Overview
3060.This Part contains rules that may affect the calculation of income charged under this Act or under Parts 9 or 10 of ITEPA.
3061.In the source legislation for this Act, income arising outside the United Kingdom is charged to income tax mainly under Schedule D Cases IV and V (section 18 of ICTA sets out the Cases of Schedule D). But some foreign income may be taxed under Schedule D Case VI or under a non-schedular charge if the provision covers both U K and non-UK income. And profits made by the foreign branch of a UK trade, profession or vocation are charged under Schedule D Cases I and II, and are not foreign income (see sections 6(1) (trade profits: territorial scope of charge to tax) and 7(5) (trade profits: income charged)).
3062.The term “foreign income” has not been used in the Tax Acts (other than as part of the obsolescent term “foreign income dividends”), and it does not have any clear or defined meaning. Chapter 1 of this Part of this Act introduces the label “relevant foreign income” to describe the income and other amounts charged to income tax in this Act that are charged under Schedule D Cases IV or V in the source legislation. That income is charged in this Act alongside the equivalent UK income (with the exception of dividends from non-UK resident companies (Chapter 4 of Part 4 of this Act)).
3063.A number of special rules apply to relevant foreign income. Rather than repeat the rules in every place where they apply, the rules are rewritten in this Part. The “income charged” sections for any charge that includes relevant foreign income incorporates the rules by making the main calculation rule in that section subject to this Part. For example, see section 7(4) (trade profits: income charged).
3064.Chapter 4 of this Part of this Act has a potentially wider application than Chapters 2 or 3 of this Part, as it can apply to all income arising outside the United Kingdom rather than just relevant foreign income.
3065.There are a number of charges under Parts 9 (pension income) and 10 (social security income) of ITEPA that, before being rewritten in ITEPA, were charges under Schedule D Case V. See sections 573, 609 to 611, 629, 633 and 678 of ITEPA. The amount of income charged under those provisions is calculated by reference to certain rules in ICTA, some of which are rewritten in this Part. Schedule 1 to this Act amends the ITEPA provisions for calculating income under those charges to provide an “income charged” rule and to deem the income in question to be relevant foreign income for the application of rules in this Part of this Act (see paragraphs 606 to 609 and 613 of that Schedule).
3066.Unless the remittance basis applies (see Chapter 2 of this Part of this Act), or the income arises from a trade, profession or vocation (see section 7 (trade profits: income charged)), the amount of relevant foreign income charged for a tax year is the income arising in the year. This rule is based on section 65(1) of ICTA and forms part of the basis of each “income charged” provision in this Act for relevant foreign income. See, for example, section 403 (dividends from non-UK resident companies). Where a charge includes both relevant foreign income and equivalent UK income the same rule serves for both. See, for example, section 370 (interest: income charged).
3067.The “income charged” provisions do not rewrite the words “whether the income has been or will be received in the United Kingdom” from section 65(1) of ICTA.
3068.Before FA 1914, the remittance basis was the only basis of assessment for income within Schedule D Cases IV and V. It applied to all UK residents and not just to those persons who were non-UK domiciled, or were both not ordinarily resident in the United Kingdom and were either Commonwealth or Irish citizens (as necessary for a claim under section 65(4) of ICTA). FA 1914 took certain Schedule D Cases IV and V income out of the remittance basis and that income was taxed thereafter on the arising basis.
3069.The words “whether the income has been or will be received in the United Kingdom” were included in the 1914 legislation to emphasise that income within Schedule D Cases IV and V was now chargeable to tax, whether or not the income had been remitted to the United Kingdom. That emphasis is no longer needed.
3070.In the source legislation the basis for charging income arising in the Republic of Ireland is provided as follows:
income from trades, professions or vocations: section 68(3) and (4) of ICTA;
income from property: section 65A of ICTA;
other Schedule D Case IV or V income: section 68(1) of ICTA; and
pension income: Part 9 of ITEPA, but the rules in section 68 of ICTA apply.
3071.Parts 2 and 3 of this Act integrate the rules in sections 68(3) and (4) and 65A of ICTA in respect of trade profits and property business income arising in the Republic of Ireland with the rules for other such income.
3072.The wording of section 68(1) of ICTA is identical in all material respects to section 65(1) of ICTA. The “income charged” provisions for relevant foreign income charged on the arising basis, in Parts 4 and 5 of this Act, are based on both sections 65(1) and 68(1) of ICTA. Likewise, the deductions provided by Chapter 3 of this Part are based on both sections 65 and 68 of ICTA.
3073.See also Chapter 2 of Part 10 of this Act for further rules that may affect the calculation of income arising outside the United Kingdom charged on the arising basis.
