Income Tax Act 2007

Part 14 Income tax liability: miscellaneous rules

Chapter 1 Limits on liability to income tax of non-UK residents

Introduction

810 Overview of Chapter

(1) This Chapter provides for limits on the liability to income tax of non-UK residents.

(2) See sections 811 to 814 in the cases of—

(a) a non-UK resident, other than a company, and

(b) a non-UK resident company liable as a trustee.

(3) See sections 815 and 816 in the case of a non-UK resident company which is liable otherwise than as a trustee.

Limit for non-UK resident individuals, trustees etc

811 Limit on liability to income tax of non-UK residents

(1) This section applies to income tax to which—

(a) a non-UK resident, other than a company, is liable, or

(b) a non-UK resident company is liable as a trustee.

(2) Subsection (1) is subject to section 812 (case where limit not to apply).

(3) The non-UK resident’s liability to income tax for a tax year is limited to the sum of amounts A and B.

(4) Amount A is the sum of—

(a) any sums representing income tax deducted from the non-UK resident’s disregarded income for the tax year (see section 813),

(b) any sums representing income tax that are treated as deducted from or paid in respect of that income, and

(c) any tax credits in respect of that income.

(5) Amount B is the amount that, apart from this section, would be the non-UK resident’s liability to income tax for the tax year, if the following were left out of account—

(a) the non-UK resident’s disregarded income for the tax year, and

(b) any relief mentioned in subsection (6) to which the non-UK resident is entitled for the tax year as a result of—

(i) section 56(3) or 460(3) of this Act or section 278(2) of ICTA (residence etc of claimants), or

(ii) double taxation arrangements.

(6) The reliefs referred to in subsection (5) are—

(a) an allowance under Chapter 2 of Part 3 of this Act or section 257 or 265 of ICTA (personal allowance and blind person’s allowance),

(b) a tax reduction under Chapter 3 of Part 3 of this Act or section 257A, 257AB, 257BA or 257BB of ICTA (tax reductions for married couples and civil partners),

(c) relief under section 457 or 458 of this Act (payments to trade unions and police organisations),

(d) a tax reduction under section 459 of this Act or section 273 of ICTA (payments for benefit of family members), and

(e) relief under section 266 of ICTA (life assurance premiums).

812 Case where limit not to apply

(1) Section 811 does not apply to income tax to which non-UK resident trustees are liable for a tax year, if there is a beneficiary of the trust who is—

(a) an individual who is ordinarily UK resident, or

(b) a UK resident company.

(2) For the purposes of subsection (1) a person is a beneficiary of the trust if—

(a) the person is an actual or potential beneficiary of the trust, and

(b) condition A or B is met in relation to the person.

(3) Condition A is that the person is, or will or may become, entitled under the trust to receive some or all of any income under the trust.

(4) Condition B is that some or all of any income under the trust may be paid to or used for the benefit of the person in the exercise of a discretion conferred by the trust.

(5) The references in subsections (3) and (4) to any income under the trust include a reference to any capital under the trust so far as it represents amounts originally received by the trustees as income.

813 Meaning of “disregarded income”

(1) For the purposes of this Chapter income arising to a non-UK resident is “disregarded income” if it is—

(a) disregarded savings and investment income (see section 825),

(b) disregarded annual payments (see section 826),

(c) disregarded pension income,

(d) disregarded social security income,

(e) disregarded transaction income (see section 814), or

(f) income of such other description as the Treasury may by regulations designate for the purposes of this section.

(2) But income in relation to which the non-UK resident has a UK representative for the purposes of section 126 of, and Schedule 23 to, FA 1995 (UK representatives of non-UK residents) is not disregarded income.

(3) Income is “disregarded pension income” if it is chargeable under Part 9 of ITEPA 2003 (pension income) because any of the following provisions of that Act applies to it—

• section 577 (UK social security pensions),

• section 579A (pensions under registered pension schemes) (but see subsection (4) below),

• section 609 (annuities for the benefit of dependants),

• section 610 (annuities under non-registered occupational pension schemes), or

• section 611 (annuities in recognition of another’s services).

(4) Income chargeable under Part 9 of ITEPA 2003 because section 579A of that Act applies to it is disregarded pension income only if the registered pension scheme in question—

(a) falls within paragraph 1(1)(f) of Schedule 36 to FA 2004, and

(b) was, immediately before 6 April 2006, a retirement annuity contract to which section 605 of ITEPA 2003 applied.

(5) Income is “disregarded social security income” if—

(a) it is a taxable benefit listed in Table A in section 660 of ITEPA 2003, other than income support or jobseeker’s allowance, and

(b) it is chargeable under Part 10 of that Act (social security income).

814 Meaning of “disregarded transaction income”

(1) Subsection (2) applies if a non-UK resident carries on (alone or in partnership) a business through a broker in the United Kingdom.

(2) Income is “disregarded transaction income”, subject to subsection (6), if—

(a) it is transaction income, and

(b) the independent broker conditions are met in relation to the transaction in question.

(3) Subsection (4) applies if a non-UK resident carries on (alone or in partnership) a business through an investment manager in the United Kingdom.

(4) Income is “disregarded transaction income”, subject to subsection (6), if—

(a) it is transaction income, and

(b) the independent investment manager conditions are met in relation to the transaction in question.

(5) In this Chapter “transaction income”, in relation to a transaction carried out through a broker or investment manager in the United Kingdom on behalf of a non-UK resident, means income which arises to the non-UK resident from—

(a) so much of the non-UK resident’s business carried on (alone or in partnership) through the broker or investment manager as relates to the transaction, or

(b) property or rights which, as a result of the transaction, are used by, or held by or for, the broker or investment manager on behalf of the non-UK resident.

(6) Income is not disregarded transaction income if it is chargeable to income tax in accordance with section 171(2) of FA 1993 (profits of the underwriting business of a member of Lloyd's).

(7) This section needs to be read with—

• section 817 (the independent broker conditions),

• sections 818 to 824 (the independent investment manager conditions),

• section 827 (meaning of “investment manager” and “investment transaction”), and

• section 828 (transactions through brokers and investment managers).

Limit for non-UK resident companies

815 Limit on liability to income tax of non-UK resident companies

(1) This section applies to income tax to which a non-UK resident company is liable, otherwise than as a trustee.

(2) The non-UK resident company’s liability to income tax for a tax year is limited to the sum of amounts A and B.

(3) Amount A is the sum of—

(a) any amounts representing income tax deducted from the non-UK resident company’s disregarded company income for the tax year,

(b) any amounts representing income tax that are treated as deducted from or paid in respect of that income, and

(c) any tax credits in respect of that income.

(4) Amount B is the amount that, apart from this section, would be the non-UK resident company’s liability to income tax for the tax year if the non-UK resident company’s disregarded company income for the tax year were left out of account.

816 Meaning of “disregarded company income”

(1) For the purposes of this Chapter income arising to a non-UK resident company is “disregarded company income” if it is—

(a) disregarded savings and investment income (see section 825),

(b) disregarded annual payments (see section 826),

(c) income arising from a transaction carried out on behalf of the non-UK resident company in the course of the company’s trade through a broker in the United Kingdom, in relation to which the independent broker conditions are met,

(d) income arising from an investment transaction carried out on behalf of the non-UK resident company in the course of the company’s trade through an investment manager in the United Kingdom, in relation to which the independent investment manager conditions are met, or

(e) income of such other description as the Treasury may by regulations designate for the purposes of this section.

(2) This section needs to be read with—

• section 817 (the independent broker conditions),

• sections 818 to 824 (the independent investment manager conditions),

• section 827 (meaning of “investment manager” and “investment transaction”), and

• section 828 (transactions through brokers and investment managers).

The independent broker conditions

817 The independent broker conditions

(1) The independent broker conditions are met in relation to a transaction carried out on behalf of a non-UK resident by a broker in the United Kingdom if—

(a) conditions A to D are met, if this section applies for the purposes of section 813, or

(b) conditions A to C and E are met, if this section applies for the purposes of section 816.

(2) Condition A is that at the time of the transaction the broker is carrying on the business of a broker.

(3) Condition B is that the transaction is carried out by the broker in the ordinary course of that business.

(4) Condition C is that the remuneration which the broker receives in respect of the transaction for the provision of the services of a broker to the non-UK resident is not less than is customary for that class of business.

(5) Condition D is that the broker does not fall for the purposes of section 126 of, and Schedule 23 to, FA 1995 to be treated as a UK representative of the non-UK resident in relation to any other income which is chargeable to income tax, or amounts which are chargeable to capital gains tax, for the same tax year as the transaction income.

(6) Condition E is that the broker does not fall to be treated as a permanent establishment of the non-UK resident company in relation to any other transaction of any kind carried out in the same accounting period of the non-UK resident company as the transaction in question.

The independent investment manager conditions

818 The independent investment manager conditions

(1) The independent investment manager conditions are met in relation to an investment transaction carried out on behalf of a non-UK resident by an investment manager in the United Kingdom if—

(a) conditions A to F are met, if this section applies for the purposes of section 813, or

(b) conditions A to E and G are met, if this section applies for the purposes of section 816.

(2) Condition A is that at the time of the transaction the investment manager is carrying on a business of providing investment management services.

(3) Condition B is that the transaction is carried out in the ordinary course of that business.

(4) Condition C is that, when the investment manager acts on behalf of the non-UK resident in relation to the transaction, the relationship between them, having regard to its legal, financial and commercial characteristics, is a relationship between persons carrying on independent businesses dealing with each other at arm’s length.

(5) Condition D is that the requirements of the 20% rule are met (see section 819).

(6) Condition E is that the remuneration which the investment manager receives in respect of the transaction for the provision of investment management services to the non-UK resident is not less than is customary for that class of business.

(7) Condition F is that the investment manager does not fall for the purposes of section 126 of, and Schedule 23 to, FA 1995 to be treated as a UK representative of the non-UK resident in relation to any other income which is chargeable to income tax, or amounts which are chargeable to capital gains tax, for the same tax year as the transaction income.

(8) Condition G is that the investment manager does not fall to be treated as a permanent establishment of the non-UK resident company in relation to any other transaction of any kind carried out in the same accounting period of the non-UK resident company as the transaction in question.

819 Investment managers: the 20% rule

(1) The requirements of the 20% rule are met if conditions A and B are met.

(2) Condition A is that in relation to a qualifying period it has been or is the intention of the investment manager and the persons connected with the investment manager that at least 80% of the non-UK resident’s relevant disregarded income should consist of amounts to which none of them has a beneficial entitlement.

(3) Condition B is that, so far as there is a failure to fulfil that intention, that failure—

(a) is attributable (directly or indirectly) to matters outside the control of the investment manager and persons connected with the investment manager, and

(b) does not result from a failure by any of them to take such steps as may be reasonable for mitigating the effect of those matters in relation to the fulfilment of that intention.

(4) This section needs to be read with—

• section 820 (meaning of “qualifying period”),

• section 821 (meaning of “relevant disregarded income”), and

• section 822 (meaning of “beneficial entitlement”).

820 Meaning of “qualifying period”

(1) This section applies for the purposes of this Chapter.

(2) If section 819 applies for the purposes of section 813, a “qualifying period” means—

(a) the tax year in which the transaction income is chargeable to income tax, or

(b) a period of not more than 5 years comprising two or more tax years including that one.

(3) If section 819 applies for the purposes of section 816, a “qualifying period” means—

(a) the accounting period of the non-UK resident company in which the transaction in question is carried out, or

(b) a period of not more than 5 years comprising two or more complete accounting periods including that one.

821 Meaning of “relevant disregarded income”

(1) This section applies for the purposes of this Chapter.

(2) If section 819 applies for the purposes of section 813, the “relevant disregarded income” of the non-UK resident for the qualifying period is the total of the non-UK resident’s income for the tax years comprised in the qualifying period which derives from the transactions mentioned in subsection (4).

(3) If section 819 applies for the purposes of section 816, the “relevant disregarded income” of the non-UK resident company for the qualifying period is the total of the non-UK resident company’s income for the accounting periods comprised in the qualifying period which derives from the transactions mentioned in subsection (4).

(4) The transactions referred to in subsections (2) and (3) are investment transactions—

(a) carried out by the investment manager on the non-UK resident’s behalf, and

(b) in relation to which the independent investment manager conditions are met, ignoring the requirements of the 20% rule.

822 Meaning of “beneficial entitlement”

(1) This section applies for the purposes of this Chapter.

(2) A person has a “beneficial entitlement” to relevant disregarded income if the person has or may acquire a beneficial entitlement that is, or would be, attributable to the relevant disregarded income as a result of having an interest or other rights mentioned in subsection (3).

(3) The interests and rights referred to in subsection (2) are—

(a) an interest (whether or not an interest giving a right to an immediate payment of a share in the profits or gains) in property in which the whole or any part of the relevant disregarded income is represented, or

(b) an interest in, or other rights in relation to, the non-UK resident.

823 Treatment of transactions where requirements of 20% rule not met

(1) This section applies in the case of an investment transaction in relation to which the independent investment manager conditions are met, except for the requirements of the 20% rule.

(2) This Chapter has effect as if the requirements of that rule were met in relation to the transaction but only in relation to—

(a) so much of the transaction income of the non-UK resident as falls within subsection (3), if this section applies for the purposes of section 813, or

(b) so much of the income of the non-UK resident company deriving from the transaction as falls within subsection (3), if this section applies for the purposes of section 816.

(3) Income falls within this subsection if it does not represent income—

(a) which is relevant disregarded income of the non-UK resident, and

(b) to which the investment manager or a person connected with the investment manager has or has had any beneficial entitlement.

824 Application of 20% rule to collective investment schemes

(1) This section applies if amounts arise or accrue to the non-UK resident as a participant in a collective investment scheme.

(2) It applies for the purposes of determining whether the requirements of the 20% rule are met in relation to a transaction carried out for the purposes of the scheme.

(3) In applying this section make the following assumptions—

(a) that all the transactions carried out for the purposes of the scheme are carried out on behalf of a company (“the assumed company”) which is—

(i) constituted for the purposes of the scheme, and

(ii) non-UK resident, and

(b) that the participants do not have any rights in respect of the amounts arising or accruing in respect of those transactions, other than the rights which, if they held shares in the assumed company, would be their rights as shareholders.

(4) If the scheme is such that the assumed company would not be regarded for tax purposes as carrying on a trade in the United Kingdom in relation to the appropriate relevant period, the requirements of the 20% rule are treated as met in relation to a transaction carried out for the purposes of the scheme.

(5) If the scheme is such that the assumed company would be so regarded for tax purposes, sections 819 to 823 have effect in relation to a transaction carried out for the purposes of the scheme with the modifications in subsection (6).

(6) The modifications are—

(a) for references to the non-UK resident substitute references to the assumed company, and

(b) for references to the non-UK resident’s relevant disregarded income for a qualifying period substitute references to the sum of the amounts that would, for relevant periods comprised in the qualifying period, be chargeable to tax on the assumed company as profits deriving from the transactions—

(i) carried out by the investment manager, and

(ii) assumed to be carried out on behalf of the company.

(7) In this section—

• “the appropriate relevant period” is—

  (a)

  the tax year in which the transaction income is chargeable to income tax, if this section applies for the purposes of section 813, or

  (b)

  the accounting period in which the transaction is carried out, if this section applies for the purposes of section 816,

• “collective investment scheme” has the meaning given by section 235 of FISMA 2000,

• “participant”, in relation to a collective investment scheme, is construed in accordance with that section, and

• “relevant period” means—

  (a)

  a tax year, if this section applies for the purposes of section 813, or

  (b)

  an accounting period, if this section applies for the purposes of section 816.

Supplementary

825 Meaning of “disregarded savings and investment income”

(1) For the purposes of this Chapter income is “disregarded savings and investment income” if—

(a) it is chargeable under Chapter 3 or 5 of Part 4 of ITTOIA 2005 (dividends etc from UK resident companies and stock dividends from UK resident companies), or

(b) it is within subsection (2) and is not relevant foreign income.

(2) Income is within this subsection if it is chargeable under—

(a) Chapter 2 of Part 4 of ITTOIA 2005 (interest),

(b) Chapter 7 of that Part (purchased life annuity payments),

(c) Chapter 8 of that Part (profits from deeply discounted securities),

(d) Chapter 10 of that Part (distributions from unauthorised unit trusts), or

(e) Chapter 11 of that Part (transactions in deposits).

826 Meaning of “disregarded annual payments”

For the purposes of this Chapter income is “disregarded annual payments” if it is not relevant foreign income and is chargeable under—

(a) section 579 of ITTOIA 2005, so far as it relates to annual payments (royalties etc from intellectual property),

(b) Chapter 4 of Part 5 of that Act, so far as it relates to annual payments (certain telecommunication rights: non-trading income), or

(c) Chapter 7 of Part 5 of that Act (annual payments not otherwise charged).

827 Meaning of “investment manager” and “investment transaction”

(1) In this Chapter “investment manager” means a person who provides investment management services.

(2) In this Chapter “investment transaction” means—

(a) transactions in shares, stock, futures contracts, options contracts or securities of any description not mentioned in this paragraph, but excluding futures contracts or options contracts relating to land,

(b) transactions consisting in the buying or selling of any foreign currency or in the placing of money at interest, and

(c) such other transactions as the Treasury may by regulations designate for the purposes of this section.

(3) For the purposes of subsection (2) a contract is not prevented from being a futures contract or an options contract by the fact that a party is or may be entitled to receive or liable to make, or entitled to receive and liable to make, only a payment of a sum (as opposed to a transfer of assets other than money) in full settlement of all obligations.

828 Transactions through brokers and investment managers

(1) For the purposes of this Chapter a person is regarded as carrying out a transaction on behalf of another if the person—

(a) undertakes the transaction, whether on behalf of or to the account of the other, or

(b) gives instructions for it to be so carried out by another.

(2) In the case of a person who acts as a broker or investment manager as part only of a business, this Chapter has effect as if that part were a separate business.

Chapter 2 Residence

829 Residence of individuals temporarily abroad

(1) This section applies if—

(a) an individual has left the United Kingdom for the purpose only of occasional residence abroad, and

(b) at the time of leaving the individual was both UK resident and ordinarily UK resident.

(2) Treat the individual as UK resident for the purpose of determining the individual’s liability for income tax for any tax year during the whole or a part of which the individual remains outside the United Kingdom for the purpose only of occasional residence abroad.

830 Residence of individuals working abroad

(1) This section applies for income tax purposes if an individual works full-time in one or both of—

(a) a foreign trade, and

(b) a foreign employment.

(2) In determining whether the individual is UK resident ignore any living accommodation available in the United Kingdom for the individual’s use.

(3) A trade is foreign if no part of it is carried on in the United Kingdom.

(4) An employment is foreign if all of its duties are performed outside the United Kingdom.

(5) An employment is also foreign if in the tax year in question—

(a) the duties of the employment are in substance performed outside the United Kingdom, and

(b) the only duties of the employment performed in the United Kingdom are duties which are merely incidental to the duties of the employment performed outside the United Kingdom in the year.

(6) In this section—

• “employment” includes an office, and

• “trade” includes profession and vocation.

831 Foreign income of individuals in the United Kingdom for temporary purpose

(1) Subsection (2) applies in relation to an individual if—

(a) the individual is in the United Kingdom for some temporary purpose only and with no view to establishing the individual’s residence in the United Kingdom, and

(b) in the tax year in question the individual has not actually resided in the United Kingdom at one or several times for a total period equal to 183 days (or more).

In determining whether an individual is within paragraph (a) ignore any living accommodation available in the United Kingdom for the individual’s use.

(2) Apply the following rules in determining the individual’s liability for income tax.

• Rule 1

  In relation to pension or social security income arising from a source outside the United Kingdom, treat the individual as non-UK resident for the purposes of the following—

  (a)

  Chapter 4 of Part 9 of ITEPA 2003 (tax on foreign pensions),

  (b)

  Chapter 5A of that Part (tax on pensions under registered pension schemes) but only if the income is an annuity under a registered pension scheme within paragraph 1(1)(f) of Schedule 36 to FA 2004,

  (c)

  Chapter 10 of that Part (tax on employment-related annuities),

  (d)

  Chapter 15 of that Part (tax on voluntary annual payments),

  (e)

  section 647 of ITEPA 2003 (meaning of “foreign residence condition”) but only in its application for the purposes of section 651 of that Act (which provides an exemption for tax under Chapter 14 of Part 9 of that Act), and

  (f)

  Chapter 6 of Part 10 of ITEPA 2003 (taxable foreign benefits).

  See sections 566 and 657 of ITEPA 2003 for the definitions of “pension income” and “social security income”.

• Rule 2

  In relation to income arising from a source outside the United Kingdom, treat the individual as non-UK resident for the purposes of any charge under a provision mentioned in section 830(2) of ITTOIA 2005 (which contains a list of provisions under which relevant foreign income is charged).

  In this rule “income” does not include income chargeable as a result of section 844 of ITTOIA 2005 (unremittable income: income charged on withdrawal of relief after source ceases).

(3) Paragraph (e) of Rule 1 in subsection (2) applies only if—

(a) the individual makes a claim as mentioned in section 647(3)(a) of ITEPA 2003, and

(b) the Commissioners are satisfied that subsection (2) of this section applies in relation to the individual.

(4) Subsection (5) applies in relation to an individual if subsection (2) would have applied in relation to the individual but for subsection (1)(b).

(5) Apply the rules set out in subsection (2) in determining the individual’s liability for income tax.

But—

(a) instead of treating the individual as non-UK resident in relation to the income and for the purposes mentioned in those rules, treat the individual as UK resident, and

(b) ignore subsection (3).

832 Employment income of individuals in the United Kingdom for temporary purpose

(1) Subsection (2) applies in relation to an individual if—

(a) the individual is in the United Kingdom for some temporary purpose only and with no intention of establishing the individual’s residence in the United Kingdom, and

(b) during the tax year in question the individual spends (in total) less than 183 days in the United Kingdom.

In determining whether an individual is within paragraph (a) ignore any living accommodation available in the United Kingdom for the individual’s use.

(2) Treat the individual as non-UK resident for the purposes of Chapters 4 and 5 of Part 2 of ITEPA 2003 (which set out rules for determining taxable earnings from employment).

(3) Subsection (4) applies in relation to an individual if subsection (2) would have applied in relation to the individual but for subsection (1)(b).

(4) Treat the individual as UK resident for the purposes of the provisions mentioned in subsection (2).

833 Visiting forces and staff of designated allied headquarters

(1) This section applies to an individual who—

(a) is a member of a visiting force of a designated country or of a civilian component of such a force,

(b) is in the United Kingdom, but only because of being a member of the force or the civilian component, and

(c) is not a British citizen, a British overseas territories citizen, a British National (Overseas) or a British Overseas citizen.

(2) For the purposes of subsection (1)—

(a) members of the armed forces of a designated country who are attached to a designated allied headquarters are treated as a visiting force of that country, and

(b) whether an individual is a member of a civilian component of such a force is to be determined accordingly.

(3) This section also applies to an individual who—

(a) is of a category for the time being agreed between Her Majesty’s Government in the United Kingdom and the other members of the North Atlantic Council,

(b) is employed by a designated allied headquarters,

(c) is in the United Kingdom, but only because of being employed by the designated allied headquarters, and

(d) is not a British citizen, a British overseas territories citizen, a British National (Overseas) or a British Overseas citizen.

(4) If this section applies to an individual throughout a period, the period is not treated for income tax purposes as—

(a) a period of residence in the United Kingdom, or

(b) creating a change of the individual’s residence or domicile.

(5) Subsection (4) does not affect the operation of section 56 or 460 of this Act or section 278 of ICTA (residence etc of claimants) in relation to an individual for any tax year.

(6) Subsections (1) to (3) are to be interpreted as if—

(a) they were in Part 1 of the Visiting Forces Act 1952 (c. 67), and

(b) references in that Act to a country to which a provision of that Act applies were references to a designated country.

(7) In this section—

• “allied headquarters” means an international military headquarters established under the North Atlantic Treaty, and

• “designated” means designated for the purpose in question by or under an Order in Council made for giving effect to an international agreement.

834 Residence of personal representatives

(1) This section applies for income tax purposes if the personal representatives of a deceased person (“D”) include one or more persons who are UK resident and one or more persons who are non-UK resident.

(2) If the following condition is met, the person or persons who are non-UK resident are treated, in their capacity as personal representatives, as UK resident.

(3) The condition is that when D died D was UK resident, ordinarily UK resident or domiciled in the United Kingdom.

(4) If that condition is not met, the person or persons who are UK resident are treated, in their capacity as personal representatives, as non-UK resident.

835 Residence rules for trustees and companies

(1) See sections 475 and 476 for rules about the residence of the trustees of a settlement.

(2) See the following provisions for rules about the residence of companies—

• sections 66 and 66A of FA 1988, and

• section 249 of FA 1994.

Chapter 3 Jointly held property

836 Jointly held property

(1) This section applies if income arises from property held in the names of individuals—

(a) who are married to, or are civil partners of, each other, and

(b) who live together.

(2) The individuals are treated for income tax purposes as beneficially entitled to the income in equal shares.

(3) But this treatment does not apply in relation to any income within any of the following exceptions.

• Exception A

  Income to which neither of the individuals is beneficially entitled.

• Exception B

  Income in relation to which a declaration by the individuals under section 837 has effect (unequal beneficial interests).

• Exception C

  Income to which Part 9 of ITTOIA 2005 applies (partnerships).

• Exception D

  Income arising from a UK property business which consists of, or so far as it includes, the commercial letting of furnished holiday accommodation (within the meaning of Chapter 6 of Part 3 of ITTOIA 2005).

• Exception E

  Income consisting of a distribution arising from property consisting of—

  (a)

  shares in or securities of a close company to which one of the individuals is beneficially entitled to the exclusion of the other, or

  (b)

  such shares or securities to which the individuals are beneficially entitled in equal or unequal shares.

  “Shares” and “securities” have the same meaning as in section 254 of ICTA.

• Exception F

  Income to which one of the individuals is beneficially entitled so far as it is treated as a result of any other provision of the Income Tax Acts as—

  (a)

  the income of the other individual, or

  (b)

  the income of a third party.

837 Jointly held property: declarations of unequal beneficial interests

(1) The individuals may make a joint declaration under this section if—

(a) one of them is beneficially entitled to the income to the exclusion of the other, or

(b) they are beneficially entitled to the income in unequal shares,

and their beneficial interests in the income correspond to their beneficial interests in the property from which it arises.

(2) The declaration must state the beneficial interests of the individuals in—

(a) the income to which the declaration relates, and

(b) the property from which that income arises.

(3) The declaration has effect only if notice of it is given to an officer of Revenue and Customs—

(a) in such form and manner as the Commissioners for Her Majesty’s Revenue and Customs may prescribe, and

(b) within the period of 60 days beginning with the date of the declaration.

(4) The declaration has effect in relation to income arising on or after the date of the declaration.

(5) The declaration continues to have effect until such time (if any) as there is a change in the beneficial interests of the individuals in either—

(a) the income to which the declaration relates, or

(b) the property from which that income arises.

Chapter 4 Other miscellaneous rules

838 Local authorities and local authority associations

(1) A local authority in the United Kingdom is not liable to income tax in respect of its income.

(2) A local authority association in the United Kingdom is not liable to income tax in respect of its income.

(3) Tax is repayable as a result of subsection (1) or (2) only if a claim for repayment is made.

839 Issue departments of the Reserve Bank of India and the State Bank of Pakistan

No liability to income tax arises in respect of the income of the issue department of—

(a) the Reserve Bank of India constituted under an Act of the Indian legislature called the Reserve Bank of India Act 1934, or

(b) the State Bank of Pakistan constituted under orders made under section 9 of the Indian Independence Act 1947 (c. 30).

840 Government securities held by non-UK resident central banks

(1) No liability to income tax arises in respect of income from securities which is—

(a) income payable out of the public revenue of the United Kingdom, and

(b) income of a bank, or the issue department of a bank, to which this section applies for the time being.

(2) But subsection (1) does not prevent the income from being taken into account in calculating profits, gains or losses of a business carried on in the United Kingdom.

(3) Her Majesty may by Order in Council direct that this section applies to a bank or its issue department if it appears to Her Majesty that the bank—

(a) is non-UK resident, and

(b) is entrusted by the government of a territory outside the United Kingdom with the custody of the territory’s principal foreign exchange reserves.

(4) No recommendation may be made to Her Majesty in Council to make an order under this section unless a draft of the order has been laid before and approved by a resolution of the House of Commons.

841 Official agents of Commonwealth countries etc

(1) This section applies if an individual is employed in the United Kingdom as an official agent for—

(a) a country mentioned in Schedule 3 to the British Nationality Act 1981 (c. 61) (which contains a list of Commonwealth countries) or the Republic of Ireland, or

(b) a state or province of a country within paragraph (a).

(2) If conditions A and B are met, the individual is entitled to the same immunity from income tax as that to which a member of the staff of a mission is entitled under the Diplomatic Privileges Act 1964 (c. 81).

(3) Condition A is that the individual has been certified—

(a) to be ordinarily resident outside the United Kingdom, and

(b) to be UK resident solely for the purposes of the individual’s functions as an official agent.

(4) The certification must have been done by (as the case may be)—

(a) the High Commissioner of the country for which the individual is an official agent, or

(b) the Agent-General of the state or province for which the individual is an official agent.

(5) In subsection (4)(a) “High Commissioner” includes the head of the mission of the country in question by whatever name called.

(6) Condition B is that the individual’s functions as an official agent are not performed in connection with a trade, business or other undertaking carried on for the purposes of profit.

(7) In this section “head of the mission” and “a member of the staff of a mission” are to be read in accordance with the Diplomatic Privileges Act 1964.

842 European Economic Interest Groupings

(1) The following rules about European Economic Interest Groupings apply for the purposes of charging income tax—

• Rule 1

  A grouping is treated as acting as the agent of its members.

• Rule 2

  The activities of a grouping are treated as those of its members acting jointly.

• Rule 3

  Each member of a grouping is treated as having a share of the grouping’s property, rights and liabilities.

• Rule 4

  Any trade or profession carried on by the grouping is treated as carried on in partnership by the members of the grouping.

(2) For the purposes of Rule 3, a member’s share of any property, rights or liabilities of a grouping is determined according to the contract under which the grouping is established.

(3) If the contract does not provide for this, the member’s share is determined by reference to the share of the profits of the grouping to which the member is entitled under the contract.

(4) If the contract does not provide for this either, the members are treated as having equal shares of the property, rights and liabilities of the grouping.

(5) “European Economic Interest Grouping” means a European Economic Interest Grouping formed under Council Regulation (EEC) No 2137/85 of 25 July 1985, whether registered in Great Britain, Northern Ireland or elsewhere.

843 Restriction of deductions for annual payments

In calculating a person’s income from any source, no deduction is allowed for an annual payment to which section 904 applies (annual payments for dividends or non-taxable consideration).

844 Letters patent etc: exempting provisions

(1) No provision in letters patent granted by the Crown is to be construed as conferring exemption from income tax.

(2) Subsection (1) applies whether the letters patent are granted before or after the date on which this Act is passed.

(3) Any provision of the letters patent purporting to override the effect of subsection (1) is void.

845 Extra return to be treated as interest etc

(1) This section applies if—

(a) securities (“old securities”) of a particular kind are issued by way of an original issue of securities of that kind,

(b) on a later occasion securities (“new securities”) of the same kind are issued,

(c) a sum (“the extra return”) is payable in respect of the new securities by the issuer of them to reflect the fact that interest is accruing on the old securities,

(d) the issue price of the new securities includes an element (whether or not separately identified) representing payment for the extra return, and

(e) the extra return is equal to the amount of interest mentioned in subsection (2).

(2) The amount of interest referred to in subsection (1)(e) is—

(a) the amount of interest payable for the relevant period on so many old securities as there are new, or

(b) if there are more new securities than old, the amount of interest which would be so payable if there were as many old securities as new.

(3) A sum paid or payable by way of the extra return is treated for income tax purposes as if it were paid or payable as interest (so far as it would not be treated in that way apart from this subsection).

(4) No relief for the extra return is to be given to the issuer of the new securities.

846 Interpretation of section 845

(1) This section applies for the purposes of section 845.

(2) Securities are of the same kind if they—

(a) are treated as being of the same kind by the practice of a recognised stock exchange, or

(b) would be so treated if dealt in on a recognised stock exchange.

(3) “The relevant period” is the period—

(a) beginning with the day mentioned in subsection (4), and

(b) ending with the day (“the new issue day”) on which the new securities are issued.

(4) The day referred to in subsection (3)(a) is the day after—

(a) the last (or only) interest payment day before the new issue day, or

(b) if there is no interest payment day before the new issue day, the day on which the old securities are issued.

(5) In subsection (4) “interest payment day” means a day on which interest is payable under the old securities.

(6) “Relief” means relief by way of deduction in calculating amounts of income charged to income tax or in calculating net income.