This change is adverse to some taxpayers in principle. But it is expected to have no practical effect as it is in line with current practice.

Change 150: Old double taxation relief arrangements: references to surtax: Schedule 1 (section 789 of ICTA)

This change amends how provisions for exemption from surtax in old double taxation relief arrangements are to be interpreted in relation to dividend income.

Section 789(2)(a) of ICTA provides that any provision in double taxation arrangements made before 30 March 1971 for income to be exempt from surtax is to be applied on the basis that:

• in relation to income to which section 1A of ICTA applies, the lower rate is applied instead of the higher rate; and

• for all other income, the basic rate is applied instead of the higher rate.

That provision was not amended in 1997 when the dividend ordinary rate was introduced (with effect from April 1999). Since dividend income is income to which section 1A applies it follows that, in strictness, dividend income subject to these old double taxation arrangements is to be charged at the lower rate (instead of at the dividend upper rate). That is not the intention. The amendment ensures that the rate at which this income is charged in place of the dividend upper rate will be the dividend ordinary rate (instead of the dividend upper rate).

This change is in taxpayers' favour in principle. But it is expected to have no practical effect as it is in line with current practice.

Change 151: Tax calculation: recovery of excess double taxation relief: Schedule 1 (section 804 of ICTA and paragraph 11 of Schedule 20 to FA 1994)

This change alters the way that excess double taxation relief is clawed back under section 804(5B) of ICTA and paragraph 11(3) of Schedule 20 to FA 1994.

As a result of the rules for allowing credit for overseas tax against an overlap profit, section 804(5B) of ICTA provides that in certain circumstances an excess amount of credit relief has to be identified. The taxpayer is then "treated as having received in that year a payment chargeable to income tax of an amount such that income tax on it at the basic rate is equal to the excess". So having identified an amount of tax, it is then converted to an amount of income. Section 804(6) of ICTA provides that the amount of income is not treated as income for any other purpose.

This provision is about the recovery of excess tax credit relief. It would work much more naturally if it simply provided for an amount of income tax to be charged. And it would then be no longer necessary to have the special rule in section 804(6). Accordingly, section 804(5B) of ICTA is amended to provide for an amount of income tax to be brought into charge and section 804(6) is omitted.

Paragraph 11 of Schedule 20 to FA 1994 provides corresponding rules for businesses affected by the transitional provisions for facilitating self-assessment. Paragraph 11(3) is amended in the same way and paragraph 11(7) is omitted.

This change has no implications for the amount of tax due, who pays it or when. It affects (in principle and in practice) only administrative matters.

Change 152: Inclusion of civil partners in section 37A of TMA: Schedule 1 (section 37A of TMA)

This change extends to civil partners the treatment given to spouses in certain cases where personal reliefs have been transferred and the transferor's income tax liability is subsequently increased. It corrects an omission in the changes made by the Tax and Civil Partnership Regulations 2005 (SI 2005/3229).

Under section 257BB of ICTA (as amended by those Regulations) the unused part of a married couple's tax reduction may be transferred to the claimant's spouse or civil partner. The same applies to unused blind person's allowance under section 265 of ICTA. Where there has been such a transfer and the transferor's income tax liability is subsequently increased due to an assessment to make good a loss of tax wholly or partly attributable to fraudulent or negligent conduct, section 37A of TMA provides that a transfer to a spouse is unaffected. Section 37A was not amended by the Regulations to apply in cases where the transfer of relief was to a civil partner.

In making consequential amendments to section 37A to update the references to the personal relief provisions, the opportunity has been taken to provide that civil partners are treated in the same way as spouses.

This change is adverse to some taxpayers and favourable to others in principle and in practice. But the numbers affected and the amounts involved are likely to be small.

Change 153: Loss relief: claims for set-off of trading losses, employment losses and post-cessation expenditure against capital gains: Schedule 1 (sections 261B to 261E of TCGA)

This change removes the requirement that a claim to set trading or other losses against other income must be made before it is possible for a claim to be made to set trading or other losses etc against capital gains, thus ensuring that such claims can be made in cases where there is no other income against which they could be set.

Section 72 of FA 1991 requires a person to make a loss relief claim under section 380 of ICTA before it is possible for the person to make a claim for capital gains tax relief in respect any unutilised part of that loss. And section 90 of FA 1995 requires a person to make a claim for "loss" relief under section 109A of ICTA before allowing the person to make a claim for capital gains tax relief in respect any unutilised part of that loss.

It is possible that the person will have no income, and so will simply make a claim under section 72 or section 90 as appropriate.

In practice, HMRC accept such claims under either or both of those sections, even though no income tax claim has been made. This change puts this practice on a statutory footing.

This change is in taxpayers' favour in principle. But it is expected to have no practical effect as it is in line with current practice.

Change 154: Deduction of tax: visiting performers: Schedule 1 (section 48 of ITEPA)

This change makes it explicit that a "transfer" which is subject to deduction under the rules about visiting performers in Chapter 18 of Part 14 of this Bill is not subject to the rules about the provision of services through intermediaries in Chapter 8 of Part 2 of ITEPA.

Section 48(2)(b) of ITEPA provides that "payments" which are subject to deduction under section 555 of ICTA are not also subject to the operation of Chapter 8 of Part 2 of ITEPA. But it says nothing about "transfers".

In practice "transfers" are also regarded as excluded from the operation of Chapter 8. The insertion of a reference to "transfer" into section 48(2)(b) of ITEPA makes it explicit that transfers caught by Chapter 18 of Part 14 of this Bill are not also subject to the rules set out in Chapter 8 of Part 2 of ITEPA.

This change is in taxpayers' favour in principle. But it is expected to have no practical effect as it is in line with current practice.

Change 155: Estate income: treatment of payments to beneficiaries: Schedule 1 (section 680A of ITTOIA)

This change clarifies for income tax purposes the nature of sums paid out of income by personal representatives to beneficiaries.

The aim of section 698A of ICTA is to preserve the underlying character of income received by personal representatives when that income is paid out to beneficiaries for the purpose of determining what rate of tax is to be applied to the income.

The income tax charge on estate income in the hands of the beneficiary is contained in Chapter 6 of Part 5 of ITTOIA. The rules in that Chapter gross up the amount of the actual payment to the beneficiary by reference to the tax charged on the personal representatives on the income concerned. That income may have the character of dividend income, savings income or other income and will have been charged respectively at the dividend ordinary rate, the lower rate or the basic rate.

Section 698A(2) of ICTA is clear in providing that where Chapter 6 of Part 5 of ITTOIA has grossed up a payment at the dividend ordinary rate then the payment to the beneficiary is deemed to be a dividend. The beneficiary is then potentially liable at the dividend ordinary rate or the dividend upper rate on that income.

Section 698A(1) of ICTA is less clear in achieving its objective in relation to a payment that has been grossed up at the lower rate. It treats such a payment as income to which section 1A of ICTA applies otherwise than by virtue of the income being income chargeable under Chapter 3 of Part 4 of ITTOIA (dividends). But it does not necessarily follow that it is treating the payment as income to which the lower rate applies. This is because not all the "non-Chapter 3 of Part 4 of ITTOIA" income to which section 1A of ICTA applies is income chargeable at the lower rate. Some of that income is chargeable at the dividend ordinary rate.

The same point arises in relation to income paid through a trustee where section 698A(3)(b) of ICTA applies.

Section 698A of ICTA is rewritten by new section 680A in ITTOIA. By deeming income which has been treated as bearing tax at the savings rate as savings income, any doubt about the rates of tax that apply is removed.

This change is in taxpayers' favour in principle. But it is expected to have no practical effect as it is in line with current practice.

ANNEX 2: EXTRA-STATUTORY CONCESSIONS, CASE LAW, AND LIST OF REDUNDANT MATERIAL NOT REWRITTEN

This Annex is in three parts:

• Table 1: a list of ESCs (and one Statement of Practice) that are rewritten in this Bill;

• Table 2: a list of Changes which involve enacting case law principles; and

• Table 3: a list of provisions that are redundant in whole or in part and are omitted by this Bill.

TABLE 1

The following ESCs and Statement of Practice are rewritten in this Bill.

TABLE 2

The following table sets out those changes in the law which involve giving statutory effect to principles derived, wholly or mainly, from case law.

TABLE 3

The omission of provisions which are redundant in whole or in part is an integral part of the rewrite process.

But, for ease of reference, those omissions worthy of specific explanation are listed in the table below. The table also sets out where those explanations can be found.