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 4 — Savings and investment income
Chapter 13 — Sales of foreign dividend coupons
251

Trustees
568
Special rule for certain income of trustees
(1)
This section applies if the profits or gains charged under this Chapter and
arising to trustees do not meet any of conditions A to C.
(2)
Condition A is that the profits or gains fall to be treated for income tax
5
purposes as income of a settlor.
(3)
Condition B is that the profits or gains arise under a trust established for
charitable purposes.
(4)
Condition C is that the profits or gains are from property held for the purposes
of a superannuation fund to which section 615(3) of ICTA applies.
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(5)
The profits or gains are to be treated for income tax purposes as if they were
income to which section 686 of ICTA applies (accumulation and discretionary
trusts: special rates of tax).
(6)
In this section “trustees” does not include personal representatives, but where,
during or at the end of the administration period, personal representatives pay
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trustees any sum representing profits or gains to which this section would
apply if the personal representatives were trustees, that sum is treated as—
(a)
being paid as income, and
(b)
having borne income tax at the applicable rate.
(7)
In subsection (6)—
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(a)
“administration period” has the meaning given by section 653, and
(b)
“the applicable rate” means the rate referred to in section 663(1) (the
applicable rate for grossing up basic amounts of estate income).
Transfer of assets abroad
569
Anti-avoidance: transfer of assets abroad
25
(1)
This section applies if profits or gains arising from a transaction to which this
Chapter applies are realised by a person (“A”) who is resident or domiciled
outside the United Kingdom.
(2)
For the purpose of determining whether an individual ordinarily UK resident
is liable for income tax in respect of the profits or gains, sections 739 and 740 of
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ICTA (transfer of assets abroad) have effect as if the profits or gains, when
realised, constituted income becoming payable to A.
Chapter 13
Sales of foreign dividend coupons
570
Charge to tax under Chapter 13
35
(1)
Income tax is charged on income treated under subsection (2) as arising from
foreign holdings.
(2)
Income is treated as arising from such holdings in the following cases.

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 13 — Sales of foreign dividend coupons
252

(3)
The first case is where a bank’s office in the United Kingdom—
(a)
pays over the proceeds of a sale or other realisation of dividend
coupons in respect of the holdings which has been effected by the bank,
or
(b)
carries such proceeds into an account.
5
(4)
The second case is where a person who is not a bank or a dealer in coupons sells
dividend coupons in respect of the holdings to a person dealing in coupons in
the United Kingdom.
(5)
In this section “bank” has the meaning given by section 840A of ICTA.
571
Meaning of “foreign holdings” etc.
10
(1)
In this Chapter “foreign holdings” means shares or other securities outside the
United Kingdom that are—
(a)
securities issued by or on behalf of a government or local or other
public authority in a country outside the United Kingdom, or
(b)
shares or securities issued by or on behalf of a non-UK resident body of
15
persons.
(2)
In section 570 “dividend coupons” means coupons for dividends payable in
respect of foreign holdings.
(3)
In this Chapter “coupons” includes—
(a)
warrants, and
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(b)
bills of exchange that purport to be drawn or made in payment of
dividends payable in respect of foreign holdings.
(4)
In this section “dividends”—
(a)
in the case of foreign holdings within subsection (1)(a), means interest
or annual payments payable out of the revenue of the government or
25
authority, and
(b)
in the case of foreign holdings within subsection (1)(b), includes
interest or other annual payments.
(5)
In subsection (1) “securities” includes loan stock and similar securities.
572
Income charged
30
(1)
In a case within section 570(3), tax is charged under this Chapter on the full
amount of the proceeds that are paid over or carried into the account in the tax
year.
(2)
In a case within section 570(4), tax is charged under this Chapter on the full
amount of the proceeds arising in the tax year.
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(3)
Subsections (1) and (2) are subject to Part 8 (foreign income: special rules).
573
Person liable
The person liable for any tax charged under this Chapter is the person
receiving or entitled to the proceeds.

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 1 — Introduction
253

Part 5
Miscellaneous income
Chapter 1
Introduction
574
Overview of Part 5
5
(1)
This Part imposes charges to income tax under—
(a)
Chapter 2 (receipts from intellectual property),
(b)
Chapter 3 (films and sound recordings: non-trade businesses),
(c)
Chapter 4 (certain telecommunication rights: non-trading income),
(d)
Chapter 5 (settlements: amounts treated as income of settlor),
10
(e)
Chapter 6 (beneficiaries’ income from estates in administration),
(f)
Chapter 7 (annual payments not otherwise charged), and
(g)
Chapter 8 (income not otherwise charged).
(2)
Part 6 deals with exemptions from the charges under this Part.
(3)
See, in particular, any exemptions mentioned in the Chapters of this Part.
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(4)
The charges under this Part apply to non-UK residents as well as UK residents
but this is subject to section 577(2) (charges on non-UK residents only on UK
source income).
(5)
This section needs to be read with the relevant priority rules (see sections 2, 575
and 576).
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575
Provisions which must be given priority over Part 5
(1)
Any income, so far as it falls within—
(a)
any Chapter of this Part, and
(b)
Chapter 2 of Part 2 (receipts of a trade, profession or vocation),

is dealt with under Part 2.
25
(2)
Any income, so far as it falls within—
(a)
any Chapter of this Part, and
(b)
Chapter 3 of Part 3 so far as the Chapter relates to a UK property
business,

is dealt with under Part 3.
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(3)
Any income, so far as it falls within—
(a)
any Chapter of this Part, and
(b)
Chapter 2 or 3 of Part 4 (interest and dividends etc. from UK resident
companies etc.),

is dealt with under the relevant Chapter of Part 4.
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(4)
Any income, so far as it falls within—
(a)
any Chapter of this Part, and
(b)
Part 2, 9 or 10 of ITEPA 2003 (employment income, pension income or
social security income),

is dealt with under the relevant Part of ITEPA 2003.
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Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 2 — Receipts from intellectual property
254

576
Priority between Chapters within Part 5
Any income, so far as it falls within Chapter 2 (receipts from intellectual
property) and Chapter 3 (films and sound recordings: non-trade businesses), is
dealt with under Chapter 3.
577
Territorial scope of Part 5 charges
5
(1)
Income arising to a UK resident is chargeable to tax under this Part whether or
not it is from a source in the United Kingdom.
(2)
Income arising to a non-UK resident is chargeable to tax under this Part only if
it is from a source in the United Kingdom.
(3)
References in this section to income which is from a source in the United
10
Kingdom include, in the case of any income which does not have a source,
references to income which has a comparable connection to the United
Kingdom.
(4)
This section is subject to any express or implied provision to the contrary in this
Part (or elsewhere in the Income Tax Acts).
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Chapter 2
Receipts from intellectual property
Introduction
578
Contents of Chapter
(1)
This Chapter imposes charges to income tax under—
20
(a)
section 579 (royalties and other income from intellectual property),
(b)
section 583 (income from disposals of know-how), and
(c)
section 587 (income from sales of patent rights).
(2)
For exemptions from the charge under section 579, see, in particular, sections
727 (certain annual payments by individuals) and 758 (certain interest and
25
royalty payments).
(3)
This Chapter also provides for relief from income tax on patent income (see
section 600).
Charge to tax on non-trading income from intellectual property
579
Charge to tax on royalties and other income from intellectual property
30
(1)
Income tax is charged on royalties and other income from intellectual property.
(2)
In this section “intellectual property” means—
(a)
any patent, trade mark, registered design, copyright, design right,
performer’s right or plant breeder’s right,
(b)
any rights under the law of any part of the United Kingdom which are
35
similar to rights within paragraph (a),

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 2 — Receipts from intellectual property
255

(c)
any rights under the law of any territory outside the United Kingdom
which correspond or are similar to rights within paragraph (a), and
(d)
any idea, information or technique not protected by a right within
paragraph (a), (b) or (c).
580
Income charged under section 579
5
(1)
Tax is charged under section 579 on the full amount of the income arising in the
tax year.
(2)
Subsection (1) is subject to Part 8 (foreign income: special rules).
(3)
See section 582 for provision about the calculation of the amount of income
charged under section 579.
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(4)
This section needs to be read with section 527 of ICTA (spreading of patent
royalties etc. over several years).
581
Person liable for tax under section 579
The person liable for any tax charged under section 579 is the person receiving
or entitled to the income.
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582
Deductions in calculating certain income charged under section 579
(1)
This section applies for calculating the amount of income charged under
section 579 other than annual payments.
(2)
Expenses wholly and exclusively incurred for the purpose of generating the
income are deductible.
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(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
the profits of a trade, if they had been incurred for its purposes, are not
25
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)
The relief given under section 600 (relief for expenses: patent income) is
additional to the relief 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 subsection (1).
Disposals of know-how
583
Charge to tax on income from disposals of know-how
(1)
Income tax is charged on profits arising where consideration is received by a
35
person—
(a)
for the disposal of know-how, or
(b)
for giving, or wholly or partly fulfilling, an undertaking which—

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 2 — Receipts from intellectual property
256

(i)
is given in connection with a disposal of know-how, and
(ii)
restricts or is designed to restrict any person’s activities in any
way.
(2)
For the purposes of subsection (1)(b), it does not matter whether or not the
undertaking is legally enforceable.
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(3)
Subsection (1) is subject to the exceptions in section 584.
(4)
In this Chapter “know-how” means any industrial information or techniques
likely to assist in—
(a)
manufacturing or processing goods or materials,
(b)
working a source of mineral deposits (including searching for,
10
discovering or testing mineral deposits or obtaining access to them), or
(c)
carrying out any agricultural, forestry or fishing operations.
(5)
In subsection (4)—
(a)
“mineral deposits” includes any natural deposits capable of being lifted
or extracted from the earth and for this purpose geothermal energy is
15
treated as a natural deposit, and
(b)
“source of mineral deposits” includes a mine, an oil well and a source
of geothermal energy.
584
Exceptions to charge under section 583
(1)
Section 583 does not apply in the following cases.
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(2)
Case A is if the consideration is brought into account under—
(a)
section 579 (charge to tax on royalties etc.), or
(b)
section 462 of CAA 2001 (disposal values).
(3)
Case B is if the consideration is dealt with in relation to the person receiving it
as a capital receipt for goodwill under section 194(2) (disposal of know-how as
25
part of disposal of all or part of a trade).
(4)
Case C is if the disposal of the know-how is by way of a sale and—
(a)
the buyer is a body of persons over which the seller has control,
(b)
the seller is a body of persons over which the buyer has control, or
(c)
the buyer and the seller are both bodies of persons and another person
30
has control over both of them.
(5)
In subsection (4) “body of persons” includes a firm.
(6)
See also Chapter 14 of Part 2 and section 575 (disposals of know-how used in a
trade dealt with by Part 2).
585
Income charged under section 583
35
(1)
Tax is charged under section 583 on the full amount of the profits arising in the
tax year.
(2)
The profits charged under section 583 are—
(a)
the amount of the consideration, less
(b)
any expenditure incurred by the recipient wholly and exclusively in the
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acquisition or disposal of the know-how.

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 2 — Receipts from intellectual property
257

(3)
Such expenditure may not be taken into account more than once, whether
under this section or otherwise.
(4)
This section needs to be read with section 603 (contributions to expenditure).
586
Person liable for tax under section 583
The person liable for any tax charged under section 583 is the person receiving
5
the consideration.
Sales of patent rights
587
Charge to tax on income from sales of patent rights
(1)
Income tax is charged on profits from sales of the whole or part of any patent
rights.
10
(2)
The tax is charged if—
(a)
the seller is a UK resident, or
(b)
the seller is a non-UK resident and the patent is granted under the laws
of the United Kingdom.
(3)
Where the seller is a non-UK resident company, tax is not charged if the seller
15
is chargeable to corporation tax in respect of the proceeds of the sale.
(4)
In this Chapter “patent rights” means the right to do or authorise the doing of
anything which, but for the right, would be an infringement of a patent.
588
Income charged under section 587
(1)
A seller’s profits from the sale of the whole or part of patent rights are—
20
(a)
any capital sum comprised in the proceeds of the sale, less
(b)
the deductible costs.
(2)
The deductible costs are—
(a)
the capital cost (if any) of the rights sold, and
(b)
any incidental expenses incurred by the seller in connection with the
25
sale.
(3)
If—
(a)
the seller acquired the rights sold, or the rights out of which they were
granted, by purchase,
(b)
the seller has previously sold part of the purchased rights, and
30
(c)
the proceeds of that sale, after deducting any incidental expenses,
consisted wholly or partly of a capital sum,

the capital cost is reduced by that capital sum.
(4)
References in this Chapter to the capital cost of patent rights are to any capital
sum included in any price paid by the seller to purchase—
35
(a)
the rights, or
(b)
the rights out of which they were granted.
(5)
This section needs to be read with sections 600 (relief for expenses: patent
income) and 603 (contributions to expenditure).