|Income Tax (Trading and Other Income) Bill - continued||House of Commons|
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Clause 329: Application of Chapter
1368. This clause sets out the circumstances in which an adjustment may arise. It is based on section 64 of FA 2002. The equivalent rule for trades is in clause 227.
Clause 330: Adjustment income and adjustment expense
1369. This clause sets out how to calculate an adjustment and how it is treated for tax purposes. It is based on paragraphs 2, 4, 5 and 6 of Schedule 22 to FA 2002.
1370. Subsection (4) is a cross-reference to the trading income rule about expenses for which a deduction has already been made.
Clause 331: Income charged
1371. This clause sets out the amount charged to tax. In FA 2002 the charge is under Schedule D Case VI. So section 69 of ICTA applies.
Clause 332: Person liable
1372. This clause states who is liable for any tax charged. In FA 2002 the charge is under Schedule D Case VI. So section 59(1) of ICTA applies.
Clause 333: Treatment of adjustment income
1373. This clause sets out the rules for the treatment of adjustment income. It is based on paragraphs 4(2) and 7 of Schedule 22 to FA 2002.
1374. Subsection (3) treats the income as property income for the purpose of loss relief. So any losses of the property business brought forward can be set against the income.
Clause 334: Treatment of adjustment expense
1375. This clause sets out the rules for the treatment of a negative adjustment. It is based on paragraphs 5 and 7 of Schedule 22 to FA 2002.
Chapter 8: Rent receivable in connection with a UK section 12(4) concern
1376. This Chapter charges as property income rent receivable in connection with a section 12(4) concern. It also provides for certain deductions and reliefs to be given from that income.
Clause 335: Charge to tax on rent receivable in connection with a UK section 12(4) concern
1377. This clause charges rent receivable in connection with a UK section 12(4) concern to tax. It is based on section 119(1) of ICTA.
1378. The loss regime in section 392 of ICTA applies to income charged under this Chapter and not the regime in sections 379A and 379B of ICTA.
1379. The charge under Schedule D Case III imposed by section 119(2) of ICTA is not rewritten.
1380. Section 119(2) of ICTA provides for the rent to be taxed under Schedule D Case III if the rent is paid in produce of the concern. If section 119(2) of ICTA does not apply the rent is charged under Schedule D Case VI.
1381. When section 119 of ICTA was introduced as section 34 of FA 1934 the lessee was required to deduct income tax when paying rent to the lessor. This was achieved by treating the rent as a royalty paid in respect of the user of a patent. But it would be impractical to deduct income tax if the rent were paid in kind. So what is now section 119(2) of ICTA charged rent paid in kind under Schedule D Case III. This avoided the requirement to deduct income tax because these rents are not a category of income from which tax is deducted.
1382. Since the requirement to deduct income tax from rents taxable under section 119 of ICTA was repealed by FA 1995 a separate charge on rents paid in kind is no longer required.
Clause 336: Meaning of "rent receivable in connection with a UK section 12(4) concern".
1383. This clause clarifies:
1384. It is based on section 119(1) and (3) of ICTA.
1385. Subsection (1) identifies when rent is receivable in connection with a section 12(4) concern. It uses the language of clause 266(1) (meaning of "generating income from land") to rewrite the phrase "in respect of any land or easement" in section 119(1) of ICTA. Clause 266 is based on paragraph 1(1) of Schedule A (section 15(1) of ICTA). That provision identifies the scope of Schedule A. The approach in clause 336 assumes that the income taxed by section 119 of ICTA would otherwise be taxed under Schedule A.
1386. The justification for this assumption is that section 119 of ICTA can have no application to income that is already taxed under Schedule D Case VI. Neither is there any question that the rent would go untaxed if it were not for section 119 of ICTA. Rents are clearly annual profits or gains as described in Schedule D Case VI of ICTA. The effect of section 119 of ICTA is to take income that would be taxed under Schedule A and tax it under Schedule D. So in identifying the scope of the charge it is possible to use the ordinary property business definitions and avoid the need to rewrite the complicated definitions of "easement" and "rent" in section 119(3) of ICTA.
1387. The clause makes explicit a territorial restriction to the United Kingdom that is implicit in section 119(1) of ICTA. If a section 12(4) concern is located outside the United Kingdom it would be a foreign possession for the purposes of the charge under Schedule D Case V. Any income arising from such a possession would be taxed under Schedule D Case V. Section 119 of ICTA can have no application to income that is already taxed under Schedule D.
1388. Subsection (2) provides that the clause applies also to "dead rents". It is based on section 119(1)(b) of ICTA.
1389. A "dead rent" is usually paid only for the lease of mineral rights. It is a flat rent that is payable whether the minerals are worked or not. The rent is recoverable from the rent due when the minerals are worked. It acts as an economic incentive to work the minerals.
1390. Subsection (3) provides the definition of rent. It is based on section 119(3) of ICTA. As explained in the commentary on subsection (1), this clause is based on the assumption that the rents taxed by section 119 of ICTA would otherwise be taxed under Schedule A. This means it is not necessary to reproduce the definition of "rent" in section 119(3) of ICTA.
Clause 337: Income charged
1391. This clause sets out the amount charged to tax. It is based on section 69 of ICTA.
1392. Subsection (2) is a signpost to the deductions and reliefs that are available against this income.
Clause 338: Person liable
1393. This clause states who is liable for any tax charged. It is based on section 59 of ICTA.
Clause 339: Deduction for management expenses of owner of mineral rights
1394. This clause allows a deduction for the expenses of managing mineral rights. It is based on section 121(1) of ICTA.
1395. Subsection (1) sets out the conditions for the clause to apply. It does not reproduce the condition that the expenses must be incurred "necessarily". See Change 78 in Annex 1.
1396. Subsection (2) provides that a deduction is allowed for the qualifying expenses paid in the tax year. This rewrites the requirement that the expenses are "disbursed" in the tax year.
1397. The relief applies only to rents received from a UK section 12(4) concern. If the income is taxed as income from a UK property business, there is no need for special rules identifying what deductions are allowable. The normal rules apply.
Clause 340: Relief in respect of mineral royalties
1398. This clause provides that only half of the net profit earned in respect of mineral royalties is charged to income tax. It is based on section 122 of ICTA. The other half of the net profits is charged to capital gains tax by section 201 of TCGA.
1399. The provision was introduced in FA 1970 to give relief from the high marginal rates of tax that could arise if the income was liable to betterment levy, surtax and income tax. It has been retained despite the abolition of the first two of those taxes.
1400. Subsection (1) limits the relief to royalties taxed under Chapter 8 of Part 3 of this Bill. If the royalty is not taxed under this Chapter the same relief is given by clause 157 or clause 319.
Clause 341: Meaning of "mineral lease or agreement" and "mineral royalties"
1401. This clause defines various terms used in clause 340. It is based on section 122(5) and (6) of ICTA.
1402. Clause 364 includes a definition of "lease" that applies for the purposes of the property income Part. It is based on section 24 of ICTA, which applies for the purposes of Schedule A in the source legislation. Because the definition applies only for Schedule A in strictness it does not extend to the income taxed under clause 340. But the definition of "mineral lease or agreement" in section 122(6) of ICTA applies to any agreement to win and work minerals in the United Kingdom. Such an agreement would also satisfy the definition in section 24 of ICTA so there is no change in the law.
Clause 342: Extended meaning of "mineral royalties" etc. in Northern Ireland
1403. This clause modifies the definition of "mineral royalties" to deal with the different rules that apply to the ownership of mineral rights in Northern Ireland. It is based on section 122(7) of ICTA.
1404. The right to win, and win and work, most minerals in Northern Ireland is vested in the Department of Enterprise, Trade and Investment (DETI). The DETI will grant licences to work the minerals and make compensatory payments to the former owners of the mineral rights under various Acts of the Northern Ireland Parliament. This clause treats those payments as mineral royalties for the purposes of clause 340.
Clause 343: Power of Board to determine what counts as "mineral royalties"
1405. This clause allows the Board of Inland Revenue to make regulations concerning the application of the relief in clause 340. Any regulations made under this power would apply also to clauses 157 and 319 through clauses 157(3) and 319(3).
Chapter 9 Rent receivable for UK electric-line wayleaves
1406. This Chapter rewrites the Schedule D Case VI charge on rent received in respect of a wayleave granted in the United Kingdom. It is based on section 120 of ICTA.
1407. If a landowner receives rent in respect of a UK electric-line wayleave section 120 of ICTA provides that:
1408. In practice this means that if the landowner carries on a trade on the land the rent can be treated as a trade receipt. See Change 5 in Annex 1. Otherwise the rent is taxed under Schedule D Case VI.
1409. Section 392 of ICTA gives the rules for dealing with Schedule D Case VI losses. In order to preserve that loss regime it is necessary to isolate the income that is currently charged under Schedule D Case VI.
Clause 344: Charge to tax on rent receivable for a UK electric-line wayleave
1410. This clause charges to tax rent receivable for a UK electric-line wayleave to tax. It is based on section 120 of ICTA.
Clause 345: Meaning of "rent receivable for a UK electric-line wayleave"
1411. This clause provides the definition of "rent receivable for a UK electric-line wayleave". It is based on section 120(1) and (5) of ICTA.
1412. Section 120(1) of ICTA identifies the right in respect of which the rent is payable as an "easement". Section 120(5) of ICTA cross-refers to the definition of "easement" in section 119(3) of ICTA. Section 119 of ICTA is rewritten as Chapter 8 of this Part. As explained in the commentary on clause 22 both this Chapter and clause 22 use the term "wayleave" to describe the right in respect of which the rent is received. In practice this is how most of the payments covered by this clause are usually described. But the generality of the words in section 119(3) of ICTA has not been lost. The clause also uses the Scottish term for "easement", "servitude".
1413. Subsection (2) clarifies the meaning of "electric, telegraph or telephone wire or cable". It does not repeat the reference to "transformer" in the source legislation. In its context it is clear that "apparatus" would include "transformer".
Clause 346: Extent of charge to tax
1414. This clause sets out the two exceptions under which the rent received in respect of a UK electric-line wayleave is not taxed under this Chapter. It is based on section 120(1A) of ICTA.
1415. Subsections (1) and (2) deal with the case in which the taxpayer receives other rent in respect of the land except rent from another wayleave. The rent from the wayleave is taxed as property income.
1416. Subsections (3) and (4) deal with the case in which the taxpayer carries on a trade on the land. See Change 5 in Annex 1. The rent may be taxed as a trade receipt.
Clause 347: Income charged
1417. This clause sets out the amount charged to tax. It is based on section 69 of ICTA.
Clause 348: Person liable
1418. This clause states who is liable for any tax charged. It is based on section 59 of ICTA.
Chapter 10: Post-cessation receipts
1419. This Chapter applies the rules about post-cessation receipts to property businesses, broadly as they apply to trades. The main rules for trades are in Chapter 18 of Part 2 of this Bill. The application of the rules to property businesses is based on section 21B of ICTA, which specifically mentions sections 103 to 106 of ICTA.
1420. Section 65A(5) of ICTA provides that "the income from an overseas property business shall be computed .. in accordance with the rules applicable to the computation of the profits of a Schedule A business".
1421. Although the post-cessation receipt rules apply to a Schedule A business, they do so by virtue of section 21B of ICTA. That section deals with "other rules applicable to Case I of Schedule D". On the other hand, section 21A of ICTA deals with rules about the computation of profits of a trade. So section 65A of ICTA imports only the computation rules in section 21A and the post-cessation receipt rules do not apply to an overseas property business.
1422. The following trading income rules (in Chapter 18 of Part 2 if this Bill) cannot apply to a property business. So there is no corresponding rule in this Chapter:
1423. The following trading income rules apply to property businesses but are not in separate clauses in this Chapter:
Clause 349: Charge to tax on post-cessation receipts
1424. This clause charges post-cessation receipts to tax. It is based on sections 103 and 104 of ICTA, as applied by section 21B.
Clause 350: Extent of charge to tax
1425. This clause restricts the charge on the post-cessation receipts. It is based on sections 103 and 104 of ICTA.
Clause 351: Income charged
1426. This clause sets out the amount charged to tax. In ICTA the charge is under Schedule D Case VI. So section 69 of ICTA applies.
Clause 352: Person liable
1427. This clause states who is liable for any tax charged. In ICTA the charge is under Schedule D Case VI. So section 59(1) of ICTA applies.
Clause 353: Basic meaning of "post-cessation receipt"
1428. This clause defines post-cessation receipts of a property business. It is based on sections 103 and 104 of ICTA, as applied by section 21B of ICTA.
1429. Subsections (2) and (3) set out the position if a property business is carried on in partnership. It is based on section 110(2) (and sections 111 and 113) of ICTA. A partner who leaves a firm may receive a post-cessation receipt that is charged to tax.
Clause 354: Other rules about what counts as a "post-cessation receipt"
1430. This clause brings together signposts to rules that operate so as to treat certain sums as post-cessation receipts and to exclude others from the charge. It is new.
1431. Subsection (1) is a signpost to the clause that deals with the transfer of a right to receive a post-cessation receipt to a person who does not carry on a property business.
1432. Subsection (2) lists the trading income rules that apply to create post-cessation receipts for the purpose of this Chapter.
1433. Subsection (3) draws attention to the rule in Chapter 5 of this Part of the Bill that treats a sum received as not being a post-cessation receipt if the right to it was transferred with a property business. It also mentions the rule in Part 8 of this Bill that can treat profits of an overseas property business as post-cessation receipts if they become remittable after the taxpayer has ceased to carry on the business.
Clause 355: Transfer of rights if transferee does not carry on UK property business
1434. This clause sets out the positions of the transferor and transferee if the right to a post-cessation receipt is transferred for value. It is based on section 106 of ICTA, as applied by section 21B.
Clause 356: Application to Schedule A businesses
1435. This clause deals with the case of a person who receives a sum that arises from a Schedule A business that was carried on before 2005-06. It is new.
1436. Subsection (1) sets out the general rule. The business from which a sum arises for the purpose of clause 353 may be either a UK property business (as defined in this Bill for 2005-06 and later years) or a Schedule A business. The Schedule A business may be one carried on by an income tax payer before 2005-06 or one carried on by a company.
1437. Subsection (2) deals with the case of a non-resident company liable to income tax. If a company ceases to be liable to corporation tax it is treated as ceasing to carry on its Schedule A business. A post-cessation from that business may be charged to income tax.
Chapter 11: Overseas property income
Clause 357: Charge to tax on overseas property income
1438. This clause charges overseas property income to tax. It is based on Schedule D Case V in section 18 of ICTA.
Clause 358: Meaning of "overseas property income"
1439. This clause defines "overseas property income", in cases where the remittance basis applies. It is new.
1440. Section 65(4) of ICTA provides that, for a person to whom the remittance basis applies, section 65A of ICTA does not apply. This means that there cannot be an overseas property business. And there are no rules in ICTA for calculating the income.
1441. This Chapter uses the expression "overseas property income" to describe income from land outside the United Kingdom which would usually be treated as part of an overseas property business (see clause 265) but is not treated in that way because the overseas property business of a remittance basis taxpayer includes only profits from land in the Republic of Ireland (see clause 269(3)). So overseas property income does not include any Irish income.
Clause 359: Income charged
1442. This clause sets out the amount charged to tax and takes the form of a signpost to the remittance basis of assessment in clause 832. It is based on section 65(5) of ICTA.
Clause 360: Person liable
1443. This clause states who is liable for any tax charged on overseas property income when the remittance basis applies. It is based on section 59(1) of ICTA.
Chapter 12: Supplementary
Clause 361: Changes in trustees and personal representatives
1444. This clause sets out what happens if there is a change in the trustees or personal representatives who are carrying on a property business. It is based on section 113(7) of ICTA, as applied by section 21B of ICTA.
1445. In section 113(1) of ICTA the phrase "change in the persons engaged in carrying on any trade" is wide enough to include a change in trustees. There is no need to treat a property business as ceasing solely on account of a change of trustees. So in section 113 of ICTA subsection (7) overrides subsection (1) "for the purposes of this section". The same rule applies to personal representatives as to trustees.
1446. The property business is treated as continuing even if there is a complete change of trustees or personal representatives. And, in the case of a partial change of trustees or personal representatives, this clause makes it clear that for the purposes of the property income Part no person is treated as ceasing to carry on the property business. There is a similar rule for trading income in clause 258.
Clause 362: Effect of company starting or ceasing to be within charge to income tax
1447. This clause applies only to companies and deems a commencement or cessation of a UK property business to take place in particular circumstances. It is based on section 337 of ICTA.
1448. Section 337 of ICTA is primarily a corporation tax rule. It applies only to companies and originates from the introduction of corporation tax. However it can be relevant to income tax.
1449. That is because non-resident companies are within the charge to income tax in respect of United Kingdom trade profits (when the trade is not carried on through a United Kingdom permanent establishment) and UK property business income. Section 337 of ICTA applies in cases of either inward or outward company migration. Where that involves a continuing trade or UK property business there will be a change of taxing regime from income tax to corporation tax or vice versa.
1450. Clause 362 says what happens when a company enters or leaves the income tax regime: then its UK property business income is calculated as though it had commenced or discontinued the business.
Clause 363: Overseas property businesses and overseas land: adaptation of rules
1451. This clause sets out how the rules for United Kingdom property businesses are to be adapted to apply to overseas property businesses. It is based on section 65A(8) of ICTA.
1452. The clause explains how to apply the UK property business rules if foreign property law does not correspond exactly with United Kingdom property law. This is particularly useful when applying the lease premium rules in Chapter 4 of this Part of the Bill to foreign leases.
Clause 364: Meaning of "lease" and "premises"
1453. This clause is based on sections 24 and 65A(5) of ICTA.
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