Income Tax Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 13 — Tax avoidance
Chapter 5 — Avoidance involving trading losses
405

807
Supplementary provision relating to calculation in section 806
(1)
This section applies for the purposes of section 806.
(2)
For the purposes of Step 1, the amount of a loss made in a tax year that relates
to the licence is so much of the loss in the tax year as derives from expenditure
incurred in the trade in exploiting the licence.
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(3)
The amount of the loss that derives from such expenditure is determined on a
just and reasonable basis.
(4)
For the purposes of Step 1, a loss is a claimed loss if the individual has claimed
sideways relief or capital gains relief for the loss.
(5)
For the purposes of Step 2, the amount of profits made in a tax year that relates
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to the licence is so much of the individual’s profits from the trade in the tax
year as derives from income arising from an agreement related to or containing
the licence.
(6)
The amount of the profits that derives from such income is determined on a just
and reasonable basis.
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808
Meaning of “disposal of the licence” etc
(1)
For the purposes of section 805 any reference to—
(a)
a disposal of a licence acquired in carrying on a trade, or
(b)
a disposal of a right to income under an agreement related to or
containing a licence acquired in carrying on a trade (“a licence-related
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agreement”),

includes, in particular, any of events A to E.
(2)
Event A is the revocation of the licence.
(3)
Event B is the disposal, giving up or loss of—
(a)
a right under the licence, or
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(b)
a right to income (or any part of any income) under a licence-related
agreement,

by the individual or by a firm in which the individual is a partner.

It does not matter if the right is disposed of, given up or lost as part of a larger
disposal, giving up or loss.
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(4)
Event C is the disposal, giving up or loss of the individual’s interest in a firm
that has the licence or a right to income under a licence-related agreement
(including the dissolution of the firm).
(5)
Event D is a default in the payment of income to which—
(a)
the individual, or
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(b)
a firm in which the individual is a partner,

has a right under a licence-related agreement.
(6)
Event E is a change in the individual’s entitlement to any profits or losses
relating to the licence the effect of which is that—
(a)
the individual’s share of any profits is reduced (including to nil), or
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(b)
the individual becomes entitled to a share, or a greater share, of any
losses without becoming entitled to a corresponding share of profits.

Income Tax Bill
Part 14 — Income tax liability: miscellaneous rules
Chapter 1 — Limits on liability to income tax of non-UK residents
406

(7)
The changes covered by event E include cases where there is an agreement
under which the individual is entitled—
(a)
to a particular share of any profits or losses relating to the licence in a
period (including a nil share), and
(b)
to a different share of any such profits or losses in a succeeding period
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(including a nil share).
(8)
In such cases the change in the individual’s entitlement is treated for the
purposes of section 805 as occurring at the beginning of the succeeding period.
(9)
For the purposes of this section—
(a)
references to any profits relating to the licence are to any profits
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deriving to any extent from income to which the individual has a right
under a licence-related agreement, and
(b)
references to any losses relating to the licence are to losses deriving to
any extent from expenditure incurred in exploiting the licence.
809
Other definitions
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(1)
References in sections 805 and 806 to an individual carrying on a trade as a non-
active partner in an early tax year are to be read as if those sections were
contained in Chapter 3 of Part 4 (see, in particular, section 112).
(2)
But for that purpose, section 112(1)(b) (which contains a requirement that the
individual does not carry on the trade as a limited partner at any time during
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the tax year) is treated as if it were omitted.
(3)
For the purposes of sections 805 to 808 an agreement is related to a licence if the
agreement and licence are entered into under the same arrangement
(regardless of when the agreement or licence is entered into).
(4)
For the purposes of sections 805 to 808 an agreement, or part of an agreement,
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is not prevented from being a licence merely because it imposes an obligation
to do a thing (rather than merely gives authority to do it).

References to exploiting a licence are to be read in that light.
Part 14
Income tax liability: miscellaneous rules
30
Chapter 1
Limits on liability to income tax of non-UK residents
Introduction
810
Overview of Chapter
(1)
This Chapter provides for limits on the liability to income tax of non-UK
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residents.
(2)
See sections 811 to 814 in the cases of—
(a)
a non-UK resident, other than a company, and
(b)
a non-UK resident company liable as a trustee.

Income Tax Bill
Part 14 — Income tax liability: miscellaneous rules
Chapter 1 — Limits on liability to income tax of non-UK residents
407

(3)
See sections 815 and 816 in the case of a non-UK resident company which is
liable otherwise than as a trustee.
Limit for non-UK resident individuals, trustees etc
811
Limit on liability to income tax of non-UK residents
(1)
This section applies to income tax to which—
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(a)
a non-UK resident, other than a company, is liable, or
(b)
a non-UK resident company is liable as a trustee.
(2)
Subsection (1) is subject to section 812 (case where limit not to apply).
(3)
The non-UK resident’s liability to income tax for a tax year is limited to the sum
of amounts A and B.
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(4)
Amount A is the sum of—
(a)
any sums representing income tax deducted from the non-UK
resident’s disregarded income for the tax year (see section 813),
(b)
any sums representing income tax that are treated as deducted from or
paid in respect of that income, and
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(c)
any tax credits in respect of that income.
(5)
Amount B is the amount that, apart from this section, would be the non-UK
resident’s liability to income tax for the tax year, if the following were left out
of account—
(a)
the non-UK resident’s disregarded income for the tax year, and
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(b)
any relief mentioned in subsection (6) to which the non-UK resident is
entitled for the tax year as a result of—
(i)
section 56(3) or 460(3) of this Act or section 278(2) of ICTA
(residence etc of claimants), or
(ii)
double taxation arrangements.
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(6)
The reliefs referred to in subsection (5) are—
(a)
an allowance under Chapter 2 of Part 3 of this Act or section 257 or 265
of ICTA (personal allowance and blind person’s allowance),
(b)
a tax reduction under Chapter 3 of Part 3 of this Act or section 257A,
257AB, 257BA or 257BB of ICTA (tax reductions for married couples
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and civil partners),
(c)
relief under section 457 or 458 of this Act (payments to trade unions and
police organisations),
(d)
a tax reduction under section 459 of this Act or section 273 of ICTA
(payments for benefit of family members), and
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(e)
relief under section 266 of ICTA (life assurance premiums).
812
Case where limit not to apply
(1)
Section 811 does not apply to income tax to which non-UK resident trustees are
liable for a tax year, if there is a beneficiary of the trust who is—
(a)
an individual who is ordinarily UK resident, or
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(b)
a UK resident company.
(2)
For the purposes of subsection (1) a person is a beneficiary of the trust if—

Income Tax Bill
Part 14 — Income tax liability: miscellaneous rules
Chapter 1 — Limits on liability to income tax of non-UK residents
408

(a)
the person is an actual or potential beneficiary of the trust, and
(b)
condition A or B is met in relation to the person.
(3)
Condition A is that the person is, or will or may become, entitled under the
trust to receive some or all of any income under the trust.
(4)
Condition B is that some or all of any income under the trust may be paid to or
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used for the benefit of the person in the exercise of a discretion conferred by the
trust.
(5)
The references in subsections (3) and (4) to any income under the trust include
a reference to any capital under the trust so far as it represents amounts
originally received by the trustees as income.
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813
Meaning of “disregarded income”
(1)
For the purposes of this Chapter income arising to a non-UK resident is
“disregarded income” if it is—
(a)
disregarded savings and investment income (see section 825),
(b)
disregarded annual payments (see section 826),
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(c)
disregarded pension income,
(d)
disregarded social security income,
(e)
disregarded transaction income (see section 814), or
(f)
income of such other description as the Treasury may by regulations
designate for the purposes of this section.
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(2)
But income in relation to which the non-UK resident has a UK representative
for the purposes of section 126 of, and Schedule 23 to, FA 1995 (UK
representatives of non-UK residents) is not disregarded income.
(3)
Income is “disregarded pension income” if it is chargeable under Part 9 of
ITEPA 2003 (pension income) because any of the following provisions of that
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Act applies to it—
section 577 (UK social security pensions),
section 579A (pensions under registered pension schemes) (but see
subsection (4) below),
section 609 (annuities for the benefit of dependants),
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section 610 (annuities under non-registered occupational pension
schemes), or
section 611 (annuities in recognition of another’s services).
(4)
Income chargeable under Part 9 of ITEPA 2003 because section 579A of that Act
applies to it is disregarded pension income only if the registered pension
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scheme in question—
(a)
falls within paragraph 1(1)(f) of Schedule 36 to FA 2004, and
(b)
was, immediately before 6 April 2006, a retirement annuity contract to
which section 605 of ITEPA 2003 applied.
(5)
Income is “disregarded social security income” if—
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(a)
it is a taxable benefit listed in Table A in section 660 of ITEPA 2003,
other than income support or jobseeker’s allowance, and
(b)
it is chargeable under Part 10 of that Act (social security income).