|Income Tax (Trading and Other Income) Bill - continued||House of Commons|
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Clause 723: Determinations
1342. The exemption requires a claim to be made. This allows the Inland Revenue to determine whether an annuity is a purchased life annuity and the amount of any annuity payment which is exempt. This clause deals with those questions and the consequences for the payer so far as deduction of tax at source is concerned. It is based on section 658 of ICTA.
1343. Subsection (1) provides that such questions are to be determined by the Inland Revenue. See Change 149 in Annex 1. Subsection (2) provides for appeals against determinations to go to the Special Commissioners.
1344. Under subsection (3) the payer of an annuity payment is entitled to rely on a determination, made and notified by the Inland Revenue, in determining how much income tax it may or must deduct from the annuity payments. But the words "and has not been notified of any alteration of that decision" in section 656(5) make little sense unless the payer is entitled to rely on that notification. Subsection (4) clarifies the position by making it clear that that notification is itself a determination.
1345. Special transitional provisions have been included in Schedule 2 to deal with determinations made before 6 April 2005 and to make it clear which provision applies if a false statement or representation is made either before or on or after 6 April 2005.
Clause 724: Regulations
1346. This clause contains powers for the Board of Inland Revenue to make regulations for dealing with purchased life annuities. It rewrites equivalent provisions in sections 656 and 658 of ICTA.
1347. Subsection (1) covers three general matters:
Clause 725: Annual payments under immediate needs annuities
1348. This clause is based on section 580C of ICTA. It exempts from income tax certain annual payments made under a contract for an immediate needs annuity.
1349. Subsections (2) and (3) define an immediate needs annuity. "Annuity" here refers to a contract, as is made clear in the clause, rather than payments made or received. Because purchased life annuities payments have their own charge within this Bill the definition of a "relevant annual payment" in section 580C(2) of ICTA which places these payments within Schedule D Case III or V can be omitted.
Clause 726: Meaning of "care provider"
1350. This clause defines "care provider" for the purposes of clause 725(1). It is based on section 580C of ICTA.
1351. Subsection (3) is drafted slightly differently from the wording on which it is based, namely section 580C(4)(b) of ICTA, which refers to "care which is registered under the relevant enactment". The clause reflects the fact that it is the service of care that is registered under that Act, rather than "care".
Chapter 8: Other Annual Payments
1352. This Chapter sets out the exemptions from income tax for income which would otherwise be taxable as annual payments.
Clause 727: Certain annual payments by individuals
1353. This clause is based on the parts of section 347A of ICTA which exempt from income tax annual payments made by individuals.
1354. See the commentary on Chapter 7 of Part 5 of this Bill for an explanation of the phrase "annual payment".
1355. Subsection (1) gives the general exemption: annual payments made by individuals which would otherwise be taxable under Part 5 of this Bill are exempt from income tax in the hands of the recipient. Section 347A of ICTA applies to annual payments which would otherwise be within the charge to tax under Schedule D Case III, that is, annual payments arising within the United Kingdom. This requirement is in subsection (1)(b).
1356. Subsection (3) is based on section 347A(3) of ICTA and applies the exemption to any payment made by an individual's personal representative if the exemption would have applied had the individual not died. "Personal representatives" is defined in clause 878.
1357. In contrast with an English partnership, a Scottish partnership is a separate legal entity. Subsection (4) therefore defines "individual" as including a Scottish partnership so that the taxation treatment of English and Scottish partnerships is the same.
1358. Section 347A of ICTA applies to all payments falling due on or after 6 April 2000 and also to certain payments falling due before that date but on or after 16 March 1988. Although unlikely, it is possible for payments to fall due at a time when section 347A did not apply but to be paid after 6 April 2005. Schedule 2 to this Bill contains a transitional provision which determines whether the exemption in clause 727 and the exemption in clause 730 apply in these circumstances (see Part 9 of Schedule 2 under "Certain annual payments by individuals").
Clause 728: Commercial payments
1359. This clause provides an exception to the exemption in clause 727. It is based on section 347A(2)(c) of ICTA and provides that annual payments made for commercial reasons in connection with the individual's trade, profession or vocation are not exempt from tax in the recipient's hands.
Clause 729: Payments for non-taxable consideration
1360. This clause also provides an exception to the exemption in clause 727. It is based on section 347A(2)(d) of ICTA which provides that a payment to which section 125(1) of ICTA applies is not exempt from income tax.
1361. However, to work out whether this exception to the exemption applies, the reader has to work out whether section 125(1) of ICTA applies and this is not straightforward.
1362. Section 125(1) of ICTA applies to any payment which is an annuity or other annual payment (other than interest) taxable under Schedule D Case III and which is made in return for consideration which is not taxable in the payer's hands. But that section does not apply to:
1363. In other words, if the payment falls within paragraphs (a) to (d), it will not fall within section 125(1) of ICTA and the payment therefore falls within the exemption.
1364. Clause 729 rewrites section 347A(2)(d) of ICTA by incorporating the relevant propositions of section 125(1) of ICTA rather than cross-referencing to that section and leaving the reader to work out if it applies. So, if the payment is made for non-taxable consideration (as defined in subsection (2)), the payment is exempt in the recipient's hands if either condition B or condition C is met. Subsection (3) is based on section 125(3)(a) of ICTA and subsection (4) is based on section 125(3)(b) of ICTA.
1365. Section 125(3)(c) of ICTA is not rewritten as an individual would not be authorised to grant annuities in the ordinary course of a business of granting annuities (and if an individual could do so, such a payment would fall within clause 728).
1366. Subsections (3)(d) and (5) of section 125 are not rewritten in clause 729 but have been included in the transitionals Schedule (see Part 9 of Schedule 2 under "Annuity payments for non-taxable consideration").
Clause 730: Foreign maintenance payments
1367. This clause is based on section 347A(4) of ICTA and exempts from income tax certain maintenance payments which arise outside the United Kingdom but which would be exempt from income tax if the payments had arisen in the United Kingdom.
1368. Subsection (2) explains what is meant by a maintenance payment. Section 347A(4) of ICTA defines a maintenance payment as a periodical payment "(not being an instalment of a lump sum)" and refers to the conditions in section 347B(5)(a) and (b) of ICTA. The words "(not being an instalment of a lump sum)" are not rewritten. The wording of the exemption makes them redundant. Additionally, section 347B(5) of ICTA was repealed by FA 1999 in relation to a payment falling due after 5 April 2000. But the conditions in subsection (3) and (4) are rewritten on the basis of the authority in A-G v Lamplough (1878), 3 Ex D 214.
Clause 731: Periodical payments of personal injury damages
1369. This clause provides an exemption from income tax for periodical payments in respect of damages for personal injury. It is based on sections 329AA and 329AB of ICTA as amended by section 100(2) of the Courts Act 2003.
1370. Section 329AA of ICTA exempts periodical payments awarded under the provisions listed in subsection (6) of that section. However, it was never intended to limit the scope of the exemption to particular provisions. The policy is that all periodical payments in respect of personal injury damages should be exempt. As the policy does not rely on the specific statutory references under which the damages are awarded, the statutory references are not rewritten. See Change 121 in Annex 1.
1371. By omitting the specific statutory references, and particularly the reference to the Fatal Accidents Act 1976 and the Fatal Accidents (Northern Ireland) Order 1977, it would not be clear on the face of the legislation that references to personal injuries includes death from personal injury. Subsection (4) therefore makes this explicit. See Change 121 in Annex 1.
Clause 732: Compensation awards
1372. This clause exempts from income tax annuity payments made under an annuity purchased to meet an award made by the Criminal Injuries Compensation Board. It is based on section 329AB of ICTA as amended by the Courts Act 2003.
1373. Subsection (3) includes in the definition of the "Criminal Injuries Compensation Scheme" the scheme established for Northern Ireland under the Criminal Injuries (Northern Ireland) Order 2002 SI 2002/796 (NI 1). See Change 19 in Annex 1.
Clause 733: Persons entitled to exemptions for personal injury payments etc.
1374. This clause and the next one explain who is entitled to the exemption. It is based on sections 329AA and 329AB of ICTA as amended by the Courts Act 2003.
Clause 734: Payments from trusts for injured persons
1375. This clause extends the exemption to persons receiving payments from trustees on behalf of an individual entitled to the payments (for example, a child's parents). It is based in section 329AA(4) of ICTA. See Change 122 in Annex 1.
1376. For the provisions which exempt interest on damages from income tax see clause 751.
Clause 735: Health and employment insurance payments
1377. This clause provides an exemption from income tax for annual payments made under an insurance policy where certain requirements are met. It is based on section 580A of ICTA.
Clause 736: Health and employment risks and benefits
1378. This clause explains what constitutes a health or employment risk for the purposes of clause 735. It is based on section 580A of ICTA.
1379. Subsections (1) and (2) define "health risk" and "employment risk" respectively. Subsection (2) treats a policy that insures against loss of office as an employment risk while section 580A(3)(b) of ICTA, on which it is based, does not. See Change 123 in Annex 1.
1380. Subsection (3) expands on what is meant by "insurance against a risk". Benefits under this type of insurance are often not restricted to providing an indemnity against a particular liability. This subsection makes it clear that the exemption is also intended to cover benefits other than indemnities.
Clause 737: Period for which payments may be made
1381. This clause contains the first of the four conditions referred to in clause 735(1)(c) and restricts the period for which benefits may be paid if the exemption is to apply. It must be satisfied by all health or employment insurance policies. The clause is based on section 580A of ICTA.
1382. Under subsections (1) and (2) the policy may only provide for payments to be made during periods of ill-health or unemployment or while the insured's income is lower than it would otherwise have been. Periods which end in the insured's death and which immediately follow one of these periods are also included. Subsection (2)(b) treats a period throughout which the insured does not hold office as a period in respect of which payments may be made. Section 580A(4)(b) of ICTA, on which it is based, does not. See Change 123 in Annex 1.
Clause 738: Risk of significant loss
1383. This clause contains the second of the four conditions referred to in clause 735(1)(c) and this condition must be satisfied by all health or employment insurance policies. It is based on section 580A of ICTA.
1384. Subsections (1) and (2) require that the policy, taking into account investment returns on premiums, should involve the insurer in genuine commercial risk.
Clause 739: Conditions to be met by policies also providing other benefits
1385. This clause contains the third of the four conditions referred to in clause 735(1)(c). It is aimed at preventing abuse of the exemption where an insurance policy covers other risks in addition to ill-health or loss of employment. This clause is based on sections 580A and 580B of ICTA.
1386. Subsections (2) and (3) ensure that where other risks are ensured on the same policy the qualifying risks are not significantly different from what they would be if those other risks were not insured by that policy. Section 580B(2)(c) of ICTA refers to "benefits receivable by or in respect of any person" which reduce other benefits "payable to or in respect of that person". There does not appear to be any significance in the change from "benefits receivable" to "benefits payable" and this subsection refers to benefits "payable" throughout.
Clause 740: Conditions to be met where policies are linked
1387. This clause contains the last of the four conditions referred to in clause 735(1)(c). It is aimed at preventing abuse of the exemption where a person is insured under more than one policy. The clause is based on sections 580A and 580B of ICTA.
1388. Subsections (2) and (3) ensure that any difference in benefits payable for ill-health or loss of employment which arises just because benefits under another policy are taken into account may be ignored. The source legislation, in section 580B(3)(d) of ICTA, refers to benefits "receivable by or in respect of any person" which reduce other benefits "payable to or in respect of that person". There does not appear to be any significance in the change from benefits "receivable" to benefits "payable". Subsection (3) refers to benefits "payable" throughout.
1389. Section 580B(4) of ICTA is not rewritten as it seems unnecessary to state that the terms of a policy include terms fixing the premium or otherwise in respect of insurance against risk.
Clause 741: Aggregation of policies where employment ends for health reasons
1390. This clause ensures that, where a person leaves employment but continues to receive benefits under a new separate policy derived from a policy entered into for the benefit of one or more employees, the exemption given by this Chapter continues to apply to payments under the new policy. The clause is based on section 580A of ICTA.
Clause 742: Meaning of "the insured"
1391. This clause gives the meaning of "the insured" for this Chapter. It is based on section 580A of ICTA.
1392. Sections 580A and 580B of ICTA refer throughout to "the insured". During the Standing Committee debate on the Finance Bill which introduced these provisions, it was considered whether the exemption extended to cover insurance policies taken out by parents on behalf of their children. The written answer given by the Financial Secretary to the Treasury was that in such a case the child would be "the insured" to enable the exemption to apply. In practice the exemption has been treated as applying to payments under such policies. In the light of this, sub-paragraph (b) has been added to put the matter beyond doubt. See Change 124 in Annex 1.
Clause 743: Policies for the benefit of others who contribute to premiums
1393. This clause provides that where one person takes out a health or employment insurance policy for the benefit of another, that other person may, in certain circumstances, be treated as the insured. It is based on section 580A of ICTA.
1394. Section 580A(7) of ICTA is drafted in terms of the benefits under the policy being apportioned. This clause is drafted instead in terms of annual payments in order to be consistent with the other clauses dealing with this exemption. This does not alter the effect of the provision.
Clause 744: Payments to adopters: England and Wales
1395. This clause and the following two clauses ensure that certain financial support received by families who adopt are exempt from income tax. The clauses are based on section 327A of ICTA which has been split between the different jurisdictions.
1396. Clause 744 deals with payments made to adopters (and persons seeking to adopt) in England and Wales. Paragraph (c) exempts payments of allowances paid under regulations made under the Adoption Act 1976. The regulations cited in section 327A(1)(c) of ICTA, that is, the Adoption Allowance Regulations 1991, are not rewritten because if the regulations change before the Bill receives Royal Assent the citation would be wrong.
Clause 745: Payments to adopters: Scotland
1397. This clause deals with payments made to adopters (and persons seeking to adopt) in Scotland.
Clause 746: Payments to adopters: Northern Ireland
1398. This clause deals with payments made to adopters (and persons seeking to adopt) in Northern Ireland.
1399. Paragraph (c) exempts payment of allowances under regulations under the Adoption (Northern Ireland) Order 1987. Again, the regulations cited in section 327A(1)(j) of ICTA, that is, the Adoption Allowance Regulations (Northern Ireland) 1996, are not rewritten.
Clause 747: Power to amend sections 744 to 746
1400. This clause gives the Treasury the power to amend clauses 744 to 746 to take account of future changes in the description of financial support payments.
Clause 748: Payments by persons liable to pool betting duty
1401. This clause is based on section 126(3) of FA 1990 and section 121 of FA 1991. It gives an exemption from income tax for annual payments made by persons liable to pool betting duty provided the conditions mentioned in subsection (1) are satisfied (see the commentary on clause 162 for the background to this relief).
1402. The exemption applies to payments made in consequence of a reduction in pool betting duty, whenever that reduction is made (see subsection (2)). Subsection (2) combines the conditions in FA 1990 and FA 1991. Although the source legislation is restricted to the 1990 and 1991 reductions in pool betting duty, the subsection applies to payments made "in consequence of" any reduction in the duty. See Change 47 in Annex 1.
1403. Subsections (3) and (4) set out two further conditions either of which needs to be satisfied. The subsections do not specify that payments in consequence of the 1990 reduction in pool betting duty must be paid for football safety and comfort (see section 126(3) of FA 1990) or that payments in consequence of the 1991 reduction must be paid to the Foundation for Sport and the Arts (see section 121(3) of FA 1991). Instead each subsection applies to a payment in consequence of any reduction in pool betting duty. See Change 46 in Annex 1.
Chapter 9: Other income
1404. This Chapter provides for exemption from income tax in respect of miscellaneous income. The income exempted under this Chapter is categorised as follows:
Clause 749: Interest paid under repayment supplements
1405. This clause provides an exemption from income tax for repayment supplement paid by the Inland Revenue. It is based on section 824(8) of ICTA.
Clause 750: Interest from tax reserve certificates
1406. This clause provides an exemption from income tax for interest from Tax Reserve Certificates ("TRCs") issued by the Treasury. It is based on section 46(2) of ICTA. (The remainder of section 46 concerns unrelated income from savings certificates, which is dealt with in Chapter 2 of Part 6 of this Bill.)
1407. TRCs were introduced in 1941 as a mechanism for making payments of tax on account. Interest on TRCs is paid when the certificates are used to settle a tax liability. TRCs have not been issued since the mid-1970s, when they were replaced by Certificates of Tax Deposit. However, TRCs are still used from time to time to settle tax liabilities. In the light of this, it is not possible to regard section 46(2) of ICTA as obsolete for income tax purposes.
Clause 751: Interest on damages for personal injury
1408. This clause provides an exemption from income tax for interest on damages for personal injury or death. It is based on section 329 of ICTA.
1409. The source legislation deals with interest on damages awarded by reference to various enactments. Subsection (1) omits those statutory references. It was never intended to limit the scope of the exemption to particular enactments: the policy was to include any Act under which interest on damages for personal injury could be awarded. See Change 121 in Annex 1.
1410. Section 329(1)(a) and (b) of ICTA limits the exemption to the interest included in a sum for which judgement is given. Subsection (1)(a) refers simply to "a sum awarded by a court". Subsection (1)(b) makes it clear that interest which may arise from the date of the award is not included in the exemption.
1411. Subsection (1)(c) gives statutory effect to ESC A30 (interest on damages for personal injuries (foreign court awards)). See Change 125 in Annex 1.
1412. Subsection (2) is based on section 329(3) of ICTA and extends the exemption to interest in respect of payments in satisfaction of a cause of action.
Clause 752: Interest under employees' share schemes
1413. This clause contains an exemption from income tax in respect of interest relating to trustees of certain employees' share schemes. It is based on section 688 of ICTA.
1414. Subsection (1) applies the clause where the trustees receive interest from a participant in the employees' share scheme and the scheme is set up to comply with certain statutory provisions. Section 688 of ICTA refers to the trustees receiving interest from "employees and directors" of the company. This reflects the wording of section 54(1) of the Companies Act 1948 (the relevant company law enactment when what became section 688 first came into force). However, the relevant company law enactment is now section 153(4)(b) of the Companies Act 1985. That provision refers to "the provision by a company, in good faith in the interests of the company, of financial assistance for the purposes of an employees' share scheme."
1415. Subsection (1) of the clause brings the wording of this exemption into line with the corresponding company law enactment. See Change 126 in Annex 1.
1416. Subsection (2) provides that the trustees will be exempt from tax charged under Chapter 2 of Part 4 of this Bill on the interest they receive if the scheme requires the trustees to pay to the company an equivalent amount as interest. Section 688 of ICTA refers to an exemption from tax "under Case III of Schedule D". But the reference in the clause to Chapter 2 of Part 4 of this Bill will include foreign source interest. It would be possible for UK resident trustees to receive interest from non-UK resident employees etc. In such circumstances, it would be illogical to treat the foreign source interest as outside the scope of the exemption. See Change 127 in Annex 1.
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