Income Tax (Trading and Other Income) Act 2005

Income Tax (Trading and Other Income) Act 2005

2005 CHAPTER 5

Commentary on Sections

Part 6: Exempt income

Chapter 8: Other Annual Payments

Section 727: Certain annual payments by individuals

2792. This section is based on the parts of section 347A of ICTA which exempt from income tax annual payments made by individuals.

2793. See the commentary on Chapter 7 of Part 5 of this Act for an explanation of the phrase “annual payment”.

2794. Subsection (1) gives the general exemption: annual payments made by individuals which would otherwise be taxable under Part 5 of this Act are exempt from income tax in the hands of the recipient. Section 347A of ICTA applies to annual payments which would otherwise be within the charge to tax under Schedule D Case III, that is, annual payments arising within the United Kingdom. This requirement is in subsection (1)(b).

2795. Subsection (3) is based on section 347A(3) of ICTA and applies the exemption to any payment made by an individual’s personal representative if the exemption would have applied had the individual not died. “Personal representatives” is defined in section 878.

2796. In contrast with an English partnership, a Scottish partnership is a separate legal entity. Subsection (4) therefore defines “individual” as including a Scottish partnership so that the taxation treatment of English and Scottish partnerships is the same.

2797. Section 347A of ICTA applies to all payments falling due on or after 6 April 2000 and also to certain payments falling due before that date but on or after 16 March 1988. Although unlikely, it is possible for payments to fall due at a time when section 347A did not apply but to be paid after 6 April 2005. Paragraph 146 of Schedule 2 to this Act contains a transitional provision which determines whether the exemption in section 727 and the exemption in section 730 apply in these circumstances.