Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 13 — Tax avoidance
Chapter 4 — Sales of occupation income
389

(a)
on individuals to whom income is treated as arising under section 778
(income arising where capital amount other than derivative property or
right obtained), and
(b)
on individuals to whom income is treated as arising under section 779
(income arising where derivative property or right obtained).
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(2)
Income is treated as arising under those sections only if—
(a)
transactions are effected or arrangements made to exploit the earning
capacity of an individual in an occupation, and
(b)
the main object or one of the main objects of the transactions or
arrangements is the avoidance or reduction of liability to income tax.
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774
Meaning of “occupation”
In this Chapter references to an occupation, in relation to an individual, are
references to any activities of a kind undertaken in a profession or vocation,
regardless of whether the individual—
(a)
is carrying on a profession or vocation on the individual’s own account,
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or
(b)
is an employee or office-holder.
775
Priority of other tax provisions
This Chapter has effect subject to—
(a)
Chapter 5 of Part 5 of ITTOIA 2005 (settlements: amounts treated as
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income of settlor), and
(b)
any other provision of the Tax Acts treating income as belonging to a
particular person.
Charge on sale of occupation income
776
Charge to tax on sale of occupation income
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(1)
Income tax is charged on income treated as arising under—
(a)
section 778 (income arising where capital amount other than derivative
property or right obtained), or
(b)
section 779 (income arising where derivative property or right
obtained).
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(2)
Tax is charged under this section on the full amount of income treated as
arising in the tax year.
(3)
The person liable for any tax charged under this section is the individual to
whom the income is treated as arising.
(4)
This section is subject to section 784 (exemption for sales of going concerns).
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777
Conditions for sections 778 and 779 to apply
(1)
Sections 778 and 779 apply only if conditions A to C are met in respect of an
individual.
(2)
Condition A is that the individual carries on an occupation wholly or partly in
the United Kingdom.
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Income Tax Bill
Part 13 — Tax avoidance
Chapter 4 — Sales of occupation income
390

(3)
Condition B is that transactions are effected or arrangements made to exploit
the individual’s earning capacity in the occupation by putting another person
(see section 782) in a position to enjoy—
(a)
all or part of the income or receipts derived from the individual’s
activities in the occupation, or
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(b)
anything derived directly or indirectly from such income or receipts.
(4)
The reference in subsection (3) to income or receipts derived from the
individual’s activities includes a reference to payments for any description of
copyright or licence or franchise or other right deriving its value from the
individual’s activities (including past activities).
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(5)
Condition C is that as part of, or in connection with, or in consequence of, the
transactions or arrangements a capital amount is obtained by the individual for
the individual or another person.
(6)
For the purposes of subsection (5), the cases where an individual (“A”) obtains
a capital amount for another person (“B”) include cases where A has put B in a
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position to receive the capital amount by providing B with something of value
derived, directly or indirectly, from A’s activities in the occupation.
(7)
In this Chapter “capital amount” means an amount in money or money’s worth
which does not fall to be included in a calculation of income for income tax
purposes apart from this Chapter.
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778
Income arising where capital amount other than derivative property or right
obtained
(1)
This section applies if the capital amount obtained as mentioned in section
777(5) does not consist of—
(a)
property which derives substantially the whole of its value from the
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individual’s activities, or
(b)
a right which does so.
(2)
The capital amount is treated for income tax purposes as income arising to the
individual.
(3)
The income is treated as arising in the tax year in which the capital amount is
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receivable.
(4)
A capital amount is not regarded as having become receivable by a person for
the purposes of this section until the person can effectively enjoy or dispose of
it.
779
Income arising where derivative property or right obtained
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(1)
This section applies if—
(a)
the capital amount obtained as mentioned in section 777(5) consists
of—
(i)
property which derives substantially the whole of its value
from the activities of an individual, or
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(ii)
a right which does so, and
(b)
the property or right is sold or otherwise realised.

Income Tax Bill
Part 13 — Tax avoidance
Chapter 4 — Sales of occupation income
391

(2)
For the purposes of subsection (1), it does not matter whether the capital
amount is obtained on one occasion or on two or more occasions (for example,
because the individual acquires a stock option and subsequently exercises it).
(3)
Income of an amount equal to the proceeds of sale or the realised value is
treated for income tax purposes as income arising to the individual.
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(4)
The income is treated as arising in the tax year in which the property or right
is sold or otherwise realised.
Further provisions relevant to the charge
780
Transactions, arrangements, sales and realisations relevant for Chapter
(1)
For the purposes of this Chapter, account is to be taken of any method,
10
however indirect, by which—
(a)
any property or right is transferred or transmitted, or
(b)
the value of any property or right is enhanced or diminished.
(2)
Accordingly—
(a)
the occasion of the transfer or transmission of any property or right
15
however indirect, and
(b)
the occasion when the value of any property or right is enhanced,

may be an occasion when tax is charged under this Chapter.
(3)
Subsections (1) and (2) apply in particular—
(a)
to sales, contracts and other transactions made otherwise than for full
20
consideration or for more than full consideration,
(b)
to any method by which any property or right, or the control of any
property or right, is transferred or transmitted by assigning—
(i)
share capital or other rights in a company,
(ii)
rights in a partnership, or
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(iii)
an interest in settled property,
(c)
to the creation of an option and the giving of consideration for granting
it,
(d)
to the creation of a requirement for consent and the giving of
consideration for granting it,
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(e)
to the creation of an embargo affecting the disposition of any property
or right and the giving of consideration for releasing it, and
(f)
to the disposal of any property or right on the winding up, dissolution
or termination of a company, partnership or trust.
781
Tracing value
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(1)
This section applies if it is necessary to determine the extent to which the value
of any property or right is derived from any other property or right for the
purposes of this Chapter.
(2)
Value may be traced through any number of companies, partnerships and
trusts.
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(3)
The property held by a company, partnership or trust must be attributed to the
shareholders, partners or beneficiaries at each stage in such manner as is
appropriate in the circumstances.

Income Tax Bill
Part 13 — Tax avoidance
Chapter 4 — Sales of occupation income
392

782
Meaning of “other person”
(1)
For the purposes of this Chapter references to other persons are to be read in
accordance with subsections (2) to (4).
(2)
A partnership or partners in a partnership may be regarded as a person or
persons distinct from the individuals or other persons who are for the time
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being partners.
(3)
The trustees of settled property may be regarded as persons distinct from the
individuals or other persons who are for the time being trustees.
(4)
Personal representatives may be regarded as persons distinct from the
individuals or other persons who are for the time being personal
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representatives.
783
Valuations and apportionments
(1)
All such valuations are to be made as are appropriate to give effect to this
Chapter.
(2)
For the purposes of this Chapter, any expenditure, receipt, consideration or
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other amount may be apportioned by such method as is just and reasonable in
the circumstances.
Exemption for sales of going concerns
784
Exemption for sales of going concerns
(1)
This section applies if a capital amount is obtained from the disposal—
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(a)
of assets (including any goodwill) of a profession or vocation,
(b)
of a share in a partnership which is carrying on a profession or
vocation, or
(c)
of shares in a company.
(2)
An individual is not liable to income tax under this Chapter in respect of the
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capital amount so far as the going concern condition is met (see subsections (4)
and (5)).
(3)
Subsection (2) is subject to section 785 (restriction on exemption: sales of future
earnings).
(4)
In the case of a disposal within subsection (1)(a) or (b), the going concern
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condition is that the value of what is disposed of at the time of disposal is
attributable to the value of the profession or vocation as a going concern.
(5)
In the case of a disposal within subsection (1)(c), the going concern condition
is that the value of what is disposed of at the time of disposal is attributable to
the value of the company’s business as a going concern.
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(6)
In subsection (5) the reference to the company’s business includes a reference
to the business of any other company in which it holds shares directly or
indirectly.