Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 10 — Special rules about charitable trusts etc
275

525
Meaning of “charitable trade”
(1)
For the purposes of this Part a trade carried on by a charitable trust is a
charitable trade in relation to a tax year if throughout the basis period for the
tax year—
(a)
the trade is exercised in the course of carrying out a primary purpose of
5
the charitable trust, or
(b)
the work in connection with the trade is mainly carried out by
beneficiaries of the charitable trust.
(2)
For the purposes of subsection (1)(a), if a trade is exercised partly in the course
of carrying out a primary purpose of the charitable trust and partly otherwise,
10
each part is to be treated as a separate trade.
(3)
For the purposes of subsection (1)(b), if work in connection with a trade is
carried out partly but not mainly by beneficiaries, the part in connection with
which work is carried out by beneficiaries and the other part are to be treated
as separate trades.
15
(4)
If different parts of a trade are treated as separate trades under subsection (2)
or (3), a just and reasonable apportionment is to be made for that purpose of—
(a)
expenses and receipts of the trade, and
(b)
any amounts which are treated as adjustment income under section 228
of ITTOIA 2005 in respect of the trade, or which are post-cessation
20
receipts arising from the trade for the purposes of Chapter 18 of Part 2
of that Act.
(5)
For the rules about basis periods, see Chapter 15 of Part 2 of ITTOIA 2005.
526
Exemption for profits etc of small-scale trades
(1)
The income mentioned in subsection (2) is not taken into account in calculating
25
total income if conditions A and B are met.
(2)
The income referred to in subsection (1) is—
(a)
the profits of a trade carried on by a charitable trust,
(b)
amounts treated as adjustment income of a charitable trust under
section 228 of ITTOIA 2005 in respect of a trade carried on by the trust,
30
and
(c)
post-cessation receipts arising from a trade carried on by a charitable
trust which are received by the trustees of the trust or to which they are
entitled.
(3)
Subsection (1) does not apply in respect of—
35
(a)
profits of a trade that are, apart from this section, exempt from income
tax chargeable under Part 2 of ITTOIA 2005,
(b)
amounts treated as adjustment income that are, apart from this section,
exempt from income tax chargeable under Chapter 17 of Part 2 of that
Act, or
40
(c)
post-cessation receipts that are, apart from this section, exempt from
income tax chargeable under Chapter 18 of Part 2 of that Act.
(4)
Condition A is—
(a)
in the case of the profits of a trade, that the profits are profits of a tax
year in relation to which the condition specified in section 528
45
(condition as to trading and miscellaneous incoming resources) is met,

Income Tax Bill
Part 10 — Special rules about charitable trusts etc
276

(b)
in the case of an amount treated as adjustment income, that the amount
arises in such a tax year, and
(c)
in the case of a post-cessation receipt, that it is received in such a tax
year.
(5)
Condition B is that the profits are, or the amount or post-cessation receipt is,
5
(as the case may be) applied to the purposes of the charitable trust only.
(6)
Sections 232(1) and (2), 235 and 236 of ITTOIA 2005 (when adjustment income
is treated as arising) apply for the purposes of subsection (4) as they apply for
the purposes of Chapter 17 of Part 2 of that Act.
(7)
In this section “post-cessation receipt” means an amount that is a post-
10
cessation receipt for the purposes of Chapter 18 of Part 2 of that Act (post-
cessation receipts) (see sections 246 to 253 of that Act).
527
Exemption from charges under provisions to which section 1016 applies
(1)
Any income or gains of a charitable trust that is or are chargeable to income tax
under or by virtue of any provision to which section 1016 applies is not or are
15
not taken into account in calculating total income if conditions A and B are met.
(2)
Subsection (1) does not apply in respect of any income or gains chargeable to
income tax by virtue of any of—
(a)
section 214 of ICTA (chargeable payments connected with exempt
distributions),
20
(b)
section 804 of that Act (double taxation relief),
(c)
Chapter 9 of Part 4 of ITTOIA 2005 (gains from contracts for life
insurance etc),
(d)
Chapter 5 of Part 5 of that Act (settlements: amounts treated as income
of settlor),
25
(e)
section 755 (transactions in land), and
(f)
any other enactment specified in an order made by the Treasury.
(3)
Subsection (1) does not apply in respect of any income that is, or gains that are,
apart from this section, exempt from income tax chargeable under or by virtue
of any provision to which section 1016 applies.
30
(4)
Condition A is that the income is, or the gains are, for a tax year in relation to
which the condition specified in section 528 is met.
(5)
Condition B is that the income is, or the gains are, applied to the purposes of
the charitable trust only.
528
Condition as to trading and miscellaneous incoming resources
35
(1)
The condition in this section is met in relation to a tax year if—
(a)
the sum of the charitable trust’s trading incoming resources and
miscellaneous incoming resources for the tax year does not exceed the
requisite limit for the tax year, or
(b)
the trustees of the charitable trust had, at the beginning of the tax year,
40
a reasonable expectation that it would not do so.
(2)
The charitable trust’s “trading incoming resources” for the tax year are—

Income Tax Bill
Part 10 — Special rules about charitable trusts etc
277

(a)
the incoming resources which are required to be taken into account in
calculating the profits of, or losses made in, the basis period for the tax
year of any non-exempt trade carried on by the charitable trust, and
(b)
the incoming resources which are treated as adjustment income under
section 228 of ITTOIA 2005 in respect of such a trade, or which are post-
5
cessation receipts arising from such a trade.

“Post-cessation receipt” has the meaning given by section 526(7).
(3)
For the purposes of subsection (2) a trade is a “non-exempt trade” if any profits
of the trade would not, apart from section 526, be exempt from income tax
chargeable under Part 2 of ITTOIA 2005.
10
(4)
The charitable trust’s “miscellaneous incoming resources” for the tax year are
the incoming resources which are required to be taken into account in
calculating non-exempt miscellaneous income or non-exempt miscellaneous
losses for the tax year.
(5)
In this section—
15
“non-exempt miscellaneous income” means income or gains chargeable to
income tax under or by virtue of any provision to which section 1016
applies that is not, or are not, apart from section 526 or 527, exempt
from income tax chargeable under or by virtue of that provision, and
“non-exempt miscellaneous losses” means losses arising from a
20
transaction which is of such a nature that if income or gains had arisen
from it the income would have been non-exempt miscellaneous
income.
(6)
The requisite limit—
(a)
is 25% of the charitable trust’s total incoming resources for the tax year,
25
but
(b)
must not be less than £5,000 or more than £50,000.
529
Exemption for profits from fund-raising events
(1)
The profits of a trade carried on by a charitable trust are not taken into account
in calculating total income so far as they arise from a VAT-exempt event.
30
(2)
Subsection (1) applies so far as the profits are applied to the purposes of the
charitable trust only.
(3)
An event is a VAT-exempt event if the supply of goods and services by the
charitable trust in connection with the event would be exempt from value
added tax under Group 12 of Schedule 9 to the Value Added Tax Act 1994
35
(c. 23) (fund-raising events by charities and other qualifying bodies).
530
Exemption for profits from lotteries
(1)
The profits accruing to a charitable trust from a lottery are not taken into
account in calculating total income if conditions A and B are met.
(2)
Condition A is that—
40
(a)
the lottery is promoted and conducted in accordance with section 3 or
5 of the Lotteries and Amusements Act 1976 (c. 32), or
(b)
the lottery is promoted and conducted in accordance with Article 133
or 135 of the Betting, Gaming, Lotteries and Amusements (Northern
Ireland) Order 1985 (S.I. 1985/1204 (N.I. 11)).
45

Income Tax Bill
Part 10 — Special rules about charitable trusts etc
278

(3)
Condition B is that the profits are applied to the purposes of the charitable trust
only.
531
Exemption for property income etc
(1)
Income which is chargeable to income tax under Part 2 of ITTOIA 2005 (trading
income) as a result of section 261 of that Act is not taken into account in
5
calculating total income so far as—
(a)
it arises in respect of rents or other receipts from an estate, interest or
right in or over land, and
(b)
the estate, interest or right is vested in any person in trust for a
charitable trust or for charitable purposes.
10
(2)
Income which is chargeable to income tax under Part 3 of ITTOIA 2005
(property income) is not taken into account in calculating total income so far
as—
(a)
it arises in respect of an estate, interest or right in or over land, and
(b)
the estate, interest or right is vested in any person in trust for a
15
charitable trust or for charitable purposes.
(3)
Subsection (1) and (2) apply so far as the income is applied to charitable
purposes only.
532
Exemption for savings and investment income
(1)
The income mentioned in subsection (2) is not taken into account in calculating
20
total income if—
(a)
it is income of a charitable trust, or
(b)
it is required, under an Act, court judgment, charter, trust deed or will,
to be applied to charitable purposes only.
(2)
The income referred to in subsection (1) is—
25
(a)
interest,
(b)
a dividend or other distribution of a UK resident company,
(c)
a dividend of a non-UK resident company,
(d)
an annuity payment under a purchased life annuity,
(e)
profits on the disposal of deeply discounted securities, or
30
(f)
income treated for the purposes of Chapter 10 of Part 4 of ITTOIA 2005
(distributions from unauthorised unit trusts) as received by a unit
holder from a scheme to which section 547 of that Act applies
(unauthorised unit trust schemes).
(3)
Subsection (1) applies only so far as the income falls within, and is dealt with
35
under, Part 4 of ITTOIA 2005 (see section 366 of that Act as to provisions given
priority over Part 4).
(4)
Subsection (1) applies so far as the income is applied to charitable purposes
only.
(5)
In this section—
40
“deeply discounted security” has the same meaning as in Chapter 8 of
Part 4 of ITTOIA 2005 (profits from deeply discounted securities) (see
section 430 of that Act),

Income Tax Bill
Part 10 — Special rules about charitable trusts etc
279

“disposal”, in relation to a deeply discounted security, has the same
meaning as in Chapter 8 of Part 4 of that Act (see section 437(1) of that
Act),
“dividend”, in relation to a UK resident company, has the same meaning
as in Chapter 3 of Part 4 of that Act (dividends etc from UK resident
5
companies etc) (see section 382(4) of that Act),
“interest” includes anything treated as interest for the purposes of
Chapter 2 of Part 4 of that Act (interest), and
“purchased life annuity” has the same meaning as in Chapter 7 of Part 4
of that Act (purchased life annuity payments) (see section 423 of that
10
Act).
533
Exemption for public revenue dividends
(1)
Public revenue dividends on securities which are in the name of trustees are
not taken into account in calculating total income so far as the dividends are
applicable and applied only for the repair of—
15
(a)
a cathedral, college, church or chapel, or
(b)
a building used only for the purposes of divine worship.
(2)
In this section “public revenue dividends” means—
(a)
income from securities which is payable out of the public revenue of the
United Kingdom or Northern Ireland, or
20
(b)
income from securities issued by or on behalf of a government or a
public or local authority in a country outside the United Kingdom.
534
Exemption for transactions in deposits
(1)
Profits or gains arising to a charitable trust from the disposal of exempt deposit
rights are not taken into account in calculating total income.
25
(2)
Subsection (1) applies so far as the profits or gains are applied to charitable
purposes only.
(3)
For the purposes of this section, the exercise of an exempt deposit right is a
disposal of it, except so far as the right is a right to receive interest.
(4)
In this section “exempt deposit rights” means—
30
(a)
a right to receive, with or without interest, a principal amount stated in,
or determined in accordance with, the current terms of issue of an
eligible debt security, where in accordance with those terms the issue of
uncertificated units of the eligible debt security corresponds to the issue
of a certificate of deposit,
35
(b)
a right to receive the principal amount stated in a certificate of deposit,
with or without interest, and
(c)
an uncertificated right to receive a principal amount, with or without
interest, as a result of a deposit of money.
(5)
In this section—
40
“eligible debt security” has the meaning given in regulation 3(1) of the
Uncertificated Securities Regulations 2001 (S.I. 2001/3755),
“uncertificated”, in relation to a unit, has the meaning given in regulation
3(1) of the Uncertificated Securities Regulations 2001,

Income Tax Bill
Part 10 — Special rules about charitable trusts etc
280

“uncertificated right” means a right in respect of which no certificate of
deposit has been issued, although the person for the time being entitled
to it is entitled to call for the issue of such a certificate, and
“unit” has the meaning given in regulation 3(1) of the Uncertificated
Securities Regulations 2001.
5
535
Exemption for offshore income gains
(1)
Offshore income gains accruing to a charitable trust are not taken into account
in calculating total income.
(2)
Subsection (1) applies if the gain is applicable and applied to charitable
purposes only.
10
(3)
In this section “offshore income gain” has the same meaning as in Chapter 5 of
Part 17 of ICTA (offshore funds) (see section 758 of, and Schedule 28 to, that
Act).
(4)
See section 761(6B) of ICTA, which—
(a)
applies where property held on charitable trusts ceases to be subject to
15
charitable trusts, and
(b)
provides for any gain accruing under that subsection to be treated as an
offshore income gain not accruing to a charity.
536
Exemption for certain miscellaneous income
(1)
The income mentioned in subsection (3) is not taken into account in calculating
20
total income if—
(a)
it is income of a charitable trust, or
(b)
it is required, under an Act, court judgment, charter, trust deed or will,
to be applied to charitable purposes only.
(2)
Subsection (1) applies so far as the income is applied to charitable purposes
25
only.
(3)
The income referred to in subsection (1) is—
(a)
royalties and other income from intellectual property that do not fall
within Chapter 2 of Part 2 of ITTOIA 2005 (receipts of a trade etc),
(b)
income derived from a relevant telecommunication right that is not
30
income falling within Chapter 2 of Part 2 of ITTOIA 2005 (receipts of a
trade etc),
(c)
annual payments charged to tax under Chapter 7 of Part 5 of ITTOIA
2005, and
(d)
relevant foreign distributions.
35
(4)
In this section—
“intellectual property” has the same meaning as in section 579 of ITTOIA
2005,
“relevant foreign distribution” means a distribution of a non-UK resident
company which—
40
(a)
is not chargeable to tax under Chapter 4 of Part 4 of ITTOIA
2005 (dividends from non-UK resident companies), but
(b)
would be chargeable to tax under Chapter 3 of that Part of that
Act (dividends etc from UK resident companies etc) if the
company were a UK resident company, and
45

Income Tax Bill
Part 10 — Special rules about charitable trusts etc
281

“relevant telecommunication right” has the same meaning as in Chapter
10 of Part 2 of that Act (trade profits: certain telecommunications rights)
(see section 146 of that Act).
537
Exemption for income from estates in administration
(1)
If the person liable under section 659 of ITTOIA 2005 for any income tax
5
charged under section 649 of that Act (charge to tax on estate income) is the
trustee of a charitable trust, the estate income is not taken into account in
calculating total income.
(2)
Subsection (1) applies so far as the estate income is applied to the purposes of
the charitable trust only.
10
(3)
In this section “estate income” has the same meaning as in Chapter 6 of Part 5
of ITTOIA 2005 (beneficiaries’ income from estates in administration) (see
section 649(2) of that Act).
Claims
538
Requirement to make claim
15
(1)
The exemptions under this Part require a claim.
(2)
Subsection (1) does not apply to an exemption under—
(a)
section 534 (exemption for transactions in deposits), or
(b)
section 535 (exemption for offshore income gains).
(3)
The trustees of a charitable trust are treated as having made a claim for any
20
exemption to which they may be entitled under section 521 (gifts entitling
donor to gift aid relief) if—
(a)
the charitable trust receives a gift as a result of a direction under section
429(2) (giving through self-assessment return), and
(b)
as a result of section 429(4), the gift is treated as a qualifying donation
25
for the purposes of Chapter 2 of Part 8 (gift aid).
(4)
See section 46C of TMA 1970 and paragraph 10 of Schedule 1A to that Act for
provision about the jurisdiction of Special Commissioners over appeals
concerning claims for exemption under this Part.
Restrictions on exemptions
30
539
Restrictions on exemptions
(1)
This section applies if a charitable trust has a non-exempt amount for a tax year
(see section 540).
(2)
The exemptions under this Part do not apply, and are treated as never having
applied, to so much of any income of the charitable trust for the tax year as is
35
attributed under section 541 to the non-exempt amount.
(3)
Section 256(4) of TCGA 1992 contains corresponding restrictions which apply
in relation to section 256(1) of that Act (gains accruing to charities not to be
chargeable gains).