentioned in that
subsection during the life of a person other than—
(i)
the bankruptcy of the person, or
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(ii)
the assignment or charging of the person’s interest in the
property or any related property, and
(b)
the person is alive and under 25 years old.
(4)
In subsection (1) “the settlor’s spouse” does not include—
(a)
a spouse from whom the settlor is separated under an order of a court
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or a separation agreement,
(b)
a spouse from whom the settlor is separated where the separation is
likely to be permanent,
(c)
the widow or widower of the settlor, or
(d)
a person to whom the settlor is not married but may later marry.
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(5)
In this section “related property”, in relation to any property, means income
from that property or any other property directly or indirectly representing
proceeds of, or of income from, that property or income from it.