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Income Tax Bill


Income Tax Bill
Part 13 — Income tax liability: miscellaneous rules
Chapter 1 — Limits on liability to income tax of non-UK residents

378

 

(a)   

an allowance under Chapter 2 of Part 3 of this Act or section 257 or 265

of ICTA (personal allowance and blind person’s allowance),

(b)   

a tax reduction under Chapter 3 of Part 3 of this Act or section 257A,

257AB, 257BA or 257BB of ICTA (tax reductions for married couples

and civil partners),

5

(c)   

relief under section 457 or 458 of this Act (payments to trade unions and

police organisations),

(d)   

a tax reduction under section 459 of this Act or section 273 of ICTA

(payments for benefit of family members), and

(e)   

relief under section 266 of ICTA (life assurance premiums).

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745     

Case where limit not to apply

(1)   

Section 744 does not apply to income tax to which non-UK resident trustees are

liable for a tax year, if there is a beneficiary of the trust who is—

(a)   

an individual who is ordinarily UK resident, or

(b)   

a UK resident company.

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(2)   

For the purposes of subsection (1) a person is a beneficiary of the trust if—

(a)   

the person is an actual or potential beneficiary of the trust, and

(b)   

condition A or B is met in relation to the person.

(3)   

Condition A is that the person is, or will or may become, entitled under the

trust to receive some or all of any income under the trust.

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(4)   

Condition B is that some or all of any income under the trust may be paid to or

used for the benefit of the person in the exercise of a discretion conferred by the

trust.

(5)   

The references in subsections (3) and (4) to any income under the trust include

a reference to any capital under the trust so far as it represents amounts

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originally received by the trustees as income.

746     

Meaning of “disregarded income”

(1)   

For the purposes of this Chapter income arising to a non-UK resident is

“disregarded income” if it is—

(a)   

disregarded savings and investment income (see section 758),

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(b)   

disregarded annual payments (see section 759),

(c)   

disregarded pension income,

(d)   

disregarded social security income,

(e)   

disregarded transaction income (see section 747), or

(f)   

income of such other description as the Treasury may by regulations

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designate for the purposes of this section.

(2)   

But income in relation to which the non-UK resident has a UK representative

for the purposes of section 126 of, and Schedule 23 to, FA 1995 (UK

representatives of non-UK residents) is not disregarded income.

(3)   

Income is “disregarded pension income” if it is chargeable under Part 9 of

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ITEPA 2003 (pension income) because any of the following provisions of that

Act applies to it—

section 577 (UK social security pensions),

 
 

Income Tax Bill
Part 13 — Income tax liability: miscellaneous rules
Chapter 1 — Limits on liability to income tax of non-UK residents

379

 

section 579A (pensions under registered pension schemes) (but see

subsection (4) below),

section 609 (annuities for the benefit of dependants),

section 610 (annuities under non-registered occupational pension

schemes), or

5

section 611 (annuities in recognition of another’s services).

(4)   

Income chargeable under Part 9 of ITEPA 2003 because section 579A of that Act

applies to it is disregarded pension income only if the registered pension

scheme in question—

(a)   

falls within paragraph 1(1)(f) of Schedule 36 to FA 2004, and

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(b)   

was, immediately before 6 April 2006, a retirement annuity contract to

which section 605 of ITEPA 2003 applied.

(5)   

Income is “disregarded social security income” if—

(a)   

it is a taxable benefit listed in Table A in section 660 of ITEPA 2003,

other than income support or jobseeker’s allowance, and

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(b)   

it is chargeable under Part 10 of that Act (social security income).

747     

Meaning of “disregarded transaction income”

(1)   

Subsection (2) applies if a non-UK resident carries on (alone or in partnership)

a business through a broker in the United Kingdom.

(2)   

Income is “disregarded transaction income”, subject to subsection (6), if—

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(a)   

it is transaction income, and

(b)   

the independent broker conditions are met in relation to the transaction

in question.

(3)   

Subsection (4) applies if a non-UK resident carries on (alone or in partnership)

a business through an investment manager in the United Kingdom.

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(4)   

Income is “disregarded transaction income”, subject to subsection (6), if—

(a)   

it is transaction income, and

(b)   

the independent investment manager conditions are met in relation to

the transaction in question.

(5)   

In this Chapter “transaction income”, in relation to a transaction carried out

30

through a broker or investment manager in the United Kingdom on behalf of

a non-UK resident, means income which arises to the non-UK resident from—

(a)   

so much of the non-UK resident’s business carried on (alone or in

partnership) through the broker or investment manager as relates to

the transaction, or

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(b)   

property or rights which, as a result of the transaction, are used by, or

held by or for, the broker or investment manager on behalf of the non-

UK resident.

(6)   

Income is not disregarded transaction income if it is chargeable to income tax

in accordance with section 171(2) of FA 1993 (profits of the underwriting

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business of a member of Lloyd’s).

(7)   

This section needs to be read with—

section 750 (the independent broker conditions),

sections 751 to 757 (the independent investment manager conditions),

 
 

Income Tax Bill
Part 13 — Income tax liability: miscellaneous rules
Chapter 1 — Limits on liability to income tax of non-UK residents

380

 

section 760 (meaning of “investment manager” and “investment

transaction”), and

section 761 (transactions through brokers and investment managers).

Limit for non-UK resident companies

748     

Limit on liability to income tax of non-UK resident companies

5

(1)   

This section applies to income tax to which a non-UK resident company is

liable, otherwise than as a trustee.

(2)   

The non-UK resident company’s liability to income tax for a tax year is limited

to the sum of amounts A and B.

(3)   

Amount A is the sum of—

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(a)   

any amounts representing income tax deducted from the non-UK

resident company’s disregarded company income for the tax year,

(b)   

any amounts representing income tax that are treated as deducted from

or paid in respect of that income, and

(c)   

any tax credits in respect of that income.

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(4)   

Amount B is the amount that, apart from this section, would be the non-UK

resident company’s liability to income tax for the tax year if the non-UK

resident company’s disregarded company income for the tax year were left out

of account.

749     

Meaning of “disregarded company income”

20

(1)   

For the purposes of this Chapter income arising to a non-UK resident company

is “disregarded company income” if it is—

(a)   

disregarded savings and investment income (see section 758),

(b)   

disregarded annual payments (see section 759),

(c)   

income arising from a transaction carried out on behalf of the non-UK

25

resident company in the course of the company’s trade through a

broker in the United Kingdom, in relation to which the independent

broker conditions are met,

(d)   

income arising from an investment transaction carried out on behalf of

the non-UK resident company in the course of the company’s trade

30

through an investment manager in the United Kingdom, in relation to

which the independent investment manager conditions are met, or

(e)   

income of such other description as the Treasury may by regulations

designate for the purposes of this section.

(2)   

This section needs to be read with—

35

section 750 (the independent broker conditions),

sections 751 to 757 (the independent investment manager conditions),

section 760 (meaning of “investment manager” and “investment

transaction”), and

section 761 (transactions through brokers and investment managers).

40

 
 

Income Tax Bill
Part 13 — Income tax liability: miscellaneous rules
Chapter 1 — Limits on liability to income tax of non-UK residents

381

 

The independent broker conditions

750     

The independent broker conditions

(1)   

The independent broker conditions are met in relation to a transaction carried

out on behalf of a non-UK resident by a broker in the United Kingdom if—

(a)   

conditions A to D are met, if this section applies for the purposes of

5

section 746, or

(b)   

conditions A to C and E are met, if this section applies for the purposes

of section 749.

(2)   

Condition A is that at the time of the transaction the broker is carrying on the

business of a broker.

10

(3)   

Condition B is that the transaction is carried out by the broker in the ordinary

course of that business.

(4)   

Condition C is that the remuneration which the broker receives in respect of

the transaction for the provision of the services of a broker to the non-UK

resident is not less than is customary for that class of business.

15

(5)   

Condition D is that the broker does not fall for the purposes of section 126 of,

and Schedule 23 to, FA 1995 to be treated as a UK representative of the non-UK

resident in relation to any other income which is chargeable to income tax, or

amounts which are chargeable to capital gains tax, for the same tax year as the

transaction income.

20

(6)   

Condition E is that the broker does not fall to be treated as a permanent

establishment of the non-UK resident company in relation to any other

transaction of any kind carried out in the same accounting period of the non-

UK resident company as the transaction in question.

The independent investment manager conditions

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751     

The independent investment manager conditions

(1)   

The independent investment manager conditions are met in relation to an

investment transaction carried out on behalf of a non-UK resident by an

investment manager in the United Kingdom if—

(a)   

conditions A to F are met, if this section applies for the purposes of

30

section 746, or

(b)   

conditions A to E and G are met, if this section applies for the purposes

of section 749.

(2)   

Condition A is that at the time of the transaction the investment manager is

carrying on a business of providing investment management services.

35

(3)   

Condition B is that the transaction is carried out in the ordinary course of that

business.

(4)   

Condition C is that, when the investment manager acts on behalf of the non-

UK resident in relation to the transaction, the relationship between them,

having regard to its legal, financial and commercial characteristics, is a

40

relationship between persons carrying on independent businesses dealing

with each other at arm’s length.

(5)   

Condition D is that the requirements of the 20% rule are met (see section 752).

 
 

Income Tax Bill
Part 13 — Income tax liability: miscellaneous rules
Chapter 1 — Limits on liability to income tax of non-UK residents

382

 

(6)   

Condition E is that the remuneration which the investment manager receives

in respect of the transaction for the provision of investment management

services to the non-UK resident is not less than is customary for that class of

business.

(7)   

Condition F is that the investment manager does not fall for the purposes of

5

section 126 of, and Schedule 23 to, FA 1995 to be treated as a UK representative

of the non-UK resident in relation to any other income which is chargeable to

income tax, or amounts which are chargeable to capital gains tax, for the same

tax year as the transaction income.

(8)   

Condition G is that the investment manager does not fall to be treated as a

10

permanent establishment of the non-UK resident company in relation to any

other transaction of any kind carried out in the same accounting period of the

non-UK resident company as the transaction in question.

752     

Investment managers: the 20% rule

(1)   

The requirements of the 20% rule are met if conditions A and B are met.

15

(2)   

Condition A is that in relation to a qualifying period it has been or is the

intention of the investment manager and the persons connected with the

investment manager that at least 80% of the non-UK resident’s relevant

disregarded income should consist of amounts to which none of them has a

beneficial entitlement.

20

(3)   

Condition B is that, so far as there is a failure to fulfil that intention, that

failure—

(a)   

is attributable (directly or indirectly) to matters outside the control of

the investment manager and persons connected with the investment

manager, and

25

(b)   

does not result from a failure by any of them to take such steps as may

be reasonable for mitigating the effect of those matters in relation to the

fulfilment of that intention.

(4)   

This section needs to be read with—

section 753 (meaning of “qualifying period”),

30

section 754 (meaning of “relevant disregarded income”), and

section 755 (meaning of “beneficial entitlement”).

753     

Meaning of “qualifying period”

(1)   

This section applies for the purposes of this Chapter.

(2)   

If section 752 applies for the purposes of section 746, a “qualifying period”

35

means—

(a)   

the tax year in which the transaction income is chargeable to income

tax, or

(b)   

a period of not more than 5 years comprising two or more tax years

including that one.

40

(3)   

If section 752 applies for the purposes of section 749, a “qualifying period”

means—

(a)   

the accounting period of the non-UK resident company in which the

transaction in question is carried out, or

 
 

Income Tax Bill
Part 13 — Income tax liability: miscellaneous rules
Chapter 1 — Limits on liability to income tax of non-UK residents

383

 

(b)   

a period of not more than 5 years comprising two or more complete

accounting periods including that one.

754     

Meaning of “relevant disregarded income”

(1)   

This section applies for the purposes of this Chapter.

(2)   

If section 752 applies for the purposes of section 746, the “relevant disregarded

5

income” of the non-UK resident for the qualifying period is the total of the non-

UK resident’s income for the tax years comprised in the qualifying period

which derives from the transactions mentioned in subsection (4).

(3)   

If section 752 applies for the purposes of section 749, the “relevant disregarded

income” of the non-UK resident company for the qualifying period is the total

10

of the non-UK resident company’s income for the accounting periods

comprised in the qualifying period which derives from the transactions

mentioned in subsection (4).

(4)   

The transactions referred to in subsections (2) and (3) are investment

transactions—

15

(a)   

carried out by the investment manager on the non-UK resident’s

behalf, and

(b)   

in relation to which the independent investment manager conditions

are met, ignoring the requirements of the 20% rule.

755     

Meaning of “beneficial entitlement”

20

(1)   

This section applies for the purposes of this Chapter.

(2)   

A person has a “beneficial entitlement” to relevant disregarded income if the

person has or may acquire a beneficial entitlement that is, or would be,

attributable to the relevant disregarded income as a result of having an interest

or other rights mentioned in subsection (3).

25

(3)   

The interests and rights referred to in subsection (2) are—

(a)   

an interest (whether or not an interest giving a right to an immediate

payment of a share in the profits or gains) in property in which the

whole or any part of the relevant disregarded income is represented, or

(b)   

an interest in, or other rights in relation to, the non-UK resident.

30

756     

Treatment of transactions where requirements of 20% rule not met

(1)   

This section applies in the case of an investment transaction in relation to

which the independent investment manager conditions are met, except for the

requirements of the 20% rule.

(2)   

This Chapter has effect as if the requirements of that rule were met in relation

35

to the transaction but only in relation to—

(a)   

so much of the transaction income of the non-UK resident as falls

within subsection (3), if this section applies for the purposes of section

746, or

(b)   

so much of the income of the non-UK resident company deriving from

40

the transaction as falls within subsection (3), if this section applies for

the purposes of section 749.

(3)   

Income falls within this subsection if it does not represent income—

 
 

Income Tax Bill
Part 13 — Income tax liability: miscellaneous rules
Chapter 1 — Limits on liability to income tax of non-UK residents

384

 

(a)   

which is relevant disregarded income of the non-UK resident, and

(b)   

to which the investment manager or a person connected with the

investment manager has or has had any beneficial entitlement.

757     

Application of 20% rule to collective investment schemes

(1)   

This section applies if amounts arise or accrue to the non-UK resident as a

5

participant in a collective investment scheme.

(2)   

It applies for the purposes of determining whether the requirements of the 20%

rule are met in relation to a transaction carried out for the purposes of the

scheme.

(3)   

In applying this section make the following assumptions—

10

(a)   

that all the transactions carried out for the purposes of the scheme are

carried out on behalf of a company (“the assumed company”) which

is—

(i)   

constituted for the purposes of the scheme, and

(ii)   

non-UK resident, and

15

(b)   

that the participants do not have any rights in respect of the amounts

arising or accruing in respect of those transactions, other than the rights

which, if they held shares in the assumed company, would be their

rights as shareholders.

(4)   

If the scheme is such that the assumed company would not be regarded for tax

20

purposes as carrying on a trade in the United Kingdom in relation to the

appropriate relevant period, the requirements of the 20% rule are treated as

met in relation to a transaction carried out for the purposes of the scheme.

(5)   

If the scheme is such that the assumed company would be so regarded for tax

purposes, sections 752 to 756 have effect in relation to a transaction carried out

25

for the purposes of the scheme with the modifications in subsection (6).

(6)   

The modifications are—

(a)   

for references to the non-UK resident substitute references to the

assumed company, and

(b)   

for references to the non-UK resident’s relevant disregarded income for

30

a qualifying period substitute references to the sum of the amounts that

would, for relevant periods comprised in the qualifying period, be

chargeable to tax on the assumed company as profits deriving from the

transactions—

(i)   

carried out by the investment manager, and

35

(ii)   

assumed to be carried out on behalf of the company.

(7)   

In this section—

“the appropriate relevant period” is—

(a)   

the tax year in which the transaction income is chargeable to

income tax, if this section applies for the purposes of section

40

746, or

(b)   

the accounting period in which the transaction is carried out, if

this section applies for the purposes of section 749,

“collective investment scheme” has the meaning given by section 235 of

FISMA 2000,

45

“participant”, in relation to a collective investment scheme, is construed in

accordance with that section, and

 
 

 
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