Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 2 — Basic provisions
Chapter 3 — Calculation of income tax liability
12

section 80(2) (ring fence income),
section 83(3) and (4) (carry-forward trade loss relief against trade profits),
section 89(3) (terminal trade loss relief against trade profits),
section 93(2) (terminal trade loss relief and mineral extraction trade),
section 95(2) (foreign trades etc reliefs only against qualifying foreign
5
income),
section 115(2) (restrictions on reliefs for firms exploiting films),
section 118(3) and (4) (carry-forward property loss relief against property
business profits),
section 121(2) and (3) (priority rule in relation to property loss relief
10
against general income),
section 129(2) to (4) (priority rule in relation to employment loss relief
against general income),
section 133(4) (share loss relief against general income),
section 152(4) and (7) (loss relief against miscellaneous income),
15
sections 574(3) to (8) and 575 (manufactured dividends on UK shares:
restrictions on deductions),
section 579(2) to (5) and 580 (manufactured interest on UK securities:
restrictions on deductions),
section 258 of CAA 2001 (special leasing of plant or machinery),
20
section 355 of that Act (buildings for miners etc: carry-back of balancing
allowances),
section 479 of that Act (persons having qualifying non-trade expenditure),
section 601 of ITTOIA 2005 (how relief for patent expenses is given), and
any other provision of the Income Tax Acts under which reliefs or
25
allowances deductible at Step 2 or 3 are not permitted to be deducted
from particular components of income or are required to be deducted
from particular components of income or in a different order.
(4)
A relief or allowance may be deducted at Step 2 or 3 only so far as there is
sufficient income from which to deduct it.
30
(5)
In deciding whether there is sufficient income from which to deduct a relief or
allowance, reliefs and allowances already deducted at Step 2 or 3 must be taken
into account.
(6)
Nothing in Step 2 or 3 is to be read as permitting a relief or allowance to be
deducted more than once.
35
26
Tax reductions
(1)
If the taxpayer is an individual, the provisions referred to at Step 6 of the
calculation in section 23 are—
(a)
the following—
Chapter 3 of Part 3 of this Act or section 257A, 257AB, 257BA or
40
257BB of ICTA (tax reductions for married couples and civil
partners),
Chapter 1 of Part 5 (EIS relief),
Chapter 2 of Part 6 (VCT relief),
Chapter 1 of Part 7 (community investment tax relief),
45
section 453 (qualifying maintenance payments),

Income Tax Bill
Part 2 — Basic provisions
Chapter 3 — Calculation of income tax liability
13

section 459 of this Act or section 273 of ICTA (payments for benefit
of family members),
section 461 (spreading of patent royalty receipts),
section 353(1A) of ICTA (relief for interest on loan to buy life
annuity),
5
section 535 of ITTOIA 2005 (top slicing relief), and
section 539 of ITTOIA 2005 (relief for deficiencies), and
(b)
the following—
section 788 of ICTA (double taxation arrangements: relief by
agreement),
10
section 790(1) of ICTA (relief for foreign tax where no double
taxation arrangements),
section 401 of ITTOIA 2005 (relief: qualifying distribution after
linked non-qualifying distribution), and
sections 677 and 678 of ITTOIA 2005 (relief where foreign estates
15
have borne UK income tax).
(2)
In any other case, the provisions referred to at Step 6 of the calculation in
section 23 are—
(a)
the provisions listed in subsection (1)(b), and
(b)
section 26 of FA 2005 (trusts with vulnerable beneficiary: income tax
20
relief).
27
Order of deducting tax reductions: individuals
(1)
This section makes provision about the order in which tax reductions are to be
deducted at Step 6 of the calculation in section 23, if the taxpayer is an
individual.
25
(2)
Deduct the tax reductions in the order which will result in the greatest
reduction in the taxpayer’s liability to income tax for the tax year.
(3)
Subsection (2) is subject to subsections (4) to (6).
(4)
If the taxpayer is entitled to tax reductions for the tax year under more than one
of the provisions listed in subsection (5), a tax reduction under a provision
30
mentioned earlier in the list must be deducted before a tax reduction under a
provision mentioned later in the list.
(5)
The provisions are—
Chapter 2 of Part 6 (VCT relief),
Chapter 1 of Part 5 (EIS relief),
35
Chapter 1 of Part 7 (community investment tax relief),
section 353(1A) of ICTA (relief for interest on loan to buy life annuity),
section 453 (qualifying maintenance payments),
section 459 of this Act or section 273 of ICTA (payments for benefit of
family members), and
40
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).
(6)
If the taxpayer is entitled to a tax reduction under—
(a)
section 788 of ICTA (double taxation arrangements: relief by
agreement), or
45

Income Tax Bill
Part 2 — Basic provisions
Chapter 3 — Calculation of income tax liability
14

(b)
section 790(1) of ICTA (relief for foreign tax where no double taxation
arrangements),

that tax reduction must be deducted after any other tax reduction to which the
taxpayer is entitled for the tax year.
28
Order of deducting tax reductions: other persons
5
(1)
This section makes provision about the order in which tax reductions are to be
deducted at Step 6 of the calculation in section 23, if the taxpayer is a person
other than an individual.
(2)
Deduct the tax reductions in the order which will result in the greatest
reduction in the taxpayer’s liability to income tax for the tax year.
10
(3)
Subsection (2) is subject to subsections (4) and (5).
(4)
If the taxpayer is entitled to a tax reduction under—
(a)
section 788 of ICTA (double taxation arrangements: relief by
agreement), or
(b)
section 790(1) of ICTA (relief for foreign tax where no double taxation
15
arrangements),

that tax reduction must be deducted after any other tax reduction to which the
taxpayer is entitled for the tax year, subject to subsection (5).
(5)
If the taxpayer is a trustee and is entitled to a tax reduction under section 26 of
FA 2005 (trusts with vulnerable beneficiary: income tax relief) that tax
20
reduction must be deducted after any other tax reduction to which the
taxpayer is entitled for the tax year.
29
Tax reductions: supplementary
(1)
This section supplements the provisions about tax reductions in Step 6 of the
calculation in section 23.
25
(2)
A tax reduction may be deducted at Step 6 only so far as there is sufficient tax
calculated at Step 5 of the calculation from which to deduct it.
(3)
In deciding whether there is sufficient tax calculated at Step 5 from which to
deduct a tax reduction, tax reductions already deducted at Step 6 must be taken
into account.
30
(4)
Subsections (2) and (3) apply in addition to—
(a)
section 796(1) and (2) of ICTA (limits on credit for foreign tax), and
(b)
any other provision of the Income Tax Acts that limits the amount of a
tax reduction.
(5)
For the purposes of this Chapter, a person is treated as being entitled to a tax
35
reduction under section 788 of ICTA if the person is entitled to credit against
income tax under double taxation arrangements.
30
Additional tax
(1)
If the taxpayer is an individual, the provisions referred to at Step 7 of the
calculation in section 23 are—
40
section 424 (gift aid: charge to tax),

Income Tax Bill
Part 2 — Basic provisions
Chapter 3 — Calculation of income tax liability
15

section 205 of FA 2004 (pension schemes: the short service refund lump
sum charge),
section 206 of FA 2004 (pension schemes: the special lump sum death
benefits charge),
section 208(2)(a) of FA 2004 (pension schemes: the unauthorised
5
payments charge),
section 209(3)(a) of FA 2004 (pension schemes: the unauthorised
payments surcharge),
section 214 of FA 2004 (pension schemes: the lifetime allowance charge),
section 227 of FA 2004 (pension schemes: the annual allowance charge),
10
and
section 7 of F(No.2)A 2005 (social security pension lump sum).
(2)
If the taxpayer is a trustee, the provision referred to at Step 7 of the calculation
in section 23 is section 496 (discretionary payments by trustees: tax pool
adjustment).
15
31
Total income: supplementary
(1)
This section applies for the purposes of calculating total income.
(2)
Income from which a deduction in respect of income tax is to be made (or
treated as made) at the basic or savings rate in force for a tax year is treated as
income of that tax year.
20
(3)
If—
(a)
a dividend is paid, or another distribution is made, in a tax year,
(b)
a person is entitled to a tax credit in respect of the dividend or other
distribution, and
(c)
the amount or value of the dividend or other distribution is treated
25
under section 398 of ITTOIA 2005 as increased by the amount of the tax
credit,

the amount or value as increased is treated as income of that tax year.
(4)
Subsections (2) and (3) apply even if all or part of the income, or the dividend
or other distribution, accrued or will accrue in a different tax year.
30
(5)
An assessment that has become final and conclusive for income tax purposes
for a tax year is also final and conclusive for the purposes of calculating total
income.
32
Liability not dealt with in the calculation
The liabilities referred to in section 22(2) are income tax liability—
35
under section 79(1) (capital allowances restrictions: withdrawal of relief),
under section 81(6) (dealings in commodity futures: withdrawal of relief),
under section 112(5) (non-active partners: withdrawal of relief),
under section 235 (withdrawal or reduction of EIS relief),
under sections 266 to 270 (withdrawal or reduction of VCT relief),
40
under section 372 (withdrawal or reduction of CITR),
under section 512 (heritage maintenance settlements: application of
property for non-heritage purposes),
under Chapter 1 of Part 13 (transactions in securities),

Income Tax Bill
Part 3 — Personal reliefs
Chapter 2 — Personal allowance and blind person’s allowance
16

under regulations made under section 918(4) (foreign payers of
manufactured dividends: Real Estate Investment Trusts: the reverse
charge),
under section 920 or 923 (foreign payers of manufactured interest or
manufactured overseas dividends: the reverse charge),
5
under Chapter 15, 16 or 17 of Part 15 (deduction of tax at source: collection
mechanisms),
under section 804(5B)(a) of ICTA (recovery of excess credit for overseas
tax),
under paragraph 11(3) of Schedule 20 to FA 1994 (recovery of excess credit
10
for overseas tax: changes for facilitating self-assessment),
of the person who is (or persons who are) the responsible person in
relation to an employer-financed retirement benefits scheme under
section 394(2) of ITEPA 2003,
under Chapter 5 of Part 4 of FA 2004 (registered pension schemes: tax
15
charges), except any liability under a provision mentioned in section
30(1), and
under section 682(4) of ITTOIA 2005 (assessments, adjustments and
claims after the administration period), so far as the liability represents
a tax reduction given effect at Step 6 of the calculation in section 23.
20
Part 3
Personal reliefs
Chapter 1
Introduction
33
Overview of Part
25
(1)
This Part provides for personal reliefs.
(2)
Chapter 2 provides for entitlement to a personal allowance and a blind
person’s allowance.
(3)
Chapter 3 provides for tax reductions for married couples and civil partners.
(4)
Chapter 4 contains provision applicable for the purposes of Chapters 2 and 3,
30
in particular—
(a)
requirements about residence etc of claimants to allowances under
Chapter 2 or tax reductions under Chapter 3, and
(b)
indexation of the amounts of those allowances and tax reductions.
Chapter 2
35
Personal allowance and blind person’s allowance
Introduction
34
Allowances under Chapter
(1)
In this Chapter—

Income Tax Bill
Part 3 — Personal reliefs
Chapter 2 — Personal allowance and blind person’s allowance
17

(a)
sections 35, 36 and 37 deal with entitlement to a personal allowance,
(b)
section 38 deals with entitlement to a blind person’s allowance, and
(c)
section 39 deals with the transfer of part of a blind person’s allowance
to a spouse or civil partner.
(2)
An allowance under this Chapter is given effect at Step 3 of the calculation in
5
section 23.
Personal allowances
35
Personal allowance for those aged under 65
An individual who makes a claim is entitled to a personal allowance of £5,035
for a tax year if the individual—
10
(a)
is under the age of 65 throughout the tax year, and
(b)
meets the requirements of section 56 (residence etc).
36
Personal allowance for those aged 65 to 74
(1)
An individual who makes a claim is entitled to a personal allowance of £7,280
for a tax year if the individual—
15
(a)
is 65 or over at some time in the tax year, but under 75 throughout the
tax year, and
(b)
meets the requirements of section 56 (residence etc).
(2)
For an individual whose adjusted net income for the tax year exceeds £20,100,
the allowance under subsection (1)—
20
(a)
is reduced by half the excess, but
(b)
is not reduced below the amount of a personal allowance under section
35.
(3)
For the meaning of “adjusted net income” see section 58.
37
Personal allowance for those aged 75 and over
25
(1)
An individual who makes a claim is entitled to a personal allowance of £7,420
for a tax year if the individual—
(a)
is 75 or over at some time in the tax year, and
(b)
meets the requirements of section 56 (residence etc).
(2)
For an individual whose adjusted net income for the tax year exceeds £20,100,
30
the allowance under subsection (1)—
(a)
is reduced by half the excess, but
(b)
is not reduced below the amount of a personal allowance under section
35.
(3)
For the meaning of “adjusted net income” see section 58.
35