Income Tax Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 12 — Tax avoidance
Chapter 3 — Transactions in land
357

(2)
Consideration is not regarded as having become receivable by B for this
purpose until B can effectively enjoy or dispose of it.
(3)
A is entitled to recover from B any part of the tax which A has paid.
(4)
If any part of the tax remains unpaid at the end of the period of 6 months
beginning with the date when it became due and payable, it is recoverable
5
from B as if B were the person assessed.
(5)
Subsection (4) does not affect the right to recover the tax from A.
(6)
For the purposes of this section, any income which an individual is treated as
having as a result of this Chapter (the “land income”) is treated as the highest
part of the individual’s total income.
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(7)
But if in the tax year—
(a)
more than one gain is treated as the individual’s land income, or
(b)
the individual is also treated as having income as a result of Chapter 4
(sales of occupation income),

only a just and reasonable proportion of each gain treated as land income is to
15
be treated as the highest part of the individual’s total income.
(8)
See section 946 for the relationship between—
(a)
the rules in subsections (6) and (7), and
(b)
other rules requiring particular income to be treated as the highest part
of a person’s total income.
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702
Recovery of tax: certificates of tax paid etc
(1)
For the purposes of section 701(3), an officer of Revenue and Customs must, if
required to do so, produce a certificate specifying—
(a)
the amount of income in respect of which tax has been paid, and
(b)
the amount of tax paid.
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(2)
The certificate is conclusive evidence of any facts stated in it.
(3)
See also section 877 (under which directions may be given for payments within
this Chapter to non-UK residents to be made under deduction of tax).
Clearances and power to obtain information
703
Clearance procedure
30
(1)
This section applies if a person considers that the condition mentioned in
section 689(3)(a), (b) or (d) may be met as respects a gain of a capital nature
which that person—
(a)
has obtained from the disposal of land, or
(b)
would obtain from a proposed disposal of land.
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(2)
The person may provide the Commissioners for Her Majesty’s Revenue and
Customs with written particulars showing how the gain has arisen or would
arise.
(3)
The Commissioners must notify the person whether or not they are satisfied
that, in the circumstances described in the particulars, the person will not, or
40
would not, be liable to tax on the gain under this Chapter.

Income Tax Bill
Part 12 — Tax avoidance
Chapter 3 — Transactions in land
358

(4)
The notification must be given before the end of the period of 30 days
beginning with the day after that on which the particulars are received.
(5)
A person notified by the Commissioners under this section that they are so
satisfied is not liable to income tax on the gain under this Chapter.
(6)
A notification under this section about the Commissioners’ decision
5
concerning a gain is void if the particulars given under this section about the
gain do not make a full and accurate disclosure of all facts and considerations
relating to it which are material to the decision.
704
Power to obtain information
(1)
An officer of Revenue and Customs may by notice require any person to
10
provide the officer within such period as the officer may direct with such
particulars as the officer may reasonably require for the purposes of this
Chapter.
(2)
That period must be at least 30 days.
(3)
The particulars which a person must provide under this section, if required to
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do so by such a notice, include particulars about—
(a)
transactions or arrangements with respect to which the person is or was
acting on behalf of others,
(b)
transactions or arrangements which in the opinion of the officer should
properly be investigated for the purposes of this Chapter, although in
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the person’s opinion no liability to tax arises under this Chapter, and
(c)
whether the person has taken or is taking any part and, if so, what part
in transactions or arrangements of a description specified in the notice.
(4)
Subsection (3) is subject to subsection (5).
(5)
In relation to anything done by a solicitor on behalf of a client who does not
25
consent to the provision of information required to be provided by a notice
under subsection (1), the solicitor may not be compelled under this section to
do more than—
(a)
state that the solicitor was acting on behalf of a client, and
(b)
give the name and address of the client.
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(6)
A solicitor is not treated as having taken part in a transaction or arrangement
for the purposes of subsection (3)(c) merely because of giving professional
advice to a client about it.
Interpretation
705
Interpretation of Chapter
35
(1)
In this Chapter “capital”, in relation to a gain, means that the gain does not fall
to be included in any calculation of income for income tax purposes apart from
this Chapter.
(2)
In this Chapter references to property deriving its value from land include—
(a)
any shareholding in a company deriving its value directly or indirectly
40
from land,
(b)
any partnership interest deriving its value directly or indirectly from
land,

Income Tax Bill
Part 12 — Tax avoidance
Chapter 4 — Sales of occupation income
359

(c)
any interest in settled property deriving its value directly or indirectly
from land, and
(d)
any option, consent or embargo affecting the disposition of land.
(3)
In this Chapter—
“company” includes any body corporate, and
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“share” includes stock.
Chapter 4
Sales of occupation income
Introduction
706
Overview of Chapter
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(1)
This Chapter imposes a charge to income tax—
(a)
on individuals to whom income is treated as arising under section 711
(income arising where capital amount other than derivative property or
right obtained), and
(b)
on individuals to whom income is treated as arising under section 712
15
(income arising where derivative property or right obtained).
(2)
Income is treated as arising under those sections only if—
(a)
transactions are effected or arrangements made to exploit the earning
capacity of an individual in an occupation, and
(b)
the main object or one of the main objects of the transactions or
20
arrangements is the avoidance or reduction of liability to income tax.
707
Meaning of “occupation”
In this Chapter references to an occupation, in relation to an individual, are
references to any activities of a kind undertaken in a profession or vocation,
regardless of whether the individual—
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(a)
is carrying on a profession or vocation on the individual’s own account,
or
(b)
is an employee or office-holder.
708
Priority of other tax provisions
This Chapter has effect subject to—
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(a)
Chapter 5 of Part 5 of ITTOIA 2005 (settlements: amounts treated as
income of settlor), and
(b)
any other provision of the Tax Acts treating income as belonging to a
particular person.
Charge on sale of occupation income
35
709
Charge to tax on sale of occupation income
(1)
Income tax is charged on income treated as arising under—

Income Tax Bill
Part 12 — Tax avoidance
Chapter 4 — Sales of occupation income
360

(a)
section 711 (income arising where capital amount other than derivative
property or right obtained), or
(b)
section 712 (income arising where derivative property or right
obtained).
(2)
Tax is charged under this section on the full amount of income treated as
5
arising in the tax year.
(3)
The person liable for any tax charged under this section is the individual to
whom the income is treated as arising.
(4)
This section is subject to section 717 (exemption for sales of going concerns).
710
Conditions for sections 711 and 712 to apply
10
(1)
Sections 711 and 712 apply only if conditions A to C are met in respect of an
individual.
(2)
Condition A is that the individual carries on an occupation wholly or partly in
the United Kingdom.
(3)
Condition B is that transactions are effected or arrangements made to exploit
15
the individual’s earning capacity in the occupation by putting another person
(see section 715) in a position to enjoy—
(a)
all or part of the income or receipts derived from the individual’s
activities in the occupation, or
(b)
anything derived directly or indirectly from such income or receipts.
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(4)
The reference in subsection (3) to income or receipts derived from the
individual’s activities includes a reference to payments for any description of
copyright or licence or franchise or other right deriving its value from the
individual’s activities (including past activities).
(5)
Condition C is that as part of, or in connection with, or in consequence of, the
25
transactions or arrangements a capital amount is obtained by the individual for
the individual or another person.
(6)
For the purposes of subsection (5), the cases where an individual (“A”) obtains
a capital amount for another person (“B”) include cases where A has put B in a
position to receive the capital amount by providing B with something of value
30
derived, directly or indirectly, from A’s activities in the occupation.
(7)
In this Chapter “capital amount” means an amount in money or money’s worth
which does not fall to be included in a calculation of income for income tax
purposes apart from this Chapter.
711
Income arising where capital amount other than derivative property or right
35
obtained
(1)
This section applies if the capital amount obtained as mentioned in section
710(5) does not consist of—
(a)
property which derives substantially the whole of its value from the
individual’s activities, or
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(b)
a right which does so.
(2)
The capital amount is treated for income tax purposes as income arising to the
individual.

Income Tax Bill
Part 12 — Tax avoidance
Chapter 4 — Sales of occupation income
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(3)
The income is treated as arising in the tax year in which the capital amount is
receivable.
(4)
A capital amount is not regarded as having become receivable by a person for
the purposes of this section until the person can effectively enjoy or dispose of
it.
5
712
Income arising where derivative property or right obtained
(1)
This section applies if—
(a)
the capital amount obtained as mentioned in section 710(5) consists
of—
(i)
property which derives substantially the whole of its value
10
from the activities of an individual, or
(ii)
a right which does so, and
(b)
the property or right is sold or otherwise realised.
(2)
For the purposes of subsection (1), it does not matter whether the capital
amount is obtained on one occasion or on two or more occasions (for example,
15
because the individual acquires a stock option and subsequently exercises it).
(3)
Income of an amount equal to the proceeds of sale or the realised value is
treated for income tax purposes as income arising to the individual.
(4)
The income is treated as arising in the tax year in which the property or right
is sold or otherwise realised.
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Further provisions relevant to the charge
713
Transactions, arrangements, sales and realisations relevant for Chapter
(1)
For the purposes of this Chapter, account is to be taken of any method,
however indirect, by which—
(a)
any property or right is transferred or transmitted, or
25
(b)
the value of any property or right is enhanced or diminished.
(2)
Accordingly—
(a)
the occasion of the transfer or transmission of any property or right
however indirect, and
(b)
the occasion when the value of any property or right is enhanced,
30

may be an occasion when tax is charged under this Chapter.
(3)
Subsections (1) and (2) apply in particular—
(a)
to sales, contracts and other transactions made otherwise than for full
consideration or for more than full consideration,
(b)
to any method by which any property or right, or the control of any
35
property or right, is transferred or transmitted by assigning—
(i)
share capital or other rights in a company,
(ii)
rights in a partnership, or
(iii)
an interest in settled property,
(c)
to the creation of an option and the giving of consideration for granting
40
it,
(d)
to the creation of a requirement for consent and the giving of
consideration for granting it,

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Part 12 — Tax avoidance
Chapter 4 — Sales of occupation income
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(e)
to the creation of an embargo affecting the disposition of any property
or right and the giving of consideration for releasing it, and
(f)
to the disposal of any property or right on the winding up, dissolution
or termination of a company, partnership or trust.
714
Tracing value
5
(1)
This section applies if it is necessary to determine the extent to which the value
of any property or right is derived from any other property or right for the
purposes of this Chapter.
(2)
Value may be traced through any number of companies, partnerships and
trusts.
10
(3)
The property held by a company, partnership or trust must be attributed to the
shareholders, partners or beneficiaries at each stage in such manner as is
appropriate in the circumstances.
715
Meaning of “other person”
(1)
For the purposes of this Chapter references to other persons are to be read in
15
accordance with subsections (2) to (4).
(2)
A partnership or partners in a partnership may be regarded as a person or
persons distinct from the individuals or other persons who are for the time
being partners.
(3)
The trustees of settled property may be regarded as persons distinct from the
20
individuals or other persons who are for the time being trustees.
(4)
Personal representatives may be regarded as persons distinct from the
individuals or other persons who are for the time being personal
representatives.
716
Valuations and apportionments
25
(1)
All such valuations are to be made as are appropriate to give effect to this
Chapter.
(2)
For the purposes of this Chapter, any expenditure, receipt, consideration or
other amount may be apportioned by such method as is just and reasonable in
the circumstances.
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Exemption for sales of going concerns
717
Exemption for sales of going concerns
(1)
This section applies if a capital amount is obtained from the disposal—
(a)
of assets (including any goodwill) of a profession or vocation,
(b)
of a share in a partnership which is carrying on a profession or
35
vocation, or
(c)
of shares in a company.
(2)
An individual is not liable to income tax under this Chapter in respect of the
capital amount so far as the going concern condition is met (see subsections (4)
and (5)).
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Income Tax Bill
Part 12 — Tax avoidance
Chapter 4 — Sales of occupation income
363

(3)
Subsection (2) is subject to section 718 (restriction on exemption: sales of future
earnings).
(4)
In the case of a disposal within subsection (1)(a) or (b), the going concern
condition is that the value of what is disposed of at the time of disposal is
attributable to the value of the profession or vocation as a going concern.
5
(5)
In the case of a disposal within subsection (1)(c), the going concern condition
is that the value of what is disposed of at the time of disposal is attributable to
the value of the company’s business as a going concern.
(6)
In subsection (5) the reference to the company’s business includes a reference
to the business of any other company in which it holds shares directly or
10
indirectly.
718
Restriction on exemption: sales of future earnings
(1)
This section applies if the value as a going concern mentioned in section 717(4)
or (5) is derived to a material extent from prospective income or receipts
derived directly or indirectly from the individual’s activities in the occupation.
15
(2)
The exemption under section 717 applies to the value so derived only if the
future earnings condition is met.
(3)
The future earnings condition is met if, ignoring all capital amounts, the
individual will receive full consideration for the prospective income or
receipts, whether as a partner in a partnership or as an employee or otherwise.
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(4)
The references in subsections (1) and (3) to income or receipts include
references to payments for any description of copyright, licence, franchise or
other right deriving its value from the individual’s activities (including past
activities).
Recovery of tax
25
719
Recovery of tax where consideration receivable by person not assessed
(1)
This section applies if a person (“A”) is assessed to tax under this Chapter in
respect of consideration receivable by another person (“B”).
(2)
Consideration is not regarded as having become receivable by B for this
purpose until B can effectively enjoy or dispose of it.
30
(3)
A is entitled to recover from B any part of the tax which A has paid.
(4)
If any part of the tax remains unpaid at the end of the period of 6 months
beginning with the date when it became due and payable, it is recoverable
from B as if B were the person assessed.
(5)
Subsection (4) does not affect the right to recover the tax from A.
35
(6)
For the purposes of this section, any income which an individual is treated as
having as a result of this Chapter (the “occupation income”) is treated as the
highest part of the individual’s total income.
(7)
But if in the tax year—
(a)
more than one capital amount is treated as the individual’s occupation
40
income, or