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Clause 435: Incidental costs of making disposal
1244. This clause defines "the incidental costs of making the disposal to the individual making it". It is based on section 587B(9) of ICTA.
1245. The clause reproduces the material in section 38(2) of TCGA to which section 587B(9) cross-refers, with the exception of the reference to stamp duty and stamp duty land tax, which do not apply to transactions within this Chapter.
Clause 436: Consideration
1246. This clause defines "consideration". It is based on section 587B(7)(b) of ICTA.
1247. The clause reproduces the relevant material in section 48 of TCGA (consideration due after time of disposal), to which section 587B(7)(b) cross-refers. The main thrust of section 48 of TCGA is that full value is to be introduced into the computation of the gain. Only on a subsequent claim is the consideration to be reduced, either because the right to receive any amount is contingent or because any part of the consideration proves to be irrecoverable.
Clause 437: Value of net benefit to charity
1248. This clause is the first of four clauses concerned with defining the value of the net benefit to the charity. It is based on section 587B(8A) and (8B) of ICTA.
1249. In the simple case, where there are no disposal-related obligations, the value of the net benefit to the charity is the market value of the qualifying investment. As indicated in clause 434, this has to be considered both at, and immediately after, the disposal.
1250. If the charity is, or becomes, subject to an obligation that is connected with the disposal of the qualifying investment to the charity, the market value of the investment is reduced by the amount of the disposal-related liabilities (see clause 440) brought about by the obligation. These obligations also must be considered both at, and immediately after, the disposal.
Clause 438: Market value of qualifying investments
1251. This clause sets out how the market value of qualifying investments is to be determined. It is based on section 587B(10) and (11) of ICTA.
1252. The methods are those laid down in sections 272 to 274 of TCGA. If an offshore fund publishes buy and sell prices, it is in effect subject to the same treatment as a "unit trust scheme" as laid down by section 272(5) of TCGA. The provisions of that subsection are reproduced here.
Clause 439: Meaning of "disposal-related obligation"
1253. This clause defines "disposal-related obligation". It is based on sections 587B(8B) to (8D) and (9) of ICTA.
1254. The obligation undertaken by the charity may be any scheme, arrangement or understanding of any kind, regardless of whether it is legally enforceable. The word "obligation" also includes a reference to a series of obligations, whether or not between the same persons. It may also be contingent (see clause 440(2)).
Clause 440: Meaning and amount of "disposal-related liability"
1255. This clause defines "disposal-related liability". It is based on section 587B(8E) to (8G) of ICTA.
1256. Subsection (2) deals with contingent disposal-related obligations.
1257. It is in the nature of a contingency that it may occur after the time of disposal; hence the words "at any time". If a contingency occurs later than immediately after the disposal, but existed as a possibility at the time of disposal, the value of the net benefit to the charity at the time of, or immediately after, the disposal must be reduced; and all necessary adjustments must be made to give effect to this. Conversely, if the contingency does not occur, to that extent there will be no obligation and no liability.
Clause 441: Certificate required from charity
1258. This clause, which is the first of four that deal specifically with qualifying interests in land, requires any claim for relief in relation to a qualifying interest in land to be supported by a certificate from the charity. It is based on section 587C(1), (4) and (5) of ICTA.
Clause 442: Qualifying interests in land held jointly
1259. This clause deals with land held by joint tenants or by tenants in common. It is based on section 587C(1) to (3) of ICTA.
1260. Relief is given only if each joint tenant, or tenant in common, disposes of the whole of that person's beneficial interest in the land. This applies whether the relief is claimed by an individual under this Chapter, or by a company under sections 587B and 587C of ICTA.
1261. It is provided that there must be an agreement between all the tenants eligible for relief (whether individuals or not, and whether joint or in common) as to the share of the relief attributable to each tenant. To the extent that there is no such agreement between the owners entitled to relief, there is no relief under this Chapter, or under sections 587B and 587C of ICTA.
1262. The relief is available to individuals under this Chapter and to companies under sections 587B and 587C of ICTA, but not to other persons. So it is necessary in the case of joint disposals to set out a method to determine whether all beneficial interests have been disposed of. To that end, and to ensure that the total relief given under this Chapter and the corresponding provisions of ICTA is not excessive, it is provided that, for this purpose only, the rules defining "qualifying interest in land" in clause 433(2) to (4) are to apply to all owners as if they were individuals. See also Change 80 in Annex 1 and the commentary on clause 443.
Clause 443: Calculation of relievable amount where joint disposal of interest in land
1263. This clause provides details of the method of calculation of the "relievable amount" in cases where there is a joint disposal of an interest in land. It is new.
1264. The method involves calculating the relievable amount as if there is a disposal by a single person, and then adjusting the amount to take account of only those owners who qualify for relief. See Change 80 in Annex 1.
Clause 444: Disqualifying events
1265. This clause provides for the recovery of relief if a "disqualifying event" occurs within the "provisional period". It is based on section 587C(1) and (6) to (10) of ICTA.
1266. In the simplest case, such an event occurs if any of the persons who made the disposal are entitled to buy the land back from the charity at an undervalue.
Clause 445: Prohibition against double relief
1267. This clause establishes the priority of this Chapter over any other provisions under which relief might be claimed. It is based on section 587B(2)(b) of ICTA.
1268. Subsection (2) is a signpost to the effect on the chargeable gains position of the charity of the rules in section 587B(3) of ICTA. See section 257 of TCGA as amended by Schedule 1 to this Bill.
Clause 446: "Charity" to include exempt bodies
1269. This clause extends the relief given by the Chapter to certain bodies set up by Act of Parliament even though they are not charities. It is based on section 587B(9) of ICTA.
1270. The references to the British Museum and the Natural History Museum (originally in section 507(1) of ICTA, to which section 587B(9) of that Act cross-refers) are no longer required, since those bodies are established for charitable purposes. Their omission does not affect the exemption from corporation tax given by section 507 of ICTA. See Change 79 in Annex 1 and the commentary on clause 430.
Chapter 4: Annual payments and patent royalties
1271. This Chapter provides for relief for certain annual payments and patent royalty payments by deduction in calculating net income. These rules are coupled with those providing for deduction of tax at source from the payments: see Chapter 6 of Part 14 and the related commentary.
1272. The scheme of the source legislation relating to charges on income (which owes its origins to the historic concept of alienation of income) is replaced with a deduction in calculating net income. See Change 81 in Annex 1.
1273. This Chapter distinguishes between individuals and other persons. One reason for this is that section 347A of ICTA provides that, with certain exceptions, an annual payment made by an individual (or personal representatives) is not to be a charge on the income of the person liable to make it. And there is a similar rule concerning the recipient in section 727 of ITTOIA. But those rules do not apply to payments by persons other than individuals. See the commentary on clauses 833, 834, and 836.
1274. In addition, the rules about when payments are regarded as being, or not being, made out of profits or gains brought into charge to income tax distinguish between the position of individuals and other persons in the light of the case law.
Clause 447: Overview of Chapter
1275. This clause provides an overview of the Chapter. It is new.
Clause 448: Relief for individuals
1276. This clause provides for relief by deduction from income if an individual pays an annual payment for commercial purposes (see clause 833) or pays a patent royalty (see clause 836). It is based on section 348 of ICTA.
1277. The income tax in respect of the payment is collected as part of the individual's self-assessment by way of Chapter 17 of Part 14. See Change 81 in Annex 1 and the overview commentary on this Chapter.
1278. The term "gross amount of the payment" is defined in clause 452.
1279. In the source legislation a number of types of income are treated as "not brought into charge to income tax" and so are not available to cover charges on income. To preserve the effect of the source legislation, it is necessary to prevent the deduction being given against such "non-qualifying" income. Subsection (3) introduces these by referring to subsection (4) and to clause 451.
1280. Subsection (4) gives a signpost to clause 958 which, together with clause 959, provides that such income cannot form part of "modified net income". So it cannot give occasion for relief. See the commentary on clause 958.
Clause 449: Relief for other persons
1281. This clause provides for relief by deduction from income in the case of persons other than individuals. It is based on section 348 of ICTA.
1282. Subsection (1)(c) works together with the repeal of section 51 of ITTOIA to align the approach to patent royalties with that for annual payments. See Change 81 in Annex 1.
1283. Subsection (5) mirrors the rule about "modified net income" in the previous clause.
Clause 450: Other persons: payments ineligible for relief
1284. This clause rewrites the rule in the source legislation about when payments are regarded as being, or not being, made out of profits or gains brought into charge to income tax. It is new.
1285. In the case of an individual one need go no further than ask whether the individual has income, as noted in Change 82 in Annex 1. But the position is more complex in the case of persons other than individuals.
1286. Subsection (2) provides that if a payment can lawfully only be made out of capital, or out of exempt income, relief will not be given: see Change 82 in Annex 1 in connection with Sugden v Leeds Corporation (1913), 6 TC 211 HL.
1287. Subsection (3) provides that, if a person other than an individual makes a payment within this Chapter that is charged to capital, it is to that extent denied relief. This principle appears in Chancery Lane Safe Deposit and Offices Co Ltd v CIR (1965), 43 TC 83 HL and related cases: see Change 82 in Annex 1.
1288. Subsection (4) provides for cases where the taxpayer has treated a payment as having been made out of exempt income, and this has had an effect on the actual or contingent rights or obligations of any person. Relief in such cases is denied on the authority of CIR v Ayr Town Council (1938), 22 TC 381 CS: see Change 82 in Annex 1 concerning that and related cases.
1289. Subsection (5) deals with "subsidy" cases, where payment is made but the payer is reimbursed for the gross amount in a form that is not taxable in the payer's hands. To permit such cases would in effect give double relief: see Change 82 in Annex 1 as regards Corporation of Birmingham v CIR (1930), 15 TC 172 HL and related cases.
Clause 451: Special rule for persons affected by section 733 of ICTA
1290. This clause is based on section 733(2) of ICTA.
1291. Sections 731 to 735 of ICTA are anti-avoidance provisions. They are concerned with cases where:
1292. Section 733(2) addresses the case where:
1293. The source legislation provides that an annual payment is to be treated as paid out of profits or gains not brought into charge. It follows that, even though the exemption is cancelled by section 733(1), leaving interest in charge to income tax, the annual payment must not be treated as paid out of that interest.
1294. This is rewritten so that relief is only given if, and to the extent that, the person has "non-affected income" equal to the annual payment. Non-affected income is defined as modified net income less affected income. On modified net income, see the commentary on clauses 448 and 958.
1295. Because this is a rule relating to a very specific type of income, it is necessary to apply it before applying the provisions referred to in subsection (4).
Clause 452: The gross amount of a payment
1296. This clause provides, for the purposes of this Chapter, that the gross amount of a payment is the amount of the payment before deduction of income tax. It is new.
Chapter 5: Qualifying maintenance payments
1297. This Chapter provides relief as a tax reduction at Step 6 of the tax calculation (see clause 23) for individuals who make qualifying maintenance payments. It is based on section 347B of ICTA.
1298. Maintenance payments have been exempt from income tax since 6 April 2000. And in general no relief is available for those who pay them. But a measure of relief remained available if at least one party to a marriage was 65 or over before 6 April 2000, in line with corresponding changes made at the same time to married couple's allowance.
1299. Since 5 December 2005, when the Tax and Civil Partnership Regulations 2005 came into force, relief has been extended to civil partners. And, in relation to payments for children, it was also extended to cover payments between parents who were never married and payments between any two individuals if the child was treated as a child of their family.
1300. The transitional arrangements in section 38 of FA 1988 for maintenance paid under obligations that existed in 1988 came to an end on 5 April 2000 (see section 36 FA 1999) and are spent. Accordingly, they are repealed by this Bill.
Clause 453: Tax reduction for qualifying maintenance payments
1301. This clause provides for a tax reduction if an individual makes qualifying maintenance payments. It is based on section 347B(2), (3) and (5A) of ICTA.
1302. Relief has to be claimed and is given for the year in which the payments are due. The relief is 10% of the amount of the payments, but is capped by reference to the minimum amount of married couple's allowance for the year. For 2006-07 that amount is £2,350 so the maximum tax reduction is £235.
1303. The rules in section 347(5A) and (5B) of ICTA giving the priority between this relief and other tax reductions, and providing that relief cannot reduce liability below nil, are not set out here. They are contained in the general rules applying to all tax reductions in Chapter 3 of Part 2.
Clause 454: Meaning of "qualifying maintenance payment"
1304. This clause sets out the conditions that must be satisfied for relief to be due. It is based on section 347B(1), (1A), (7), (8) and (11) of ICTA.
1305. Condition A requires that the payment be paid either for the maintenance of a party to the marriage or civil partnership or for the maintenance of a child.
1306. In relation to payments for the maintenance of the other party to the marriage or civil partnership, they must be made to the other party.
1307. In relation to payments for the maintenance of a child, they must be made by one parent to the child's other parent or be between any two persons for the maintenance of a relevant child of theirs. "Relevant child" is defined in subsection (9). Relief is not due if the order or agreement provides for payments direct to a child.
1308. Condition C requires the payment to be made under certain types of court order or written agreement that apply in member States. Later subsections provide that payments under child support legislation are also included.
1309. Condition D specifies that, in relation to a payment for the other spouse or civil partner, the parties must not be a married couple living together or civil partners living together. If the marriage or civil partnership has formally ceased, the recipient must not have remarried or entered into a new civil partnership (whether or not that new marriage or civil partnership has since come to an end). If the payment is for a child, the condition is that the payer and the recipient are not living together.
1310. Condition E specifies that relief must not be due for the payment under any other provision. This caters for the possibility that the payment of interest on a loan to buy an annuity for the other party (and for which relief is due under section 365 of ICTA) may constitute maintenance.
1311. Subsections (7) and (8) provide that maintenance calculations made under the Child Support Act 1991 and maintenance assessments made under the Child Support (Northern Ireland) Order 1991 (SI 1991/2628(NI 23)) are treated as made under a court order. The transitional provision in Part 9 of Schedule 2 ensures that maintenance assessments in the rest of the United Kingdom which have not yet been replaced by maintenance calculations are treated in the same way.
1312. In the source legislation for subsection (7) the reference was to an order made by a court in the United Kingdom. It is here replaced by a reference to a court in a member state to tie in with the wording in subsection (4). This is not a change in the law.
Clause 455: Child support maintenance payments
1313. This clause ensures that condition A in clause 454 is treated as satisfied in certain cases where the maintenance payment for a child is not made to the other party. It is based on section 347B(9) and (10) of ICTA.
1314. In certain circumstances, the maintenance for a child may be paid instead to the Secretary of State or the Department of Health, Social Services and Public Safety for Northern Ireland. This clause treats condition A as satisfied in those cases.
Clause 456: Payments under orders for recovery of benefit etc
1315. This clause treats condition A in clause 454 as satisfied in relation to certain maintenance payments under "recovery of benefit orders". It is based on section 347B(12) and (13) of ICTA.
1316. In certain circumstances, the party entitled to the maintenance may receive income support or jobseeker's allowance which is recovered from the party liable to pay the maintenance under a "recovery of benefit order" (see subsection (2)). Such payments are treated as satisfying condition A.
Chapter 6: Miscellaneous other reliefs
1317. The first three clauses of this Chapter concern relief for certain payments of an insurance-related nature, either by deduction in calculating net income or as a tax reduction. They are based on sections 266(7), 273, 274 and 278 of ICTA.
1318. Relief is given for parts of certain payments made to trade unions or police service organisations that go to provide life insurance, superannuation or funeral benefits. This relief is given by deduction in calculating net income.
1319. Relief is given for certain payments an individual is required to make to secure an annuity for a spouse or to provide for children after the individual's death. This relief is given as a tax reduction.
1320. The fourth clause is the "residence" condition relating to those reliefs.
1321. The final clause in this Chapter is a relief that may be claimed by the recipient of patent royalties. It is based on section 527 of ICTA.
1322. Section 266(6) and (6A) of ICTA provided relief for premiums paid under certain policies issued by friendly societies. These provisions are obsolete. Accordingly they are repealed by this Bill.
1323. The remaining provisions of section 266 to 274 of, and Schedule 14 to, ICTA are obsolescent. They are not being rewritten, and remain in ICTA.
Clause 457: Payments to trade unions
1324. This clause provides a deduction in calculating net income if an individual makes a payment to a trade union of which part is attributable to the provision of superannuation, life insurance or funeral benefits. It is based on section 266(7) of ICTA.
1325. Subsection (1)(c) requires a claim to be made. The general rule in section 266(1), in the context of the relief given at source, is that claims are not required. This clause brings the position in relation to section 266(7) of ICTA, which is administered through the self-assessment return, into line with practice. See Change 83 in Annex 1.
1326. Subsections (2) and (3) provide that the amount of relief is one half of the qualifying part of the payment, subject to a maximum of £100. This simplifies many of the complexities of the existing limits provided by section 274(1) and (2) of ICTA. See Change 84 in Annex 1.
1327. Subsection (5) defines a trade union. The 1974 Act referred to in section 266(7) of ICTA was repealed in 1992.
Clause 458: Payments to police organisations
1328. This clause is based on section 266(7) of ICTA.
1329. The clause is similar to clause 457. But there is an additional requirement that the qualifying part of all the payments made in a particular tax year must be at least £20.
1330. Changes 83 and 84 also apply to this clause. See the commentary on clause 457.
Clause 459: Payments for benefit of family members
1331. This clause provides relief as a tax reduction for certain payments an individual is required to make to provide benefits for a surviving spouse, civil partner or children after the individual's death. It is based on section 273 of ICTA.
1332. Subsection (1) explains that a tax reduction may be claimed if an individual is required under an Act or the conditions of employment to pay a sum or suffer a deduction from earnings to secure an annuity for a surviving spouse or civil partner or make provision for the individual's surviving children.
1333. The residence requirement from section 278 of ICTA is contained in subsection (1)(c) without any special provision for claims by non-residents to be made to the Commissioners for Her Majesty's Revenue and Customs. Claims may be made to any officer and appeals are not reserved to the Special Commissioners. This is achieved here by not specifying to whom claims are to be made. See Change 5 in Annex 1.
1334. Subsections (2) to (4) specify that the relief operates as a tax reduction of an amount equal to income tax at the basic rate on the amount of all of the payments (or sums deducted) in the tax year, subject to a maximum of £100. The limit provided by section 274(1) and (2) of ICTA requires account to be taken of other qualifying insurance related payments in the year. That requirement has been removed. See Change 84 in Annex 1 and the commentary on clause 457.
1335. Subsection (7) defines the term "earnings" in subsection (1). The term "stipend" in the source legislation is interpreted in the context of the terms "salary" and "employment" and is therefore covered by the term "earnings". "Stipend" does not embrace income in the nature of a pension.
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