Income Tax (Trading and Other Income) Act 2005

Income Tax (Earnings and Pensions) Act 2003 (c. 1) U.K.

584 U.K. The Income Tax (Earnings and Pensions) Act 2003 is amended as follows.

585 U.K. In section 6(5) (exception to charge to tax on employment income for income of divers and diving supervisors) for the words from “Case I” to “ICTA” substitute “ Part 2 of ITTOIA 2005 (trading income) by virtue of section 15 of that Act ”.

586 U.K. In section 61(1) (application of provisions to workers under arrangements made by intermediaries: interpretation) in the definition of “business” after “includes a” insert “ UK property business or ”.

587 U.K. In section 178 (exception for loans where interest qualifies for tax relief)—

(a) in paragraph (c)—

(i) for “under Case I or II of Schedule D” substitute “ to tax ”, and

(ii) after “carried on” insert “ wholly or partly in the United Kingdom ”, and

(b) in paragraph (d) for “under Schedule A in respect of a Schedule A business” substitute “ to tax in respect of a UK property business, or a Schedule A business, ”.

588 U.K. In section 180(5) (threshold for benefit of loan to be treated as earnings)—

(a) in paragraph (c)—

(i) for “under Case I or II of Schedule D” substitute “ to tax ”, and

(ii) after “carried on” insert “ wholly or partly in the United Kingdom ”, and

(b) in paragraph (d) for “under Schedule A in respect of a Schedule A business” substitute “ to tax in respect of a UK property business, or a Schedule A business, ”.

589 U.K. In section 189(3)(a) (exception where double charge) for “section 677 of ICTA (sums paid to settlor otherwise than as income)” substitute “ section 633 of ITTOIA 2005 (capital sums paid to settlor by trustees of settlement) ”.

590 U.K. In section 215 for “section 331(1) of ICTA” substitute “ section 776(1) of ITTOIA 2005 ”.

591 U.K. In section 302(4) (exemption of consular employees' employment income), in the definition of “reciprocal arrangement”, for “and section 322 of ICTA” substitute “ , sections 646A and 681A of this Act and section 771 of ITTOIA 2005 (relevant foreign income of consular officers and employees) ”.

592 U.K. After section 325 insert—

“325A Health and employment insurance payments

(1) No liability to income tax in respect of employment income arises on any payment if or to the extent that—

(a) were the payment an annual payment falling within Chapter 7 of Part 5 of ITTOIA 2005, it would be exempt from income tax under section 735 of that Act (health and employment insurance payments), and

(b) it meets conditions A and B.

(2) Condition A is that the payments are made—

(a) to a person (“the employee”) who made payments or contributions in respect of premiums under an insurance policy which another person took out wholly or partly for the employee's benefit, or

(b) to the employee's husband or wife.

(3) Condition B is that the payments are attributable on a just and reasonable basis to the payments or contributions in respect of premiums.”

593 U.K. In section 357(2) (business entertainment and gifts: exception where employer's expenses disallowed) after “disallowed under” insert “ section 45 or 867 of ITTOIA 2005 or under ”.

594 U.K. In Chapter 2 of Part 5, after section 360 insert—

“360A Social security contributions

(1) No deduction from earnings is allowed under this Chapter for any contribution paid by any person under Part 1 of SSCBA 1992 or Part 1 of SSCB(NI)A 1992.

(2) But this prohibition does not apply to an employer's contribution (see subsection (3)) which is allowable as a deduction—

(a) under section 336 (the general rule),

(b) under any of sections 337 to 342 (travel expenses), or

(c) under section 351(1) (expenses of ministers of religion).

(3) For this purpose “an employer's contribution” means—

(a) a secondary Class 1 contribution,

(b) a Class 1A contribution, or

(c) a Class 1B contribution,

within the meaning of Part 1 of SSCBA 1992 or Part 1 of SSCB(NI)A 1992.”

595 U.K. In section 394(2) (charge on benefit to which Chapter 2 of Part 6 applies) for “to tax under Case VI of Schedule D” substitute “ to income tax ”.

596 U.K. In section 397(1) (certain lump sums: calculation of amount taxed by virtue of section 394) for “Case VI of Schedule D” substitute “ subsection (2) of that section ”.

597 U.K. In section 399(1)(b) (employment-related loans: interest treated as paid) omit “under Case VI of Schedule D”.

598 U.K. In section 476 (charge on occurrence of chargeable event) for subsection (5) substitute—

“(5) If the employee has been divested of the employment-related securities option by operation of law—

(a) income tax is charged on the amount determined under section 478, and

(b) the person liable for any tax so charged is the relevant person in relation to the chargeable event (see section 477(7)).”

599 U.K. In section 477(7) (chargeable events) for “(charge under Case VI of Schedule D)” substitute “ (charge to income tax) ”.

600 (1) Amend section 493 (no charge on acquisition of dividend shares) as follows. U.K.

(2) Omit subsections (1), (2) and (4).

(3) After subsection (3) insert—

“(3A) For the exemption of such amounts from income tax, see section 770 of ITTOIA 2005 (amounts applied by SIP trustees acquiring dividend shares or retained for reinvestment).”

601 U.K. For section 496 (no charge on cash dividend retained for reinvestment) substitute—

“496 No charge on cash dividend retained for reinvestment

For the exemption from income tax of amounts retained under paragraph 68(2) of Schedule 2 (amount of cash dividend not reinvested), see section 770 of ITTOIA 2005 (amounts applied by SIP trustees acquiring dividend shares or retained for reinvestment).”

602 U.K. In section 497(3) (limitations on charges on shares ceasing to be subject to plan) for the words from “as” to the end substitute “ under Chapter 3 or 4 of Part 4 of ITTOIA 2005 (dividends etc. from UK or non-UK resident companies etc.) as a result of section 394(2) or 407(2) of that Act (distribution or dividend payment when dividend shares cease to be subject to plan). ”

603 U.K. In section 502(4)(a) (meaning of “capital receipt” in section 501) at the end insert “ or section 770 of ITTOIA 2005 (exemption for amounts applied by SIP trustees acquiring dividend shares or retained for reinvestment) ”.

604 (1) Amend section 515 (tax advantages and charges under other Acts) as follows. U.K.

(2) In subsection (1) omit paragraph (a).

(3) In subsection (2) omit “and” at the end of paragraph (a).

(4) In subsection (2) at the end of paragraph (b) insert “, and

(c) sections 392 to 395 and 405 to 408 of ITTOIA 2005 (SIPs: special rules for charges under Chapters 3 and 4 of Part 4 of that Act (dividends etc. from UK or non-UK resident companies etc.)) and section 770 of that Act (exemption for amounts applied by SIP trustees acquiring dividend shares or retained for reinvestment).”

605 U.K. In section 516(4) (approved SAYE option schemes), in the definition of “SAYE option scheme”, for “approved savings schemes” substitute “ approved savings arrangements ”.

606 (1) Amend section 575 (taxable pension income: foreign pensions) as follows. U.K.

(2) In subsection (1) for the words “the amount” onwards substitute “ the full amount of the pension income arising in the tax year, but subject to subsections (2) and (3). ”

(3) For subsection (2) substitute—

“(2) The full amount of the pension income arising in the tax year is to be calculated on the basis that the pension is 90% of its actual amount, unless as a result of subsection (3) the pension income is charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).

(3) That pension income is treated as relevant foreign income for the purposes of Chapters 2 and 3 of Part 8 of that Act (relevant foreign income: remittance basis and deductions and reliefs).

(4) But if that pension income arises in the Republic of Ireland, section 839 of that Act (annual payments payable out of relevant foreign income) applies with the omission of condition B and subsection (5)(a).

(5) See also Chapter 4 of that Part (unremittable income).”

607 (1) Amend section 613 (taxable pension income: foreign annuities) as follows. U.K.

(2) In subsection (2) for the words “the amount” onwards substitute “ the full amount of the annuity arising in the tax year, but subject to subsections (3) and (4). ”

(3) For subsections (3) and (4) substitute—

“(3) The full amount of the annuity arising in the tax year is to be calculated on the basis that the annuity is 90% of its actual amount, unless as a result of subsection (4) the annuity is charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).

(4) The annuity is treated as relevant foreign income for the purposes of Chapters 2 and 3 of Part 8 of that Act (relevant foreign income: remittance basis and deductions and reliefs).

(5) But if the annuity arises in the Republic of Ireland, section 839 of that Act (annual payments payable out of relevant foreign income) applies with the omission of condition B and subsection (5)(a).

(6) See also Chapter 4 of that Part (unremittable income).”

608 (1) Amend section 631 (taxable pension income: pre-1973 pensions paid under the Overseas Pensions Act 1973) as follows. U.K.

(2) In subsection (1) for the words “the amount” onwards substitute “ the full amount of the pension income arising in the tax year ”.

(3) For subsection (2) substitute—

“(2) The full amount of the pension income arising in the tax year is to be calculated on the basis that the pension is 90% of its actual amount.

(3) The pension income is treated as relevant foreign income for the purposes of section 838 of that Act (expenses attributable to collection or payment of relevant foreign income).”

609 (1) Amend section 635 (taxable pension income: foreign voluntary annual payments) as follows. U.K.

(2) In subsection (2) for the words “the amount” onwards substitute “ the full amount of the pension income arising in the tax year, but subject to subsections (3) and (4) ”.

(3) For subsection (3) substitute—

“(3) The full amount of the pension income arising in the tax year is to be calculated on the basis that the pension is 90% of its actual amount, unless as a result of subsection (4) the pension income is charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).

(4) That pension income is treated as relevant foreign income for the purposes of Chapters 2 and 3 of Part 8 of that Act (relevant foreign income: remittance basis and deductions and reliefs).

(5) But if that pension income arises in the Republic of Ireland, section 839 of that Act (annual payments payable out of relevant foreign income) applies with the omission of condition B and subsection (5)(a).

(6) See also Chapter 4 of that Part (unremittable income).”

610 U.K. After section 644 insert—

“644A Health and employment insurance payments

(1) No liability to income tax arises in respect of a pension or annuity payment if or to the extent that—

(a) were the payment an annual payment falling within Chapter 7 of Part 5 of ITTOIA 2005, it would be exempt from income tax under section 735 of that Act (health and employment insurance payments), and

(b) it meets conditions A and B.

(2) Condition A is that the payments are made—

(a) to a person (“the pensioner”) who made payments or contributions in respect of premiums under an insurance policy which another person took out wholly or partly for the pensioner's benefit, or

(b) to the pensioner's husband or wife.

(3) Condition B is that the payments are attributable on a just and reasonable basis to the payments or contributions in respect of premiums.”

611 U.K. After section 646 insert—

“646A Foreign pensions of consular employees

(1) No liability to income tax arises in respect of foreign pension income of a consular officer or employee in the United Kingdom for a foreign state if—

(a) Her Majesty by Order in Council directs that this section applies to the foreign state for the purpose of giving effect to a reciprocal arrangement with that state, and

(b) the officer or employee meets conditions A to C.

(2) Condition A is that the officer or employee is not—

(a) a British citizen,

(b) a British overseas territories citizen,

(c) a British National (Overseas), or

(d) a British Overseas citizen.

(3) Condition B is that the officer or employee is not engaged in any trade, profession, vocation or employment in the United Kingdom, otherwise than as a consular officer or employee of the state in question.

(4) Condition C is that the officer or employee—

(a) is a permanent employee of that state, or

(b) was not ordinarily resident in the United Kingdom immediately before becoming a consular officer or employee in the United Kingdom of that state.

(5) In this section—

• “consular officer or employee” includes any person employed for the purposes of the official business of a consular officer at—

  (a)

  any consulate,

  (b)

  any consular establishment, or

  (c)

  any other premises used for those purposes,

• “foreign pension income” means—

  (a)

  income to which section 573 or 629 applies, and

  (b)

  income arising from a source outside the United Kingdom to which section 609, 610, 611 or 633 applies; and

• “reciprocal agreement” has the same meaning as in section 302.

(6) Section 302(5) to (7) apply to an Order under subsection (1) and the operation of this section as they apply to an Order under section 302(1) and the operation of section 302.”

612 U.K. In section 655(2) (structure of Part 10) for the entries relating to sections 84 and 85 of FA 2000 substitute—

“section 781 of ITTOIA 2005 (exemption from income tax for payments under New Deal 50plus);

section 782 of ITTOIA 2005 (exemption from income tax for payments under employment zone programmes).”

613 (1) Amend section 679 (taxable social security income: foreign benefits) as follows. U.K.

(2) In subsection (1) for the words “the amount” onwards substitute “ the full amount of the social security income arising in the tax year, but subject to subsection (2). ”

(3) For subsection (2) substitute—

“(2) That income is treated as relevant foreign income for the purposes of Chapters 2 and 3 of Part 8 of ITTOIA 2005 (relevant foreign income: remittance basis and deductions and reliefs).

(3) See also Chapter 4 of that Part (unremittable income).”

614 U.K. After section 681 insert—

“681A Foreign benefits of consular employees

(1) No liability to income tax arises in respect of any benefit to which section 678 applies of a consular officer or employee in the United Kingdom for a foreign state if—

(a) Her Majesty by Order in Council directs that this section applies to the foreign state for the purpose of giving effect to a reciprocal arrangement with that state, and

(b) the officer or employee meets conditions A to C.

(2) Condition A is that the officer or employee is not—

(a) a British citizen,

(b) a British overseas territories citizen,

(c) a British National (Overseas), or

(d) a British Overseas citizen.

(3) Condition B is that the officer or employee is not engaged in any trade, profession, vocation or employment in the United Kingdom, otherwise than as a consular officer or employee of the state in question.

(4) Condition C is that the officer or employee—

(a) is a permanent employee of that state, or

(b) was not ordinarily resident in the United Kingdom immediately before becoming a consular officer or employee in the United Kingdom of that state.

(5) In this section—

• “consular officer or employee” includes any person employed for the purposes of the official business of a consular officer at—

  (a)

  any consulate,

  (b)

  any consular establishment, or

  (c)

  any other premises used for those purposes, and

• “reciprocal agreement” has the same meaning as in section 302.

(6) Section 302(5) to (7) apply to an Order under subsection (1) and the operation of this section as they apply to an Order under section 302(1) and the operation of section 302.”

615 U.K. After section 716 (alteration of amounts by Treasury order) insert—

“Priority rule for certain dividends etc U.K.

716A Priority rule for dividends etc. of UK resident companies etc.

Any income, so far as it falls within—

(a) Part 2, 9 or 10 of this Act, and

(b) Chapter 3 of Part 4 of ITTOIA 2005 (dividends etc. from UK resident companies etc.),

is dealt with under Chapter 3 of Part 4 of ITTOIA 2005.”

616 (1) Amend Schedule 1 (abbreviations and defined expressions) as follows. U.K.

(2) In Part 1 in the appropriate place insert—

“ITTOIA 2005

The Income Tax (Trading and Other Income) Act 2005”.

(3) In Part 2 in the appropriate place insert—

“UK property business

section 832(1) of ICTA and Chapter 2 of Part 3 of ITTOIA 2005”.

617 (1) Amend Schedule 2 (approved share incentive plans) as follows. U.K.

(2) In paragraph 22(3), for “Chapter 1A of Part 15 of ICTA (see section 660G(1) and (2))” substitute “ Chapter 5 of Part 5 of ITTOIA 2005 (see section 620 of that Act) ”.

(3) In paragraph 79(4) for the words from “section 68B(2)” to the end substitute “ Chapter 3 or 4 of Part 4 of ITTOIA 2005 (dividends etc. from UK or non-UK resident companies etc.) as a result of section 394(2) or 407(2) of that Act (distribution or dividend payment when dividend shares cease to be subject to plan). ”

(4) In paragraph 80(3)(b) (other duties of trustees in relation to tax liabilities) for “Case V of Schedule D or Schedule F” substitute “ Chapter 3 or 4 of Part 4 of ITTOIA 2005 (dividends etc. from UK or non-UK resident companies etc.) ”.

(5) In paragraph 86(4)(c) at end insert “ that is issued in a case where section 410(2) or (3) of ITTOIA 2005 applies ”.

(6) In paragraph 87(2)(d) for sub-paragraph (ii) substitute—

“(ii) sections 392 to 395 and 405 to 408 of ITTOIA 2005 (SIPs: special rules for charges under Chapters 3 and 4 of Part 4 of that Act (dividends etc. from UK or non-UK resident companies etc.)) and section 770 of that Act (exemption for amounts applied by SIP trustees acquiring dividend shares or retained for reinvestment),”.

618 (1) Amend Schedule 3 (approved SAYE option schemes) as follows. U.K.

(2) In paragraph 1(3) for “savings scheme” substitute “ savings arrangement ”.

(3) In paragraph 2(1)(b) for “savings schemes” substitute “ savings arrangements ”.

(4) In paragraph 14(3), for “Chapter 1A of Part 15 of ICTA (see section 660G(1) and (2))” substitute “ Chapter 5 of Part 5 of ITTOIA 2005 (see section 620 of that Act) ”.

(5) In paragraph 23—

(a) in the heading (including the Part heading), for “scheme” substitute “ arrangement ”, and

(b) for “savings schemes”, in both places where it occurs, substitute “ savings arrangements ”.

(6) In paragraph 24(1)—

(a) in the heading, for “schemes” substitute “ arrangements ”,

(b) for “CCS scheme” substitute “ certified SAYE savings arrangement ”, and

(c) for “(“the CCS scheme”)” substitute “ (“the approved savings arrangement”) ”.

(7) Omit paragraph 24(2).

(8) In paragraph 25—

(a) in the heading, for “schemes” substitute “ arrangements ”,

(b) in sub-paragraph (1), for “CCS scheme” substitute “ the approved savings arrangement ”, and

(c) in sub-paragraph (3)(a), for “CCS schemes linked to approved SAYE option schemes” substitute “ certified SAYE savings arrangements linked to approved SAYE option schemes ”.

(9) In paragraph 26—

(a) in the heading, for “scheme” substitute “ arrangement ”,

(b) in sub-paragraph (1), for “CCS scheme” substitute “ certified SAYE savings arrangement ”, and

(c) in sub-paragraph (2), for “scheme” substitute “ arrangement ”.

(10) In paragraph 30(3), for “the CCS scheme” substitute “ the approved savings arrangement ”.

(11) In paragraph 48(1)—

(a) for “certified contractual savings scheme” substitute “ certified SAYE savings arrangement ”, and

(b) for “section 326(2) to (6) of ICTA” substitute “ section 703(1) of ITTOIA 2005 ”.

(12) In paragraph 49, for “certified contractual savings scheme (CCS scheme)” substitute “ certified SAYE savings arrangement ”.

619 U.K. In Schedule 4 (approved CSOP schemes), in paragraph 12(3), for “Chapter 1A of Part 15 of ICTA (see section 660G(1) and (2))” substitute “ Chapter 5 of Part 5 of ITTOIA 2005 (see section 620 of that Act) ”.

620 (1) Amend Schedule 5 (enterprise management incentives) as follows. U.K.

(2) In paragraph 27(3)(a), for “under Case I or II of Schedule D” substitute “ as the profits of a trade, profession or vocation carried on wholly or partly in the United Kingdom ”.

(3) In paragraph 31(3), for “Chapter 1A of Part 15 of ICTA (see section 660G(1) and (2))” substitute “ Chapter 5 of Part 5 of ITTOIA 2005 (see section 620 of that Act) ”.