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
593


If there is an amount of the deficiency remaining after Step 2,
attribute to the remaining amount of the deficiency an amount of the
individual’s other income for the tax year which is liable at the
higher rate, so far as is possible.

5

Step 4

Calculate the amount of the individual’s preliminary income tax
liability for the tax year (see subsection (6)).


Step 5
10

Calculate the amount of the individual’s preliminary income tax
liability for the tax year again, on these assumptions—

Assume that any income attributed to the deficiency at Step 1 is liable
at the dividend ordinary rate.

Assume that any income attributed to the deficiency at Step 2 is liable
15
at the savings rate.

Assume that any income attributed to the deficiency at Step 3 is liable
at the basic rate.


Step 6
20

Deduct the amount found at Step 5 from the amount found at Step 4.

The result is the amount of the tax reduction.
(6)
The individual’s preliminary income tax liability is the amount
found by calculating the individual’s income tax liability in
accordance with section 23 of ITA 2007, ignoring Steps 6 and 7 of that
25
calculation.”
535
In section 546(4) (table of provisions subject to special rules for older policies
and contracts), in the first column of the table, for “Section 539(3)” substitute
“Section 539”.
536   (1)
Amend section 547 (income tax chargeable on income treated as received
30
from unauthorised unit trust) as follows.
      (2)
In subsection (1) for the words from “scheme” to the end substitute “unit
trust scheme to which this section applies”.
      (3)
After subsection (2) insert—
“(3)
This section applies to a unit trust scheme if—
35
(a)
the scheme is an unauthorised unit trust, and
(b)
the trustees of the scheme are UK resident.”
537
For section 550 substitute—
“550
Income tax treated as paid
In accordance with section 781 of ITA 2007, a sum representing
40
income tax treated as deducted from income within this Chapter as
a result of section 874 of that Act (deemed deduction from unit
holder’s income) is treated as income tax paid by the unit holder.”
538
In section 567(2) (disposals of futures and options involving guaranteed
returns: losses) for “section 392 of ICTA” substitute “section 152 of ITA
45
2007”.

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
594

539
In section 569(2) (disposal of futures and options involving guaranteed
returns: anti-avoidance: 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”.
540
In section 570(5) (charge to tax under Chapter 13: sales of foreign dividend
5
coupons) for “section 840A of ICTA” substitute “section 925 of ITA 2007”.
541   (1)
Amend section 595 (deduction of tax from payments to non-UK residents)
as follows.
      (2)
In subsection (2) for the words after “which” substitute “is to be deducted
under section 843 of ITA 2007”.
10
      (3)
In subsection (3) for the words after “which” substitute “is to be deducted
under section 843 of ITA 2007”.
542
In section 601 (how relief for patent expenses is given) after subsection (2)
insert—
“(2A)
The deduction or set-off is given effect at Step 2 of the calculation in
15
section 23 of ITA 2007.”
543   (1)
Amend section 602 (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 either of the following Chapters”.
20
      (3)
For the words after “recipient” substitute “—
Chapter 6 of Part 14 of ITA 2007 (deduction from annual payments and
patent royalties), and
Chapter 7 of that Part (deduction from other payments connected with
intellectual property).”
25
544   (1)
Amend section 618 (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 Chapter 6 of Part 14 of that Act”.
      (3)
Omit the words after “recipient”.
30
545
In section 619(2) (charge to tax on settlor)—
(a)
for “sections 1 to 1B of ICTA” substitute “Chapter 2 of Part 2 of ITA
2007 (rates at which income tax is charged)”, and
(b)
for “Tax Acts” substitute “Income Tax Acts”.
546
After section 619 insert—
35
“619A
Income treated as highest part of settlor’s total income
(1)
This section applies to income which is treated as income of a settlor
as a result of section 624 (income where settlor retains an interest) or
629 (income paid to unmarried minor children of settlor).
(2)
The income is treated as the highest part of the settlor’s total income
40
for the purposes of section 619 (so far as it relates to the income).

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
595

(3)
See section 946 of ITA 2007 (relationship between highest part rules)
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.”
5
547
In section 620(5) (which contains various definitions) in the definition of
“charity” for the words from “each” to the end substitute—
“(a)
the Trustees of the National Heritage Memorial Fund,
(b)
the Historic Buildings and Monuments Commission
for England, and
10
(c)
the National Endowment for Science, Technology
and the Arts”.
548
In section 624 (income where settlor retains an interest in the settlement)
after subsection (1) insert—
“(1A)
If the settlement is a trust, expenses of the trustees are not to be used
15
to reduce the income of the settlor.”
549
In section 627(2) (income where settlor retains an interest: exceptions), in
paragraph (b), for “section 25 of FA 1990 (donations to charity by
individuals)” substitute “Chapter 2 of Part 8 of ITA 2007 (gift aid)”.
550   (1)
Amend section 628 (exception for gifts to charities) as follows.
20
      (2)
In subsection (2)—
(a)
in paragraph (a) for “is to” substitute “must”, and
(b)
in paragraph (b) omit the words after “person”.
      (3)
After that subsection insert—
“(2A)
The cases covered by subsection (2)(b) include cases where the
25
trustees have, or any other person has, any discretion over one or
more of the following matters—
(a)
whether, or the extent to which, the income is to be
accumulated,
(b)
the persons to whom the income is to be paid, and
30
(c)
how much of the income is to be paid to any person.”
      (4)
In subsection (6)—
(a)
in the definition of “charity” for the words from “each” to the end
substitute—
“(a)
the Trustees of the National Heritage
35
Memorial Fund,
(b)
the Historic Buildings and Monuments
Commission for England, and
(c)
the National Endowment for Science,
Technology and the Arts, and”, and
40
(b)
omit the definition of “resident” and the “and” immediately after it.
551
In section 631(7) (retained and accumulated income) for “the total income”
substitute “the child’s total income or net income at Step 2 or 3 of the
calculation in section 23 of ITA 2007”.

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
596

552
In section 635(3)(d) (settlements: amounts treated as income of settlor:
amount of available income) for “rate applicable to trusts” substitute “trust
rate”.
553   (1)
Amend section 636 (calculation of undistributed income) as follows.
      (2)
In subsection (6) for “section 505 of ICTA (charities: general)” substitute “any
5
provision to which subsection (7) applies”.
      (3)
After that subsection insert—
“(7)
This subsection applies to the following provisions of ITA 2007—
section 521(4) (gifts entitling donor to gift-aid relief),
section 522(5) (gifts of money from companies),
10
section 523(5) (payments from other charities),
section 524 (profits etc of charitable trades),
section 529 (profits from fund-raising events),
section 530 (profits from lotteries),
section 531 (property income etc),
15
section 532 (savings and investment income),
section 533 (public revenue dividends),
section 536 (miscellaneous income), and
section 537 (income from estates in administration).”
554
In section 640(1) and (3)(a) (settlements: amounts treated as income of
20
settlor: grossing-up of deemed income) for “rate applicable to trusts”
substitute “trust rate”.
555
After section 646 insert—
“646A
Trustees’ expenses to be rateably apportioned
(1)
This section applies if—
25
(a)
in a tax year qualifying income arises under a UK settlement,
and
(b)
the qualifying income consists of charitable income and non-
charitable income.
(2)
If expenses of the trustees are to be set against the charitable income
30
by virtue of section 484 of ITA 2007, the amount of those expenses
which can used for that purpose is limited to the amount allocated to
the charitable income.
(3)
If—
(a)
Chapter 8 of Part 9 of ITA 2007 applies in relation to the
35
charitable income, and
(b)
expenses of the trustees are to be used to reduce the
charitable income for income tax purposes,

the amount of those expenses which can used for that purpose is
limited to the amount allocated to the charitable income.
40
(4)
For the purposes of subsections (2) and (3) the amount of the
expenses allocated to the charitable income is determined by
apportioning them rateably between the charitable income and the
non-charitable income.

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
597

(5)
In this section—
“charitable income” means income within section 628(1) or
630(1),
“non-charitable income” means income which is not charitable
income, and
5
“qualifying income” and “UK settlement” have the same
meaning as in section 628.”
556
In section 669(3)(a) (reduction in residuary income: inheritance tax on
accrued income) for sub-paragraph (i) substitute—
“(i)
in the case of savings income, at the savings rate,
10
and”.
557
In section 677 (relief where UK income tax borne by foreign estate: absolute
interests) after subsection (2) insert—
“(3)
The tax reduction under this section is given effect at Step 6 of the
calculation in section 23 of ITA 2007.”
15
558
In section 678 (relief where UK income tax borne by foreign estate: limited
and discretionary interests) after subsection (2) insert—
“(3)
The tax reduction under this section is given effect at Step 6 of the
calculation in section 23 of ITA 2007.”
559
In section 679(3)(b) (income from which basic amounts are treated as paid)
20
for “lower rate” substitute “savings rate”.
560
In section 680(4) (income treated as bearing income tax) for “lower rate”
substitute “savings rate”.
561
After section 680 insert—
“680A
Income treated as savings income or dividend income
25
(1)
Subsections (2) and (3) apply to income if it—
(a)
is treated under section 656(3) or 657(4) (gross amount of
estate income treated as bearing tax at the applicable rate) as
bearing tax at the savings rate or the dividend ordinary rate,
and
30
(b)
is not paid through a trustee.
(2)
So far as the income is treated as bearing tax at the savings rate, it is
treated as savings income.
(3)
So far as the income is treated as bearing tax at the dividend ordinary
rate, it is treated as dividend income.
35
(4)
Subsections (5) and (6) apply to income if it—
(a)
is treated by section 662, read with section 656(3) or 657(4), as
bearing tax at the savings rate or the dividend ordinary rate,
(b)
is paid through a trustee, and
(c)
is not income to which section 479 of ITA 2007 applies
40
(special rates for trustees’ accumulated or discretionary
income).
(5)
So far as the income is treated as bearing tax at the savings rate, it is
treated as savings income of the trustee.

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
598

(6)
So far as the income is treated as bearing tax at the dividend ordinary
rate, it is treated as dividend income of the trustee.”
562
In section 682 (assessments, adjustments and claims after the administration
period) after subsection (4) insert—
“(4A)
The excess charged under subsection (4)(b) is treated as an amount
5
of income for income tax purposes, except so far as it represents a tax
reduction given effect at Step 6 of the calculation in section 23 of ITA
2007.”
563
In section 684(3) (Chapter 7 of Part 5 subject to section 687 of ICTA) for
“section 687 of ICTA” substitute “section 494 of ITA 2007”.
10
564   (1)
Amend section 685A (discretionary payments under settlor-interested
settlements) as follows.
      (2)
In subsection (4) omit paragraph (c) and the “and” immediately before it.
      (3)
In subsection (6) for “Section 687 of ICTA” substitute “Sections 494 and 495
of ITA 2007”.
15
565   (1)
Amend section 686 (payments received after deduction of tax) as follows.
      (2)
In subsection (1)—
(a)
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 Chapter 6 of Part 14 of that
20
Act”, and
(b)
omit the words after “recipient”.
      (3)
In subsection (2) for “section 687(2) of that Act” substitute “section 494(3) of
ITA 2007”.
566
In section 704(4)(a) (types of arrangements and providers) for “section
25
840A(1)(b) of ICTA” substitute “section 925(2)(b) of ITA 2007”.
567
In section 714(6) (exemption of profits from FOTRA securities) for “Chapter
3 of Part 17 of ICTA” substitute “Chapter 2 of Part 12 of ITA 2007”.
568
In section 724 (regulations) omit subsection (3).
569
In section 755(3) (exemption of interest on foreign currency securities etc
30
owned by non-UK residents) for “Chapter 3 of Part 17 of ICTA” substitute
“Chapter 2 of Part 12 of ITA 2007”.
570
In section 756A(5) (interest on certain deposits of victims of National-
Socialist persecution) for “meaning given by section 481(3) of ICTA”
substitute “same meaning as in Chapter 19 of Part 14 of ITA 2007 (see section
35
916 of that Act)”.
571
In section 757 (interest and royalty payments: introduction) at the end
insert—
“(4)
See section 847 of ITA 2007 for provision enabling a company to
make a royalty payment gross if it reasonably believes that the
40
payment is exempt from income tax as a result of section 758 of this
Act.”
572
In section 767(2) (power to amend references to the Directive by order)—

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
599

(a)
for “section 101 of FA 2004” substitute “sections 847 to 849 of ITA
2007”, and
(b)
for “subsection (9) of that section” substitute “section 850(2) of that
Act”.
573
In section 852(7) (carrying on by partner of notional trade) for “carried
5
forward under section 385 of ICTA and set against” substitute “deducted
under section 83 of ITA 2007 from”.
574
In section 863(2) (limited liability partnerships)—
(a)
in paragraph (a) after “firm” insert “or partnership”, and
(b)
in paragraph (b)—
10
(i)
after “members”, in the first place where it occurs, insert “or
partners”, and
(ii)
after “firm” insert “or partnership”.
575
In section 871 (apportionment etc of miscellaneous profits to tax year)—
(a)
in subsection (1)(a) for “section 836B of ICTA” substitute “section 950
15
of ITA 2007”, and
(b)
in subsection (2)—
(i)
for “section 836B of ICTA” substitute “section 950 of ITA
2007”, and
(ii)
for “subsection (4)(a)” substitute “subsection (3)(a)”.
20
576
In section 872(3)(a) (losses calculated on same basis as miscellaneous
income) for “section 836B of ICTA” substitute “section 950 of ITA 2007”.
577
Omit section 876 (meaning of “farming” and related expressions).
578
Omit section 877 (meaning of “grossing up”).
579   (1)
Amend section 878 (other definitions) as follows.
25
      (2)
In subsection (1)—
(a)
omit the definition of “charity”,
(b)
after the definition of “houseboat” insert “and”, and
(c)
omit the words after the definition of “income”.
      (3)
In subsection (5) for “Section 839 of ICTA” substitute “Section 927 of ITA
30
2007”.
      (4)
In subsection (6) for “Section 840 of ICTA (meaning of control in relation to
a body corporate)” substitute “Section 929 of ITA 2007 (meaning of
“control”)”.
580
In section 879 (interpretation: Scotland)—
35
(a)
in subsection (1) omit the definitions of “assignment” and
“surrender” and the “and” immediately before the definition of
“surrender”, and
(b)
omit subsection (2).
581
In section 885(3)(c) (general index in Schedule 4) for “ICTA or ITEPA 2003”
40
substitute “another Act”.
582
In Schedule 2 (transitionals and savings etc) omit paragraph 50(3).
583   (1)
Amend paragraph 82 of Schedule 2 (transitionals and savings etc) as follows.