Income Tax Act 2007

[F1 Remittance of income and gains: transfers from mixed funds U.K.

Textual Amendments

F1 Pt. 14 Ch. A1 inserted (21.7.2008 with effect in accordance with Sch. 7 para. 81 of the amending Act) by Finance Act 2008 (c. 9), Sch. 7 para. 1 (with Sch. 7 paras. 85-89)

809Q Sections 809L and 809P: transfers from mixed funds U.K.

(1) This section applies for the purposes mentioned in subsection (2) where condition A in section 809L is met and—

(a) the property or consideration for the service is (wholly or in part), or derives (wholly or in part, and directly or indirectly) from, a transfer from a mixed fund, or

(b) a transfer from a mixed fund, or anything deriving (wholly or in part, and directly or indirectly) from such a transfer, is used as mentioned in section 809L(3)(c).

(2) The purposes referred to in subsection (1) are—

(a) determining whether condition B in section 809L is met, and

(b) if it is met, determining (under section 809P) the amount of income or chargeable gains remitted.

(3) The extent to which the transfer is of the individual's income or chargeable gains is to be determined as follows.

Step 1

For each of the categories of income and capital in paragraphs (a) to (i) of subsection (4), find (applying section 809R) the amount of income or capital of the individual for the relevant tax year in the mixed fund immediately before the transfer.

“The relevant tax year” is the tax year in which the transfer occurs.

Step 2

Find the earliest paragraph for which the amount determined under step 1 is not nil.

If that amount does not exceed the amount of the transfer, treat the transfer as containing the income or capital within that paragraph (and for that tax year).

Otherwise, treat the transfer as containing the relevant proportion of each kind of income or capital within that paragraph (and for that tax year).

“The relevant proportion” is the amount of the transfer divided by the amount determined under step 1 for that paragraph.

Step 3

Treat the amount of the transfer as reduced by the amount taken into account under step 2.

Step 4

If the amount of the transfer (as reduced under step 3) is not nil, start again at step 2.

In step 2, read the reference to the earliest paragraph of the kind mentioned there as a reference to the earliest such paragraph which has not previously been taken into account under that step in relation to the transfer.

Step 5

If the amount of the transfer (as reduced under step 3) is not nil once steps 2 and 3 have been undertaken in relation to all paragraphs of subsection (4) for which the amount determined under step 1 is not nil, start again at step 1.

In step 1, read the reference to the relevant tax year as a reference to the tax year immediately before the last tax year for which step 1 has been undertaken in relation to the transfer.

(4) The kinds of income and capital are—

(a) employment income (other than income within paragraph (b), (c) or (f)),

(b) relevant foreign earnings (other than income within paragraph (f)),

(c) foreign specific employment income (other than income within paragraph (f)),

(d) relevant foreign income (other than income within paragraph (g)),

(e) foreign chargeable gains (other than chargeable gains within paragraph (h)),

(f) employment income subject to a foreign tax,

(g) relevant foreign income subject to a foreign tax,

(h) foreign chargeable gains subject to a foreign tax, and

(i) income or capital not within another paragraph of this subsection.

(5) In subsection (4) “foreign tax” means any tax chargeable under the law of a territory outside the United Kingdom.

(6) In this section “mixed fund” means money or other property which, immediately before the transfer, contains or derives from—

(a) more than one of the kinds of income and capital mentioned in subsection (4), or

(b) income or capital for more than one tax year.

(7) References in this section to the amount of the transfer include the market value of it.

(8) References in this section and section 809R to anything deriving from income or capital within paragraph (i) of subsection (4) do not include—

(a) income or gains within any of paragraphs (a) to (h) of that subsection, or

(b) anything deriving from such income or gains.

809R Section 809Q: composition of mixed fund U.K.

(1) This section applies for the purposes of step 1 of section 809Q(3) (composition of mixed fund).

(2) Treat property which derives wholly or in part (and directly or indirectly) from an individual's income or capital for a tax year as consisting of or containing that income or capital.

(3) If a debt relating (wholly or in part, and directly or indirectly) to property is at any time satisfied (wholly or in part) by—

(a) an individual's income or capital for a tax year, or

(b) anything deriving (directly or indirectly) from such income or capital,

from that time treat the property as consisting of or containing the income or capital if and to the extent that it is just and reasonable to do so.

(4) Treat an offshore transfer from a mixed fund as containing the appropriate proportion of each kind of income or capital in the fund immediately before the transfer.

“The appropriate proportion” means the amount (or market value) of the transfer divided by the market value of the mixed fund immediately before the transfer.

(5) A transfer from a mixed fund is an “offshore transfer” for the purposes of subsection (4) if and to the extent that section 809Q does not apply in relation to it.

(6) Treat a transfer from a mixed fund as an “offshore transfer” (and section 809Q as not applying in relation to it, if it otherwise would do) if and to the extent that, at the end of a tax year in which it is made—

(a) section 809Q does not apply in relation to it, and

(b) on the basis of the best estimate that can reasonably be made at that time, section 809Q will not apply in relation to it.

(7) In this section ‘mixed fund’ means money or other property containing or deriving from—

(a) more than one of the kinds of income and capital mentioned in section 809Q(4), or

(b) income or capital for more than one tax year.

(8) If section 809Q applies in relation to part of a transfer, apply that section in relation to that part before applying subsection (4) in relation to the rest of the transfer.

(9) If section 809Q applies in relation to more than one transfer from a mixed fund, when undertaking step 1 in relation to the second or any subsequent transfer take into account the effect of step 2 of section 809Q(3) (composition of transfer) as it applied in relation to each earlier transfer.

809S Section 809Q: anti-avoidance U.K.

(1) This section applies if, by reason of an arrangement the main purpose (or one of the main purposes) of which is to secure an income tax advantage or capital gains tax advantage, a mixed fund would otherwise be regarded as containing income or capital within any of paragraphs (f) to (i) of section 809Q(4).

(2) Treat the mixed fund as containing so much (if any) of the income or capital as is just and reasonable.

(3) “Arrangement” includes any scheme, understanding, transaction or series or transactions (whether or not enforceable).

[F2 (4) Income tax advantage” means—

(a) a relief from income tax or increased relief from income tax,

(b) a repayment of income tax or increased repayment of income tax,

(c) the avoidance or reduction of a charge to income tax or an assessment to income tax, or

(d) the avoidance of a possible assessment to income tax;

and for this purpose “relief from income tax” includes a tax credit.

(4A) For the purposes of subsection (4)(c) and (d) it does not matter whether the avoidance or reduction is effected—

(a) by receipts accruing in such a way that the recipient does not pay or bear income tax on them, or

(b) by a deduction in calculating profits or gains.]

(5) “Capital gains tax advantage” means—

(a) a relief from capital gains tax or increased relief from capital gains tax,

(b) a repayment of capital gains tax or increased repayment of capital gains tax,

(c) the avoidance or reduction of a charge to capital gains tax or an assessment to capital gains tax, or

(d) the avoidance of a possible assessment to capital gains tax.]

Textual Amendments

F2 S. 809S(4)(4A) substituted (8.4.2010 with effect in accordance with Sch. 12 para. 15(1) of the amending Act) for s. 809S(4) by Finance Act 2010 (c. 13), Sch. 12 para. 11