Income Tax (Trading and Other Income) Bill

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Session 2004 - 05
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Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
439

268
In section 657(2)(a) (purchased life annuities to which section 656 does not
apply) for “Tax Acts” substitute “Corporation Tax Acts”.
269   (1)
Amend section 658 (supplementary provisions about purchased life
annuities) as follows.
      (2)
In subsection (5)—
5
(a)
for “If any person” substitute “Any person who”, and
(b)
omit “for himself or for any other person” and “, he”.
      (3)
After subsection (5) insert—
“(6)
It does not matter for whom that relief or repayment is to be
obtained.”
10
270
Omit sections 660A and 660B (income arising under settlement where settlor
retains an interest and payments to unmarried minor children of settlor).
271   (1)
Amend section 660C (nature of charge on settlor) as follows.
      (2)
Omit subsections (1) to (2).
      (3)
In subsection (3)—
15
(a)
for “this Chapter” substitute “section 624 or 629 of ITTOIA 2005
(income where settlor retains an interest or income paid to
unmarried minor children of settlor)”, and
(b)
for “this section” substitute “section 619 of that Act (charge to tax
under Chapter 5 of Part 5 of that Act) so far as relating to income so
20
treated”.
      (4)
After subsection (3) insert—
“(4)
Income which is treated for income tax purposes as the income of the
settlor alone by virtue of section 624 or 629 of ITTOIA 2005 is
accordingly not the income of any company for corporation tax
25
purposes.”
272
Omit sections 660D to 660G (settlements: supplementary provisions etc.).
273
Omit section 677 (sums paid to settlor otherwise than as income).
274
Omit section 678 (capital sums paid by body connected with settlement).
275
Omit sections 682 and 682A (ascertainment of undistributed income and
30
supplementary provisions for Chapter 1B).
276   (1)
Amend section 686 (accumulation and discretionary trusts: special rates of
tax) as follows.
      (2)
In subsection (1) for “Schedule F” substitute “dividend”.
      (3)
In subsection (1AA)(a)—
35
(a)
for “Schedule F”, in the first place where it occurs, substitute
“distribution”, and
(b)
for “Schedule F”, in the second place where it occurs, substitute
“dividend”.
      (4)
In subsection (1A) for “Schedule F” substitute “dividend”.
40
      (5)
In subsection (2AA) for “Schedule F” substitute “dividend”.

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
440

      (6)
In subsection (5A) for ““Schedule F type” substitute ““distribution type” and
for paragraphs (a) to (g) substitute—
“(a)
income chargeable under Chapter 3 of Part 4 of ITTOIA 2005
(dividends etc. from UK resident companies etc.);
(b)
income chargeable under Chapter 4 of that Part (dividends
5
from non-UK resident companies);
(c)
income treated as arising to the trustees under Chapter 5 of
that Part (stock dividends from UK resident companies);
(d)
income chargeable under Chapter 6 of that Part (release of
loan to participator in close company);
10
(e)
a relevant foreign distribution chargeable under Chapter 8 of
Part 5 of that Act (income not otherwise charged); or
(f)
any amount which, by virtue of section 686A of this Act, is
treated for the purposes of the Tax Acts as if it were income
to which this section applies.”
15
      (7)
After that subsection insert—
“(5B)
In subsection (5A) “relevant foreign distribution” means any
distribution of a company not resident in the United Kingdom
which—
(a)
is not chargeable under Chapter 4 of Part 4 of ITTOIA 2005,
20
but
(b)
would be chargeable under Chapter 3 of that Part if the
company were resident in the United Kingdom.”
      (8)
In subsection (6) for “Part XVI” substitute “Chapter 6 of Part 5 of ITTOIA
2005”.
25
277   (1)
Amend section 687 (payments under discretionary trusts) as follows.
      (2)
In subsection (1)(b) for “section 660B” substitute “section 629 of ITTOIA 2005
(income paid to unmarried minor children of settlor)”.
      (3)
In subsection (3)(a) for “Schedule F” substitute “dividend”.
      (4)
In subsection (3)(a1)—
30
(a)
for “Schedule F”, in the first two places where it occurs, substitute
“dividend”, and
(b)
for “Schedule F”, in the third place where it occurs, substitute
“Chapter 3 of Part 4 of ITTOIA 2005 (dividends etc. from UK resident
companies etc.)”.
35
      (5)
In subsection (3)(a2)—
(a)
for “233(1A)” substitute “399 of ITTOIA 2005 (non-UK residents
other than eligible non-UK residents receiving qualifying
distributions)”, and
(b)
for “Schedule F”, in both places where it occurs, substitute
40
“dividend”.
      (6)
In subsection (3)(aa)—
(a)
for “233(1B)” substitute “400 of that Act (non-qualifying
distributions)”, and
(b)
for “Schedule F”, in both places where it occurs, substitute
45
“dividend”.

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
441

      (7)
In paragraphs (b), (bb) and (bc) of subsection (3) for “Schedule F”, in each
place where it occurs, substitute “dividend”.
      (8)
In subsection (3)(b) for “section 249(6)” substitute “section 410(3) of ITTOIA
2005 (when stock dividend income arises)”.
      (9)
In subsection (3)(bb) for “section 421(1)(a)” substitute “416(3) of ITTOIA 2005
5
(income charged on release of loan to participator in close company)”.
     (10)
In subsection (3) after paragraph (k) insert—
“(l)
the amount of any tax on an amount which is treated as
income of the trustees by virtue of Chapter 8 of Part 4 of
ITTOIA 2005 (profits from deeply discounted securities) and
10
is charged to tax at the rate applicable to trusts by virtue of
section 457of that Act.”
278
Omit section 688 (schemes for employees and directors to acquire shares).
279   (1)
Amend section 689B (order in which expenses to be set against income: trust
management expenses) as follows.
15
      (2)
In subsection (2) for paragraphs (za) to (c) substitute—
“(a)
so much of the income of the trustees as is income chargeable
under Chapter 3 of Part 4 of ITTOIA 2005 (dividends etc.
from UK resident companies etc.);
(b)
income treated as arising to the trustees under Chapter 5 of
20
that Part (stock dividends from UK resident companies); or
(c)
income chargeable under Chapter 6 of that Part (release of
loan to participator in close company).”
      (3)
In subsection (2A) for “income to which section 1A applies” to the end
substitute “—
25
(a)
income chargeable under Chapter 4 of Part 4 of ITTOIA 2005
(dividends from non-UK resident companies); or
(b)
a relevant foreign distribution chargeable under Chapter 8 of
Part 5 of that Act (income not otherwise charged).”
      (4)
After that subsection insert—
30
“(2B)
In subsection (2A) “relevant foreign distribution” means any
distribution of a company not resident in the United Kingdom
which—
(a)
is not chargeable under Chapter 4 of Part 4 of ITTOIA 2005,
but
35
(b)
would be chargeable under Chapter 3 of that Part if the
company were resident in the United Kingdom.”
280
In section 691(2)(b)(ii) (certain income not to be income of settlor etc.) for
“section 677” substitute “section 633 of ITTOIA 2005 (capital sums paid to
settlor by trustees of settlement)”.
40
281
In section 692(1) (reimbursement of settlor) for “Schedule A business”
substitute “UK property business”.
282
In section 694(3) (trustees chargeable to income tax in certain cases at higher
rate reduced by rate applicable to trusts) for “Chapter IA of this Part”
substitute “section 624 or 629 of ITTOIA 2005 (income where settlor retains
45

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
442

an interest in settlement or income paid to unmarried minor children of
settlor)”.
283   (1)
Amend section 695 (estates of deceased persons in course of administration:
limited interests in residue) as follows.
      (2)
In subsection (1) for “person who” substitute “company which”.
5
      (3)
In subsection (2)—
(a)
for “all tax” substitute “corporation tax”,
(b)
for “person” substitute “company”, and
(c)
for “year of assessment”, in both places where it occurs, substitute
“accounting period”.
10
      (4)
In subsection (3)—
(a)
for “all tax” substitute “corporation tax”,
(b)
for “person” substitute “company”,
(c)
for “year of assessment”, in both places where it occurs, substitute
“accounting period”, and
15
(d)
for “that period” substitute “the administration period”.
      (5)
In subsection (4)—
(a)
for “person” substitute “company”,
(b)
for “for any year” substitute “for any accounting period”,
(c)
in paragraph (a) for “that year” substitute “the relevant year of
20
assessment”, and
(d)
in paragraph (b), omit the words from “and shall” to the end of the
paragraph.
      (6)
In subsection (5)—
(a)
for “person” substitute “company”,
25
(b)
for “income tax for any year” substitute “corporation tax for any
accounting period”,
(c)
for “him”, in both places where it occurs, substitute “it”, and
(d)
for “that year” substitute “the relevant year of assessment”.
      (7)
In subsection (6)—
30
(a)
for “he” substitute “the company”,
(b)
for “to income tax” substitute “to corporation tax”, and
(c)
omit “, for the purpose of computing his total income,”.
      (8)
After subsection (6) insert—
“(7)
In this section “the relevant year of assessment”, in relation to an
35
amount deemed to have been paid to a company as income for an
accounting period by virtue of this section, means the year of
assessment for which the amount would have been deemed to have
been paid as income if references to accounting periods in
subsections (2) and (3) were references to years of assessment.”
40
284   (1)
Amend section 696 (absolute interests in residue) as follows.
      (2)
In subsection (1) for “person who” substitute “company which”.
      (3)
In subsection (2)—
(a)
for “person”, wherever it occurs, substitute “company”, and

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
443

(b)
at the end add “; and references to the residuary income of a
company for an accounting period are to be construed in accordance
with subsection (8)”.
      (4)
In subsection (3)—
(a)
for “all tax” substitute “corporation tax”,
5
(b)
for “person” substitute “company”, and
(c)
for “year of assessment” substitute “accounting period”.
      (5)
In subsection (3A)—
(a)
for “person”, in both places where it occurs, substitute “company”,
(b)
at the end of paragraph (b) insert “(whether or not the company was
10
a company liable to corporation tax at the time of payment)”, and
(c)
for “year of assessment” substitute “accounting period”.
      (6)
In subsection (3B) for—
(a)
“person”, in both places where it occurs,
(b)
“year of assessment”, in both places where it occurs,
15
(c)
“years of assessment”,
(d)
“each year”,
(e)
“his”, in both places where it occurs, and
(f)
“that year”, wherever it occurs in paragraph (a) and (b),

substitute “company”, “accounting period”, “accounting periods”, “each
20
accounting period”, “its” and “that accounting period” respectively.
      (7)
In subsection (4) for “person”, “any year” and “that year” substitute
“company”, “any accounting period” and “that accounting period”
respectively.
      (8)
In subsection (5) for—
25
(a)
“person”, in both places where it occurs, and
(b)
“year of assessment”,

substitute “company” and “accounting period” respectively.
      (9)
In subsection (6)—
(a)
for “person” substitute “company”,
30
(b)
for “year” substitute “accounting period”, and
(c)
omit the words from “and shall” to the end of the subsection.
     (10)
In subsection (7) for—
(a)
“person”,
(b)
“income tax for any year”,
35
(c)
“that year”, and
(d)
“him”, in both places where it occurs,

substitute “company”, “corporation tax for any accounting period”, “the
relevant year of assessment” and “it” respectively.
     (11)
In subsection (8) omit the words from the beginning to “this section”.
40
     (12)
After subsection (8) insert—
“(9)
In subsection (7) “the relevant year of assessment”, in relation to an
amount deemed to have been paid to a company as income for an
accounting period by virtue of this section, means the year of

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
444

assessment for which the amount would have been deemed to have
been paid as income if references in subsections (3) to (6) to
accounting periods were references to years of assessment.”
285   (1)
Amend section 697 (supplementary provisions as to absolute interests in
residue) as follows.
5
      (2)
In subsection (2)—
(a)
for “person”, in both places, substitute “company”, and
(b)
for “his”, in both places where it occurs, substitute “its”.
      (3)
In subsection (4), omit the words from “, and the residuary income” to the
end of the subsection.
10
      (4)
After that subsection insert—
“(5)
If the amount resulting from the computation mentioned in
subsection (4) is greater than the total amount of the reduction which
can be made under subsection (2), the share of the residuary income
of the estate of the last previous holder of the interest for the last year
15
in which that person had that interest is to be reduced, and so on.”
286   (1)
Amend section 698 (special provisions as to certain interests in residue) as
follows.
      (2)
In subsection (1B)(c)(ii) for “year of assessment” substitute “accounting
period”.
20
      (3)
In subsection (2)(b) “year” substitute “accounting period”.
      (4)
In subsection (3)—
(a)
for “all tax” substitute “corporation tax”, and
(b)
for “year of assessment” substitute “accounting period”.
      (5)
After subsection (3) insert—
25
“(4)
Subsection (5) applies in any case where—
(a)
successively during the administration period there are
different persons with absolute interests in the residue of the
estate of a deceased person, or in parts of such a residue, and
(b)
some, but not all are companies liable to corporation tax in
30
respect of income within this Part.
(5)
References in this section—
(a)
to sums deemed to be paid as income for an accounting
period to a person who is not such a company,
(b)
to the residuary income for any accounting period of such a
35
person, or
(c)
to amounts deemed to be paid to such a person as income,

are references to sums that would be so deemed, to the income that
would be such residuary income or, as the case may be, to the
amounts that would be so deemed if the assumptions in subsection
40
(6) were made.
(6)
The assumptions are—
(a)
that each of the persons who is not a company liable to
corporation tax in respect of income within this Part is such a
company, and
45

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
445

(b)
that in the case of each person who is not a company, the
person’s accounting periods correspond with years of
assessment.”
287   (1)
Amend section 698A (taxation of income of beneficiaries at lower rate or at
rates applicable to Schedule F income) as follows.
5
      (2)
In subsection (1) for “Schedule F” substitute “Chapter 3 of Part 4 of ITTOIA
2005 (dividends etc. from UK resident companies etc.)”.
      (3)
In subsection (2)—
(a)
for “Schedule F”, in the first place where it occurs, substitute
“dividend”, and
10
(b)
for “Schedule F”, in the second place where it occurs, substitute
“Chapter 3 of Part 4 of ITTOIA 2005”.
      (4)
In subsection (3)—
(a)
after “section 698(3)” insert “above or of section 662 of ITTOIA 2005
read with section 656(3) or 657(4) of that Act”,
15
(b)
for “Schedule F”, in the first place where it occurs, substitute
“dividend”,
(c)
for “Schedule F”, in the second place where it occurs, substitute
“Chapter 3 of Part 4 of ITTOIA 2005”,
(d)
for “Schedule F”, in the third place where it occurs, substitute
20
“dividend”, and
(e)
for “Schedule F”, in the fourth place where it occurs, substitute
“Chapter 3 of Part 4 of ITTOIA 2005”.
      (5)
In the side-note for “Schedule F” substitute “distribution”.
288
Omit section 699 (relief from higher rate tax for inheritance tax on accrued
25
income).
289   (1)
Amend section 699A (untaxed sums comprised in the income of the estate)
as follows.
      (2)
In subsection (1)(a) for “sections 249(5), 421(2) and 547(1)(c)” substitute
“paragraphs (c) to (e) of section 701(8) below”.
30
      (3)
In subsection (1A)—
(a)
in paragraph (a) for “Schedule F” substitute “Chapter 3 of Part 4 of
ITTOIA 2005 (dividends etc. from UK resident companies etc.)”, and
(b)
omit paragraph (b) and the word “or” immediately preceding it.
      (4)
In subsection (4)—
35
(a)
in paragraph (a) for “section 249(5) or 421(2), at the Schedule F”
substitute “section 701(8)(c) or (d), at the dividend”,
(b)
in paragraph (b) for “section 547(1)(c)” substitute “section 701(8)(e)”,
and
(c)
in paragraph (c) for “Schedule F” substitute “dividend”.
40
      (5)
Omit subsection (6).
290   (1)
Amend section 700 (adjustments and information) as follows.
      (2)
In subsection (1)—
(a)
for “person” substitute “company”,