Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
622

      (2)
In subsection (2) omit paragraph (b) and the “or” immediately before it.
      (3)
In subsection (4) after “ICTA” insert “or section 56(3) of ITA 2007”.
      (4)
In subsection (6) for the words from “section 231AA” to “umbrella scheme),”
substitute—
“section 504(4) of ITA 2007 (disapplication of certain provisions
5
for income of unauthorised unit trusts),
section 592 of ITA 2007 (no tax credits for borrower under stock
lending arrangement),
section 593 of ITA 2007 (no tax credits for interim holder under
repo),
10
section 594 of ITA 2007 (no tax credits for original owner under
repo),”.
516   (1)
Amend section 399 (qualifying distributions received by persons not entitled
to tax credits) as follows.
      (2)
In subsection (4) for the words from “and the distribution” to “treated”
15
substitute “, the amount or value of the distribution is treated for the
purposes of Chapters 3, 4 and 6 of Part 9 of ITA 2007 (special rates for
trustees’ income)”.
      (3)
In subsection (7) for the words from “section 231AA(1A)” to the end
substitute—
20
“section 504(4) of ITA 2007 (disapplication of certain provisions
for income of unauthorised unit trusts),
section 592 of ITA 2007 (no tax credits for borrower under stock
lending arrangement),
section 593 of ITA 2007 (no tax credits for interim holder under
25
repo), and
section 594 of ITA 2007 (no tax credits for original owner under
repo).”
517   (1)
Amend section 400 (non-qualifying distributions) as follows.
      (2)
In subsection (4) for the words from “income to which” to the end substitute
30
“assessed (in whole or in part) at the dividend trust rate by virtue of Chapter
3 of Part 9 of ITA 2007 (trustees’ accumulated or discretionary income to be
charged at special rates), the trustees’ liability for income tax at that rate is
reduced”.
      (3)
After subsection (6) insert—
35
“(7)
Subsection (2) is subject to section 504(4) of ITA 2007 (disapplication
of certain provisions for income of unauthorised unit trusts).”
518
In section 401 (relief: qualifying distribution after linked non-qualifying
distribution) after subsection (6) insert—
“(6A)
The reduction under this section is given effect at Step 6 of the
40
calculation in section 23 of ITA 2007.”
519
In section 410(3)(b) (stock dividend income arising to trustees) for the words
from “income” to the end substitute “accumulated or discretionary income
(as defined in section 480 of ITA 2007 but excluding income arising under a
trust established for charitable purposes only or an unauthorised unit trust
45
in relation to which section 504 of that Act applies)”.

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
623

520   (1)
Amend section 414 (stock dividends from UK resident companies: income
tax to be treated as paid) as follows.
      (2)
In subsection (1) for “income to which section 686 of ICTA applies”
substitute “accumulated or discretionary income (as defined in section 480
of ITA 2007)”.
5
      (3)
In subsection (4) after “fall to be made” insert “at Step 2 or 3 of the calculation
in section 23 of ITA 2007 (calculation of income tax liability)”.
521
In section 418(5) (loans to participator in close company: relief where
borrowers liable as settlors) for “rate applicable to trusts” substitute “trust
rate”.
10
522
In section 421(4) (loans to participator in close company: income tax treated
as paid) after “fall to be made” insert “at Step 2 or 3 of the calculation in
section 23 of ITA 2007 (calculation of income tax liability)”.
523   (1)
Amend section 426 (annuity payments received after deduction of tax) as
follows.
15
      (2)
For “Income tax deducted under either of the following sections” substitute
“In accordance with section 848 of ITA 2007 a sum representing income tax
deducted under section 901 of that Act”.
      (3)
Omit the words after “recipient”.
524
In section 446 (strips of government securities: relief for losses) for
20
subsection (2) substitute—
“(2)
If a person makes a claim under this section, the relief is given by
deducting the loss in calculating the person’s net income for the tax
year in which the disposal occurs (see Step 2 of the calculation in
section 23 of ITA 2007).”
25
525
In section 454 (listed securities held since 26th March 2003: relief for losses)
for subsection (4) substitute—
“(4)
If a claim under this section is made by a person other than a trustee,
the relief is given by deducting the loss in calculating the person’s net
income for the tax year in which the disposal occurs (see Step 2 of the
30
calculation in section 23 of ITA 2007).”
526   (1)
Amend section 457 (disposal of deeply discounted securities by trustees) as
follows.
      (2)
Omit subsection (3).
      (3)
For subsection (5) substitute—
35
“(5)
If the trustees are trustees of a scheme in relation to which section 504
of ITA 2007 applies, subsection (2) does not apply to profits which
are shown in the scheme’s accounts as income available for payment
to unit holders or for investment.”
527
In section 459(2) (profits from deeply discounted securities: transfer of assets
40
abroad) for “sections 739 and 740 of ICTA (transfer of assets abroad) have”
substitute “Chapter 2 of Part 13 of ITA 2007 (transfer of assets abroad) has”.
528
In section 460(2) (profits from deeply discounted securities: minor
definitions) for “section 709(1)” substitute “section 840ZA”.

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
624

529
After section 465 insert—
“465A
Amounts for which individuals liable to be treated as highest part of
total income
(1)
This section applies if—
(a)
an individual is liable for tax under this Chapter in respect of
5
an amount, and
(b)
the individual is treated by section 530 as having paid income
tax at the savings rate on the amount.
(2)
The amount is treated as the highest part of the individual’s total
income.
10
(3)
Subsection (2) has effect for all income tax purposes except the
purposes of sections 535 to 537 (gains from contracts for life
insurance etc: top slicing relief).
(4)
See section 1012 of ITA 2007 (relationship between highest part rules)
for the relationship between—
15
(a)
the rule in subsection (2), and
(b)
other rules requiring particular income to be treated as the
highest part of a person’s total income.”
530
In section 466(2) (person liable: personal representatives) for “lower rate”
substitute “savings rate”.
20
531   (1)
Amend section 467 (liability of trustees for tax on gains from contracts for
life insurance etc) as follows.
      (2)
After subsection (1) insert—
“(1A)
If trustees are liable for tax under this Chapter, the gain is treated for
income tax purposes as income of the trustees.”
25
      (3)
For subsection (7) substitute—
“(7)
If trustees are liable for tax under this Chapter, it is charged at the
savings rate if—
(a)
condition A is met, or
(b)
condition D is met and the trustees are trustees of a charitable
30
trust.”
532
In section 468 (gains from contracts for life insurance etc: non-UK resident
trustees and foreign institutions)—
(a)
in subsection (2) for “Sections 739 and 740”, “prevent” and “apply”
substitute “Chapter 2 of Part 13 of ITA 2007”, “prevents” and
35
“applies” respectively, and
(b)
in subsections (3) and (4) for “sections 739 and 740 apply” substitute
“Chapter 2 of Part 13 of ITA 2007 applies”.
533
In section 482 (excepted group life policies: conditions about persons
intended to benefit)—
40
(a)
in subsection (6) omit the definition of “tax advantage”, and
(b)
after that subsection insert—
“(7)
In this section “tax advantage” has the meaning given by
section 840ZA of ICTA.”

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
625

534
In section 520(4) (the property categories) after the definition of “internal
linked fund” insert—
““investment trust” has the meaning given by section 842 of
ICTA,”.
535   (1)
Amend section 530 (income tax treated as paid) as follows.
5
      (2)
In subsection (1) for “lower rate” substitute “savings rate”.
      (3)
In subsection (4) after “fall to be made” insert “at Step 2 or 3 of the calculation
in section 23 of ITA 2007 (calculation of income tax liability)”.
536   (1)
Amend section 535 (top slicing relief) as follows.
      (2)
After subsection (2) insert—
10
“(2A)
If the relief is given by a reduction in income tax, it is given effect at
Step 6 of the calculation in section 23 of ITA 2007.”
      (3)
In subsection (3)—
(a)
for “LRL”, in both places where it occurs, substitute “SRL”, and
(b)
for “lower rate” substitute “savings rate”.
15
      (4)
After subsection (6) insert—
“(7)
For the purposes of the calculations mentioned in subsection (1) any
relief under Chapter 2 or 3 of Part 8 of ITA 2007 (which relate to gift
aid and other gifts to charities) is ignored.”
537
In section 536(1) (top slicing relieved liability: one chargeable event) in
20
paragraph (b) of Step 2 for “lower rate” substitute “savings rate”.
538
In section 537 (top slicing relieved liability: two or more chargeable events)
in paragraph (b) of Step 2 for “lower rate” substitute “savings rate”.
539
For section 539 (relief for deficiencies) substitute—
“539
Relief for deficiencies
25
(1)
An individual is entitled to a tax reduction for a tax year in which a
deficiency arises from a policy or contract on a chargeable event if—
(a)
the condition in subsection (2) is met,
(b)
the individual would (apart from this section) be liable to
income tax at the higher rate or the dividend upper rate (or
30
both) for the tax year, and
(c)
the individual makes a claim.
(2)
The condition is that, if a gain had arisen instead on the chargeable
event—
(a)
the individual would have been liable to income tax on the
35
gain for the year, or
(b)
the individual would have been so liable apart from the
requirement in section 465(1) that the individual must be UK
resident in the tax year in which the gain arises.
(3)
The tax reduction is given effect at Step 6 of the calculation in section
40
23 of ITA 2007.

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
626

(4)
See section 540 for the cases in which a deficiency is treated as arising
from a policy or contract on a chargeable event, section 541 for how
the deficiency is calculated and section 469(5) for the apportionment
of deficiencies in cases where two or more persons are interested in
a policy or contract.
5
(5)
The amount of the tax reduction is calculated as follows.

Step 1

Attribute to the amount of the deficiency an amount of the
individual’s income for the tax year which is liable at the dividend
upper rate, so far as is possible.
10

Step 2

If there is an amount of the deficiency remaining after Step 1,
attribute to the remaining amount of the deficiency an amount of the
individual’s savings income for the tax year which is liable at the
higher rate, so far as is possible.
15

Step 3

If there is an amount of the deficiency remaining after Step 2,
attribute to the remaining amount of the deficiency an amount of the
individual’s other income for the tax year which is liable at the
higher rate, so far as is possible.
20

Step 4

Calculate the amount of the individual’s preliminary income tax
liability for the tax year (see subsection (6)).

Step 5

Calculate the amount of the individual’s preliminary income tax
25
liability for the tax year again, on these assumptions—

Assume that any income attributed to the deficiency at Step 1 is liable
at the dividend ordinary rate.

Assume that any income attributed to the deficiency at Step 2 is liable
at the savings rate.
30

Assume that any income attributed to the deficiency at Step 3 is liable
at the basic rate.

Step 6

Deduct the amount found at Step 5 from the amount found at Step 4.

The result is the amount of the tax reduction.
35
(6)
The individual’s preliminary income tax liability is the amount
found by calculating the individual’s income tax liability in
accordance with section 23 of ITA 2007, ignoring Steps 6 and 7 of that
calculation.”
540
In section 546(4) (table of provisions subject to special rules for older policies
40
and contracts), in the first column of the table, for “Section 539(3)” substitute
“Section 539”.
541   (1)
Amend section 547 (income tax chargeable on income treated as received
from unauthorised unit trust) as follows.
      (2)
In subsection (1) for the words from “scheme” to the end substitute “unit
45
trust scheme to which this section applies”.

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
627

      (3)
After subsection (2) insert—
“(3)
This section applies to a unit trust scheme if—
(a)
the scheme is an unauthorised unit trust, and
(b)
the trustees of the scheme are UK resident.”
542
For section 550 substitute—
5
“550
Income tax treated as paid
In accordance with section 848 of ITA 2007, a sum representing
income tax treated as deducted from income within this Chapter as
a result of section 941 of that Act (deemed deduction from unit
holder’s income) is treated as income tax paid by the unit holder.”
10
543
In section 567(2) (disposals of futures and options involving guaranteed
returns: losses) for “section 392 of ICTA” substitute “section 152 of ITA
2007”.
544
In section 569(2) (disposal of futures and options involving guaranteed
returns: anti-avoidance: transfer of assets abroad) for “sections 739 and 740
15
of ICTA (transfer of assets abroad) have” substitute “Chapter 2 of Part 13 of
ITA 2007 (transfer of assets abroad) has”.
545
In section 570(5) (charge to tax under Chapter 13: sales of foreign dividend
coupons) for “section 840A of ICTA” substitute “section 991 of ITA 2007”.
546   (1)
Amend section 595 (deduction of tax from payments to non-UK residents)
20
as follows.
      (2)
In subsection (2) for the words after “which” substitute “is to be deducted
under section 910 of ITA 2007”.
      (3)
In subsection (3) for the words after “which” substitute “is to be deducted
under section 910 of ITA 2007”.
25
547
In section 601 (how relief for patent expenses is given) after subsection (2)
insert—
“(2A)
The deduction or set-off is given effect at Step 2 of the calculation in
section 23 of ITA 2007.”
548   (1)
Amend section 602 (payments received after deduction of tax) as follows.
30
      (2)
For “Income tax deducted under either of the following sections” substitute
“In accordance with section 848 of ITA 2007, a sum representing income tax
deducted under either of the following Chapters”.
      (3)
For the words after “recipient” substitute “—
Chapter 6 of Part 15 of ITA 2007 (deduction from annual payments and
35
patent royalties), and
Chapter 7 of that Part (deduction from other payments connected with
intellectual property).”
549   (1)
Amend section 618 (payments received after deduction of tax) as follows.
      (2)
For “Income tax deducted under either of the following sections” substitute
40
“In accordance with section 848 of ITA 2007, a sum representing income tax
deducted under Chapter 6 of Part 15 of that Act”.

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 2 — Other enactments
628

      (3)
Omit the words after “recipient”.
550
In section 619(2) (charge to tax on settlor)—
(a)
for “sections 1 to 1B of ICTA” substitute “Chapter 2 of Part 2 of ITA
2007 (rates at which income tax is charged)”, and
(b)
for “Tax Acts” substitute “Income Tax Acts”.
5
551
After section 619 insert—
“619A
Income treated as highest part of settlor’s total income
(1)
This section applies to income which is treated as income of a settlor
as a result of section 624 (income where settlor retains an interest) or
629 (income paid to unmarried minor children of settlor).
10
(2)
The income is treated as the highest part of the settlor’s total income
for the purposes of section 619 (so far as it relates to the income).
(3)
See section 1012 of ITA 2007 (relationship between highest part rules)
for the relationship between—
(a)
the rule in subsection (2), and
15
(b)
other rules requiring particular income to be treated as the
highest part of a person’s total income.”
552
In section 620(5) (which contains various definitions) in the definition of
“charity” for the words from “each” to the end substitute—
“(a)
the Trustees of the National Heritage Memorial Fund,
20
(b)
the Historic Buildings and Monuments Commission
for England, and
(c)
the National Endowment for Science, Technology
and the Arts”.
553
In section 624 (income where settlor retains an interest in the settlement)
25
after subsection (1) insert—
“(1A)
If the settlement is a trust, expenses of the trustees are not to be used
to reduce the income of the settlor.”
554
In section 627(2) (income where settlor retains an interest: exceptions), in
paragraph (b), for “section 25 of FA 1990 (donations to charity by
30
individuals)” substitute “Chapter 2 of Part 8 of ITA 2007 (gift aid)”.
555   (1)
Amend section 628 (exception for gifts to charities) as follows.
      (2)
In subsection (2)—
(a)
in paragraph (a) for “is to” substitute “must”, and
(b)
in paragraph (b) omit the words after “person”.
35
      (3)
After that subsection insert—
“(2A)
The cases covered by subsection (2)(b) include cases where the
trustees have, or any other person has, any discretion over one or
more of the following matters—
(a)
whether, or the extent to which, the income is to be
40
accumulated,
(b)
the persons to whom the income is to be paid, and
(c)
how much of the income is to be paid to any person.”