Income Tax Bill

House of Commons

Session 2006 - 07
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Income Tax Bill

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Part 12 — Tax avoidance
Chapter 2 — Transfer of assets abroad
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(3)
See also section 673(5) to (7) (which makes provision about relevant income
and benefits where relevant transactions include both transactions before 5
December 2005 and transactions after 4 December 2005 and exemptions under
this Chapter cease to apply).
667
Reduction in amount charged: previous capital gains tax charge
5
(1)
This section applies if—
(a)
benefits provided as mentioned in section 665(1)(c) are received in a tax
year,
(b)
for that tax year the whole or part of any benefits so provided is a
capital payment to which section 87 or 89(2) of, or paragraph 8 of
10
Schedule 4C to, TCGA 1992 applies (chargeable gains: gains attributed
to beneficiaries),
(c)
it is such a payment because the total untaxed benefits exceed the
available relevant income (see Step 6 in section 666(1)) and so it is not
treated as income arising to the individual under section 665(2), and
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(d)
because of that capital payment chargeable gains are treated as
accruing to the individual in that or a subsequent tax year under any of
the provisions referred to in paragraph (b).
(2)
For any tax year after one in which such chargeable gains are so treated, the
amount of income treated as arising to the individual under section 665(2) in
20
respect of benefits provided as mentioned in section 665(1)(c) as a result of the
transfer or operations in question is calculated as follows.
(3)
The amount is calculated under section 666(1) as if the total untaxed benefits
were reduced by the amount of those gains.
(4)
In this section “the total untaxed benefits” and “the available relevant income”
25
have the same meaning as in section 666(1) (see Steps 2 and 5).
668
Non-domiciled individuals
(1)
This section applies if—
(a)
apart from this section, an individual receiving a benefit would be
chargeable to income tax under section 664 in respect of any income
30
treated as arising to the individual (“the chargeable amount”), and
(b)
conditions A to C are met.
(2)
Condition A is that the individual is domiciled outside the United Kingdom.
(3)
Condition B is that the benefit is not received in the United Kingdom.
(4)
Condition C is that, if the individual had received any of the relevant income
35
by reference to which the chargeable amount is determined under section 666,
because of being domiciled outside the United Kingdom the individual would
not have been chargeable to income tax in respect of it.
(5)
If this section applies, the individual is not chargeable to income tax under
section 664 on so much of the chargeable amount as is determined by reference
40
to the relevant income to which condition C applies.
(6)
Sections 833 and 834 of ITTOIA 2005 (income treated as remitted to the United
Kingdom) apply for the purposes of this section as they would apply for the

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purposes of section 832 of that Act (remittance basis) if the benefit were
relevant foreign income.
Exemptions: no tax avoidance purpose or genuine commercial transaction
669
Exemptions: introduction
(1)
Sections 670 to 675 deal with exemptions from liability under this Chapter.
5
(2)
Some exemptions apply according to whether the relevant transactions are all
pre-5 December 2005 transactions or all post-4 December 2005 transactions or
include both (see sections 670, 672 and 673).
(3)
In this section and sections 670 to 675—
“post-4 December 2005 transaction” means a relevant transaction effected
10
on or after 5 December 2005, and
“pre-5 December 2005 transaction” means a relevant transaction effected
before 5 December 2005.
670
Exemption: all relevant transactions post-4 December 2005 transactions
(1)
This section applies if all the relevant transactions are post-4 December 2005
15
transactions.
(2)
An individual is not liable to income tax under this Chapter for the tax year by
reference to the relevant transactions if the individual satisfies an officer of
Revenue and Customs—
(a)
that Condition A is met, or
20
(b)
in a case where Condition A is not met, that Condition B is met.
(3)
Condition A is that it would not be reasonable to draw the conclusion, from all
the circumstances of the case, that the purpose of avoiding liability to taxation
was the purpose, or one of the purposes, for which the relevant transactions or
any of them were effected.
25
(4)
Condition B is that—
(a)
all the relevant transactions were genuine commercial transactions (see
section 671), and
(b)
it would not be reasonable to draw the conclusion, from all the
circumstances of the case, that any one or more of those transactions
30
was more than incidentally designed for the purpose of avoiding
liability to taxation.
(5)
In determining the purposes for which the relevant transactions or any of them
were effected, the intentions and purposes of any person within subsection (6)
are to be taken into account.
35
(6)
A person is within this subsection if, whether or not for consideration, the
person—
(a)
designs or effects, or
(b)
provides advice in relation to,

the relevant transactions or any of them.
40
(7)
In this section—
“revenue” includes taxes, duties and national insurance contributions,

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“taxation” includes any revenue for whose collection and management
the Commissioners for Her Majesty’s Revenue and Customs are
responsible.
(8)
If—
(a)
apart from this subsection, an associated operation would not be taken
5
into account for the purposes of this section, and
(b)
the conditions in subsections (2) to (4) are not met if it is taken into
account, because of—
(i)
the associated operation, or
(ii)
the associated operation taken together with any other relevant
10
transactions,

it must be taken into account for those purposes.
671
Meaning of “commercial transaction”
(1)
For the purposes of section 670, a relevant transaction is a commercial
transaction only if it meets the conditions in subsections (2) and (3).
15
(2)
It must be effected—
(a)
in the course of a trade or business and for its purposes, or
(b)
with a view to setting up and commencing a trade or business and for
its purposes.
(3)
It must not—
20
(a)
be on terms other than those that would have been made between
persons not connected with each other dealing at arm’s length, or
(b)
be a transaction that would not have been entered into between such
persons so dealing.
(4)
For the purposes of subsection (2), making investments, managing them or
25
making and managing them is a trade or business only so far as—
(a)
the person by whom it is done, and
(b)
the person for whom it is done,

are persons not connected with each other and are dealing at arm’s length.
672
Exemption: all relevant transactions pre-5 December 2005 transactions
30
(1)
This section applies if all the relevant transactions are pre-5 December 2005
transactions.
(2)
An individual is not liable for income tax under this Chapter for the tax year
by reference to the relevant transactions if the individual satisfies an officer of
Revenue and Customs that condition A or B is met.
35
(3)
Condition A is that the purpose of avoiding liability to taxation was not the
purpose, or one of the purposes, for which the relevant transactions or any of
them were effected.
(4)
Condition B is that the transfer and any associated operations—
(a)
were genuine commercial transactions, and
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(b)
were not designed for the purpose of avoiding liability to taxation.

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673
Exemption: relevant transactions include both pre-5 December 2005 and post-
4 December 2005 transactions
(1)
This section applies if the relevant transactions include both pre-5 December
transactions and post-4 December transactions.
(2)
An individual is not liable to tax under this Chapter for the tax year by
5
reference to the relevant transactions if—
(a)
the condition in section 670(2) (exemption where all relevant
transactions are post-4 December 2005 transactions) is met by reference
to the post-4 December 2005 transactions, and
(b)
the condition in section 672(2) (exemption where all relevant
10
transactions are pre-5 December 2005 transactions) is met by reference
to the pre-5 December transactions.
(3)
If subsection (2)(b) applies but subsection (2)(a) does not, this Chapter applies
with the modifications in subsections (4) to (6).
(4)
For the purposes of sections 653 to 663, any income arising before 5 December
15
2005 must not be brought into account as income of the person abroad.
(5)
In determining the relevant income of an earlier tax year for the purposes of
section 666(1) (see Step 4), it does not matter whether that year was a year for
which the individual was not liable under section 664 because of section 672 or
this section.
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(6)
For the purposes of Step 1 in section 666(1), a benefit received by the individual
in or before the tax year 2005-06 is to be left out of account.
(7)
But, in the case of a benefit received in the tax year 2005-06, subsection (6)
applies only so far as, on a time apportionment basis, the benefit fell to be
enjoyed in any part of the year that fell before 5 December 2005.
25
674
Application of section 675 (partial exemption)
(1)
Section 675 (partial exemption where later associated operations fail
conditions) applies if—
(a)
an individual is liable to tax because of section 653 or 660 for a tax year
(the “taxable year”) because condition B in section 670(4) (genuine
30
commercial transaction: post-4 December 2005 transactions) is not met,
and
(b)
subsections (2) and (3) apply.
(2)
This subsection applies if—
(a)
since the relevant transfer there has been at least one tax year for which
35
the individual was not so liable by reference to the relevant transactions
effected before the end of the year, and
(b)
the individual was not so liable for that year because—
(i)
condition B in section 670(4) was met, or
(ii)
condition B in section 672(4) (genuine commercial transaction:
40
pre-5 December 2005 transactions) was met.
(3)
This subsection applies if the income by reference to which the individual is
liable to tax for the taxable year is attributable—
(a)
partly to relevant transactions by reference to which one of those
conditions was met for the last exempt tax year, and
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(b)
partly to associated operations not falling within paragraph (a).
(4)
For the purposes of this section a tax year is exempt if—
(a)
it is one of the tax years mentioned in subsection (2), and
(b)
there is no earlier tax year for which the individual was liable to tax
because of section 653 or 660 by reference to the relevant transactions or
5
any of them.
(5)
References in this section to a person being liable to tax for a tax year because
of section 653 or 660 include references to the individual being so liable had any
income been treated as arising to the individual for that year under section 654
or 661.
10
675
Partial exemption where later associated operations fail conditions
(1)
If this section applies, the individual is liable to tax under this Chapter only in
respect of part of the income for which the individual would otherwise be
liable.
(2)
That part is so much of the income as appears to an officer of Revenue and
15
Customs to be justly and reasonably attributable to the operations mentioned
in section 674(3)(b) in all the circumstances of the case.
(3)
Those circumstances include how far those operations or any of them directly
or indirectly affect—
(a)
the nature or amount of any person’s income, or
20
(b)
any person’s power to enjoy any income.
General
676
No duplication of charges
(1)
No amount of income may be taken into account more than once in charging
income tax under this Chapter.
25
(2)
If there is a choice about the persons in relation to whom any amount of income
may be taken into account in charging income tax under this Chapter, it is to
be taken into account—
(a)
in relation to such one or more of them as appears to an officer of
Revenue and Customs to be just and reasonable, and
30
(b)
if more than one, in such respective proportions as appears to the
officer to be just and reasonable.
(3)
For the meaning of references in subsections (1) and (2) to an amount of income
taken into account in charging tax, see section 677.
(4)
If income treated as arising to an individual is charged to income tax under
35
section 653 or 660 and the individual subsequently receives that income, it is
treated as not being the individual’s income again for income tax purposes.
677
Meaning of taking income into account in charging income tax for section 676
(1)
References in section 676(1) and (2) (no duplication of charges) to an amount of
income taken into account in charging income tax are to be read as follows.
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(2)
In the case of tax charged on income under section 653 (charge where income
enjoyed as a result of relevant transactions)—
(a)
if section 657(1) (benefit provided out of income of person abroad)
applies, they are references to an amount of the income out of which the
benefit is provided equal to the amount or value of the benefit charged,
5
and
(b)
otherwise they are references to the amount of income charged.
(3)
In the case of tax charged on income under section 660 (charge where capital
sums received as a result of relevant transactions), they are references to the
amount of that income.
10
(4)
In the case of tax charged under section 664 (charge to tax on income treated as
arising to non-transferors where benefit received as a result of relevant
transfers), they are references to the amount of relevant income taken into
account under section 666 (income charged under section 664) in calculating
the amount to be charged in respect of the benefit for the tax year in question.
15
678
Rates of tax applicable to income charged under sections 653 and 660 etc
(1)
Income tax at the basic rate, the savings rate or the dividend ordinary rate is
not charged under section 653 or 660 in respect of any income so far as it has
borne tax at that rate by deduction or otherwise.
(2)
Subsection (1) does not affect the tax charged if section 657(2) applies (benefit
20
provided out of income of person abroad charged in year of receipt).
(3)
Subsection (4) applies to any income that—
(a)
is treated as arising to an individual under section 654 or 661, and
(b)
apart from this Chapter is dividend income,

so far as subsection (1) does not apply to the income.
25
(4)
The charge to income tax under section 653 or, as the case may be, section 660
operates by treating the income as if it were income within section 19(2)
(meaning of “dividend income”).
679
Deductions and reliefs where individual charged under section 653 or 660
(1)
This section applies for the purpose of calculating the liability to income tax of
30
an individual charged under section 653 or 660.
(2)
The same deductions and reliefs are allowed as would have been allowed if the
income treated as arising to the individual under section 654 or 661 had
actually been received by the individual.
680
Amounts corresponding to accrued income scheme profits and related
35
interest
(1)
This subsection applies if a person—
(a)
would have been treated under section 714(2) of ICTA (persons treated
as receiving income in respect of transfers of interest-bearing securities)
as—
40
(i)
receiving income, or
(ii)
receiving income of a greater amount,

at the end of an interest period, but

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(b)
is not so treated because of being resident or domiciled outside the
United Kingdom throughout any chargeable period in which the
interest period (or part of it) falls.
(2)
If subsection (1) applies, this Chapter applies as if the amount which the person
would be treated as receiving or, as the case may be, the additional amount
5
were income becoming payable to the person.
(3)
Accordingly, any reference in this Chapter to income of (or payable or arising
to) a person abroad must be read as including a reference to such an amount.
(4)
This subsection applies if income consisting of interest which falls due at the
end of an interest period—
10
(a)
would have been treated as reduced by an allowance, or an allowance
of a greater amount, under section 714(5) of ICTA (under which the
amount charged as interest is reduced by an allowance if the amount is
taken into account in calculating tax charged), but
(b)
is not so treated because it is income of a person who is resident or
15
domiciled outside the United Kingdom throughout any chargeable
period in which the interest period (or part of it) falls.
(5)
If subsection (4) applies, for the purposes of this Chapter the interest is treated
as reduced by the amount of the allowance or, as the case may be, the
additional allowance.
20
(6)
In this section “interest” and “interest period” have the meaning given by
section 711 of ICTA.
Supplementary
681
Power to obtain information
(1)
An officer of Revenue and Customs may by notice require any person to
25
provide the officer with such particulars as the officer may reasonably require
for the purposes of this Chapter.
(2)
The officer may direct the time within which the particulars must be provided
and that time must be at least 30 days.
(3)
The particulars which a person must provide under this section, if required to
30
do so by a notice under subsection (1), include particulars about—
(a)
transactions with respect to which the person is or was acting on behalf
of others,
(b)
transactions which in the opinion of the officer should properly be
investigated for the purposes of this Chapter even though in the
35
person’s opinion no liability to income tax arises under this Chapter,
and
(c)
whether the person has taken or is taking any part and, if so, what part
in transactions of a description specified in the notice.
(4)
A solicitor is not treated as having taken part in a transaction for the purposes
40
of subsection (3)(c) merely because of giving professional advice to a client
about it.
(5)
This section is subject to—
section 682 (restrictions on particulars to be provided by solicitors), and