Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
586

(b)
in the second column after paragraph (f) insert “or—
(g)
the Income Tax Act 2007 (so far as relating to
functions previously exercised under the Income and
Corporation Taxes Act 1988).”
Constitutional Reform Act 2005 (c. 4)
5
485
The Constitutional Reform Act 2005 is amended as follows.
486
In paragraph 4 of Schedule 7 (protected functions of the Lord Chancellor) at
the end of Part A (general) insert—

“Income Tax Act 2007

Section 637(1)”.
10
487
In the table in Part 3 of Schedule 14 (appointments by the Lord Chancellor:
offices to which paragraph 2(2)(d) of Schedule 12 to the Act applies) at the
end add—

“Chairman of section 637
Section 637(1) of the Income

tribunal
Tax Act 2007”

15

Member of section 637

tribunal

Income Tax (Trading and Other Income) Act 2005 (c. 5)
488
The Income Tax (Trading and Other Income) Act 2005 is amended as
follows.
20
489
In section 1 (overview of Act) omit subsection (2).
490
In section 12(3) (profits of mines etc) for “Chapter 1 of Part 10 of ICTA”
substitute “Part 4 of ITA 2007”.
491   (1)
Amend section 13 (visiting performers) as follows.
      (2)
In subsection (8) omit the definitions of “payment” and “transfer”.
25
      (3)
After that subsection insert—
“(9)
In this section and section 14—
(a)
references to a payment include references to a payment by
way of loan of money, and
(b)
references to a transfer do not include references to a transfer
30
of money but, subject to that, include references to—
(i)
a temporary transfer (as by way of loan), and
(ii)
a transfer of a right (whether or not a right to receive
money).
(10)
This section does not apply to payments or transfers of a kind
35
prescribed in regulations under section 899(6) of ITA 2007.”
492
In section 17(3) (effect of becoming or ceasing to be a UK resident) for “set
off under section 385 of ICTA against” substitute “deducted under section 83
of ITA 2007 from”.

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
587

493
Omit section 51 (patent royalties).
494   (1)
Amend section 52 (exclusion of double relief for interest) as follows.
      (2)
In subsections (1), (5) and (6) for “section 353 of ICTA” substitute “section
383 of ITA 2007”.
      (3)
In subsection (6) for “section 368(3) of ICTA” substitute “section 387(2) and
5
(3) of that Act”.
495
In section 87(5) (expenses of research and development) for “section 837A of
ICTA” substitute “section 940 of ITA 2007”.
496
In section 108(4) (gifts of trading stock etc to charities) omit paragraphs (c)
and (d).
10
497
In section 179(a) (connected persons) for “section 839 of ICTA” substitute
“section 927 of ITA 2007”.
498   (1)
Amend section 232 (treatment of trading adjustment income) as follows.
      (2)
In subsection (3) for “Chapter 1 of Part 10 of ICTA” substitute “Part 4 of ITA
2007”.
15
      (3)
In subsection (4) for the words from “the trade” to the end substitute “the
trade is relevant UK earnings within section 189(2)(b) of FA 2004,
adjustment income is similarly relevant UK earnings.”
499
In section 248(3) (debts paid after cessation) for “under section 109A(4) or
(4A) of ICTA” substitute “as a result of section 98 of ITA 2007”.
20
500   (1)
Amend section 250 (receipts relating to post-cessation expenditure) as
follows.
      (2)
In subsection (1) for “section 109A of ICTA” substitute “section 96 of ITA
2007”.
      (3)
In subsection (2)—
25
(a)
in paragraph (a) for “section 109A(2)(a) or (b) of ICTA” substitute
“section 97(2) or (3) of ITA 2007”,
(b)
in paragraph (b) for “section 109A(2)(c) of ICTA” substitute “section
97(4) of ITA 2007”, and
(c)
in paragraph (c) for “section 109A(2)(d) of ICTA” substitute “section
30
97(5) of ITA 2007”.
501
In section 254(3)(b) (allowable deductions) for “section 90(4) of FA 1995”
substitute “section 261D of TCGA 1992”.
502   (1)
Amend section 256 (treatment of post-cessation receipts) as follows.
      (2)
In subsection (1)(b) omit “earned income within section 833(4)(c) of ICTA
35
or”.
      (3)
In subsection (2) omit “earned income or”.
503
In section 272(2) (profits of a property business: application of trading
income rules), omit the entry in the table relating to section 51.
504
In section 322(2) (commercial letting of furnished holiday
40
accommodation)—
(a)
omit paragraphs (b) and (c), and

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
588

(b)
for paragraph (f) and the “and” immediately before that paragraph
substitute—
“(f)
section 189(2)(ba) of FA 2004 (meaning of “relevant
UK earnings” for pension purposes),
(g)
Part 4 of ITA 2007 ( loss relief: see section 127 of that
5
Act), and
(h)
section 769(3) of ITA 2007 (jointly held property: see
exception D).”
505
In section 327(2)(b) (capital allowances and loss relief) for “Chapter 1 of Part
10 of ICTA” substitute “Part 4 of ITA 2007”.
10
506   (1)
Amend section 328 (earned income and relevant UK earnings for pension
purposes) as follows.
      (2)
In subsection (2) for “treated as” to the end substitute “relevant UK earnings
within section 189(2)(ba) of FA 2004.”
      (3)
In the sidenote omit “Earned income and”.
15
507
In section 333(3) (treatment of property business adjustment income) for
“Chapter 1 of Part 10 of ICTA” substitute “Part 4 of ITA 2007”.
508
In section 354(2) (other rules about what counts as a “post-cessation receipt”)
after “section 250 (receipts relating to post-cessation expenditure)” insert
“(reading the reference in subsection (1) to section 96 of ITA 2007 as a
20
reference to section 125 of that Act)”.
509
In section 372(2) (building society dividends) for the words from “has” to the
end substitute “includes any distribution (whether or not described as a
dividend)”.
510   (1)
Amend section 397 (tax credits for qualifying distributions: UK residents
25
and eligible non-UK residents) as follows.
      (2)
In subsection (2) omit paragraph (b) and the “or” immediately before it.
      (3)
In subsection (4) after “ICTA” insert “or section 56(3) of ITA 2007”.
      (4)
In subsection (6) for the words from “section 231AA” to “umbrella scheme),”
substitute—
30
“section 504(4) of ITA 2007 (disapplication of certain provisions
for income of unauthorised unit trusts),
section 592 of ITA 2007 (no tax credits for borrower under stock
lending arrangement),
section 593 of ITA 2007 (no tax credits for interim holder under
35
repo),
section 594 of ITA 2007 (no tax credits for original owner under
repo),”.
511   (1)
Amend section 399 (qualifying distributions received by persons not entitled
to tax credits) as follows.
40
      (2)
In subsection (4) for the words from “and the distribution” to “treated”
substitute “, the amount or value of the distribution is treated for the
purposes of Chapters 3, 4 and 6 of Part 9 of ITA 2007 (special rates for
trustees’ income)”.
      (3)
In subsection (7) for the words from “section 231AA(1A)” to the end
45

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
589

substitute—
“section 504(4) of ITA 2007 (disapplication of certain provisions
for income of unauthorised unit trusts),
section 592 of ITA 2007 (no tax credits for borrower under stock
lending arrangement),
5
section 593 of ITA 2007 (no tax credits for interim holder under
repo), and
section 594 of ITA 2007 (no tax credits for original owner under
repo).”
512   (1)
Amend section 400 (non-qualifying distributions) as follows.
10
      (2)
In subsection (4) for the words from “income to which” to the end substitute
“assessed (in whole or in part) at the dividend trust rate by virtue of Chapter
3 of Part 9 of ITA 2007 (trustees’ accumulated or discretionary income to be
charged at special rates), the trustees’ liability for income tax at that rate is
reduced”.
15
      (3)
After subsection (6) insert—
“(7)
Subsection (2) is subject to section 504(4) of ITA 2007 (disapplication
of certain provisions for income of unauthorised unit trusts).”
513
In section 401 (relief: qualifying distribution after linked non-qualifying
distribution) after subsection (6) insert—
20
“(6A)
The reduction under this section is given effect at Step 6 of the
calculation in section 23 of ITA 2007.”
514
In section 410(3)(b) (stock dividend income arising to trustees) for the words
from “income” to the end substitute “accumulated or discretionary income
(as defined in section 480 of ITA 2007 but excluding income arising under a
25
trust established for charitable purposes only or an unauthorised unit trust
in relation to which section 504 of that Act applies)”.
515   (1)
Amend section 414 (stock dividends from UK resident companies: income
tax to be treated as paid) as follows.
      (2)
In subsection (1) for “income to which section 686 of ICTA applies”
30
substitute “accumulated or discretionary income (as defined in section 480
of ITA 2007)”.
      (3)
In subsection (4) after “fall to be made” insert “at Step 2 or 3 of the calculation
in section 23 of ITA 2007 (calculation of income tax liability)”.
516
In section 418(5) (loans to participator in close company: relief where
35
borrowers liable as settlors) for “rate applicable to trusts” substitute “trust
rate”.
517
In section 421(4) (loans to participator in close company: income tax treated
as paid) after “fall to be made” insert “at Step 2 or 3 of the calculation in
section 23 of ITA 2007 (calculation of income tax liability)”.
40
518   (1)
Amend section 426 (annuity payments received after deduction of tax) as
follows.
      (2)
For “Income tax deducted under either of the following sections” substitute
“In accordance with section 781 of ITA 2007 a sum representing income tax
deducted under section 834 of that Act”.
45

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
590

      (3)
Omit the words after “recipient”.
519
In section 446 (strips of government securities: relief for losses) for
subsection (2) substitute—
“(2)
If a person makes a claim under this section, the relief is given by
deducting the loss in calculating the person’s net income for the tax
5
year in which the disposal occurs (see Step 2 of the calculation in
section 23 of ITA 2007).”
520
In section 454 (listed securities held since 26th March 2003: relief for losses)
for subsection (4) substitute—
“(4)
If a claim under this section is made by a person other than a trustee,
10
the relief is given by deducting the loss in calculating the person’s net
income for the tax year in which the disposal occurs (see Step 2 of the
calculation in section 23 of ITA 2007).”
521   (1)
Amend section 457 (disposal of deeply discounted securities by trustees) as
follows.
15
      (2)
Omit subsection (3).
      (3)
For subsection (5) substitute—
“(5)
If the trustees are trustees of a scheme in relation to which section 504
of ITA 2007 applies, subsection (2) does not apply to profits which
are shown in the scheme’s accounts as income available for payment
20
to unit holders or for investment.”
522
In section 459(2) (profits from deeply discounted securities: transfer of assets
abroad) for “sections 739 and 740 of ICTA (transfer of assets abroad) have”
substitute “Chapter 2 of Part 12 of ITA 2007 (transfer of assets abroad) has”.
523
In section 460(2) (profits from deeply discounted securities: minor
25
definitions) for “section 709(1)” substitute “section 840ZA”.
524
After section 465 insert—
“465A
Amounts for which individuals liable to be treated as highest part of
total income
(1)
This section applies if—
30
(a)
an individual is liable for tax under this Chapter in respect of
an amount, and
(b)
the individual is treated by section 530 as having paid income
tax at the savings rate on the amount.
(2)
The amount is treated as the highest part of the individual’s total
35
income.
(3)
Subsection (2) has effect for all income tax purposes except the
purposes of sections 535 to 537 (gains from contracts for life
insurance etc: top slicing relief).
(4)
See section 946 of ITA 2007 (relationship between highest part rules)
40
for the relationship between—
(a)
the rule in subsection (2), and
(b)
other rules requiring particular income to be treated as the
highest part of a person’s total income.”

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
591

525
In section 466(2) (person liable: personal representatives) for “lower rate”
substitute “savings rate”.
526   (1)
Amend section 467 (liability of trustees for tax on gains from contracts for
life insurance etc) as follows.
      (2)
After subsection (1) insert—
5
“(1A)
If trustees are liable for tax under this Chapter, the gain is treated for
income tax purposes as income of the trustees.”
      (3)
For subsection (7) substitute—
“(7)
If trustees are liable for tax under this Chapter, it is charged at the
savings rate if—
10
(a)
condition A is met, or
(b)
condition D is met and the trustees are trustees of a charitable
trust.”
527
In section 468 (gains from contracts for life insurance etc: non-UK resident
trustees and foreign institutions)—
15
(a)
in subsection (2) for “Sections 739 and 740”, “prevent” and “apply”
substitute “Chapter 2 of Part 12 of ITA 2007”, “prevents” and
“applies” respectively, and
(b)
in subsections (3) and (4) for “sections 739 and 740 apply” substitute
“Chapter 2 of Part 12 of ITA 2007 applies”.
20
528
In section 482 (excepted group life policies: conditions about persons
intended to benefit)—
(a)
in subsection (6) omit the definition of “tax advantage”, and
(b)
after that subsection insert—
“(7)
In this section “tax advantage” has the meaning given by
25
section 840ZA of ICTA.”
529
In section 520(4) (the property categories) after the definition of “internal
linked fund” insert—
““investment trust” has the meaning given by section 842 of
ICTA,”.
30
530   (1)
Amend section 530 (income tax treated as paid) as follows.
      (2)
In subsection (1) for “lower rate” substitute “savings rate”.
      (3)
In subsection (4) after “fall to be made” insert “at Step 2 or 3 of the calculation
in section 23 of ITA 2007 (calculation of income tax liability)”.
531   (1)
Amend section 535 (top slicing relief) as follows.
35
      (2)
After subsection (2) insert—
“(2A)
If the relief is given by a reduction in income tax, it is given effect at
Step 6 of the calculation in section 23 of ITA 2007.”
      (3)
In subsection (3)—
(a)
for “LRL”, in both places where it occurs, substitute “SRL”, and
40
(b)
for “lower rate” substitute “savings rate”.

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
592

      (4)
After subsection (6) insert—
“(7)
For the purposes of the calculations mentioned in subsection (1) any
relief under Chapter 2 or 3 of Part 8 of ITA 2007 (which relate to gift
aid and other gifts to charities) is ignored.”
532
In section 536(1) (top slicing relieved liability: one chargeable event) in
5
paragraph (b) of Step 2 for “lower rate” substitute “savings rate”.
533
In section 537 (top slicing relieved liability: two or more chargeable events)
in paragraph (b) of Step 2 for “lower rate” substitute “savings rate”.
534
For section 539 (relief for deficiencies) substitute—
“539
Relief for deficiencies
10
(1)
An individual is entitled to a tax reduction for a tax year in which a
deficiency arises from a policy or contract on a chargeable event if—
(a)
the condition in subsection (2) is met,
(b)
the individual would (apart from this section) be liable to
income tax at the higher rate or the dividend upper rate (or
15
both) for the tax year, and
(c)
the individual makes a claim.
(2)
The condition is that, if a gain had arisen instead on the chargeable
event—
(a)
the individual would have been liable to income tax on the
20
gain for the year, or
(b)
the individual would have been so liable apart from the
requirement in section 465(1) that the individual must be UK
resident in the tax year in which the gain arises.
(3)
The tax reduction is given effect at Step 6 of the calculation in section
25
23 of ITA 2007.
(4)
See section 540 for the cases in which a deficiency is treated as arising
from a policy or contract on a chargeable event, section 541 for how
the deficiency is calculated and section 469(5) for the apportionment
of deficiencies in cases where two or more persons are interested in
30
a policy or contract.
(5)
The amount of the tax reduction is calculated as follows.


Step 1

Attribute to the amount of the deficiency an amount of the
35
individual’s income for the tax year which is liable at the dividend
upper rate, so far as is possible.


Step 2

If there is an amount of the deficiency remaining after Step 1,
40
attribute to the remaining amount of the deficiency an amount of the
individual’s savings income for the tax year which is liable at the
higher rate, so far as is possible.


Step 3
45