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Income Tax (Trading and Other Income) Act 2005

Type Public General Act

Publication 2005-03-24

Last updated 2026-01-20

State In force

Department Statute Law Database

Source legislation.gov.uk

articles Not indexed

Reform history JSON API

(a) a lease has been granted out of the taxed lease,

(b) the lease does not extend to the whole of the premises subject to the taxed lease, and

(1A) The condition is that—

(a) in calculating the amount of a receipt under any of sections 277 to 281 (receipts in respect of lease premiums or sums payable instead of rent, for surrender of lease or for variation or waiver of terms of lease) in respect of the lease, there is a reduction under section 288 by reference to a taxed receipt, or

(b) in calculating the amount of a receipt under any of sections 217 to 221 of CTA 2009 (receipts in respect of lease premiums or sums payable instead of rent, for surrender of lease or for variation or waiver of terms of lease) in respect of the lease, there is a reduction under section 228 of that Act (the additional calculation rule) by reference to a taxed receipt.

The receipt that is so reduced is referred to in this section as the “lease premium receipt”.

(2) Subsections (3) to (5) apply for a qualifying day that falls within the receipt period of the lease premium receipt.

(3) Sections 292 and 293 apply separately in relation to the part of the premises subject to the lease and to the remainder of the premises.

(4) If—

(a) more than one lease that does not extend to the whole of the premises subject to the taxed lease has been granted out of the taxed lease, and

(b) the qualifying day falls within the receipt period of two or more lease premium receipts that relate to different leases,

sections 292 and 293 apply separately in relation to each part of the premises subject to a lease to which such a receipt relates and to the remainder of the premises.

(5) Where sections 292 and 293 apply in relation to a part of the premises, A becomes the amount calculated by multiplying the unreduced amount of the taxed receipt by the fraction of the premises constituted by the part.

(6) This fraction is calculated on a just and reasonable basis.

Limit on effect of additional calculation rule and deductions

Limit on reductions and deductions

295

(1) The total of—

(a) the reductions under section 288 by reference to a taxed receipt, and

(b) the deductions allowed in calculating the profits of a property business for expenses under section 292 (tenant under taxed lease who uses premises for purposes of property business treated as incurring expenses) by reference to the taxed receipt,

must not exceed the amount referred to in subsection (2).

(2) The amount mentioned in subsection (1) is the difference between—

(a) the unreduced amount of the taxed receipt, and

(b) the total of the amounts mentioned in subsection (3).

(3) Those amounts are—

(a) the reductions under section 228 of CTA 2009 (the additional calculation rule) by reference to the taxed receipt,

(b) the deductions allowed in calculating the profits of a property business for expenses under section 232 of CTA 2009 (tenant under taxed lease which uses premises for purposes of property business treated as incurring expenses) by reference to the taxed receipt, and

(c) the deductions allowed in calculating the profits of a trade, profession or vocation for expenses under section 61 above or section 63 of CTA 2009 (tenant under taxed lease who uses land in connection with trade treated as incurring expenses) by reference to the taxed receipt.

Relationship with ICTA

Corporation tax receipts treated as taxed receipts

296

(1) This section applies if in respect of a lease—

(a) there is a receipt of a Schedule A business or an overseas property business (within the meaning of section 70A(4) of ICTA) as a result of section 34 or 35 of ICTA (treatment of premiums etc. as rent and assignments for profit of lease granted at an undervalue) for an accounting period ending after 5th April 2005 but before 1st April 2009, or

(b) there would be such a receipt, but for the operation of section 37(2) or (3) of ICTA (reductions in certain receipts under section 34 or 35 of ICTA).

In this Chapter such a receipt is referred to as a “corporation tax receipt”.

(2) For the purposes of this Chapter—

(a) the lease is treated as a taxed lease, and

(b) the corporation tax receipt is treated as a taxed receipt.

(3) For the purposes of this Chapter, the “receipt period” of a taxed receipt which is a corporation tax receipt is—

(a) in the case of a corporation tax receipt as a result of section 34 of ICTA, the period treated in calculating the amount of the receipt as being the duration of the lease, and

(b) in the case of a corporation tax receipt as a result of section 35 of ICTA, the period treated in calculating the amount of the receipt as being the duration of the lease remaining at the date of the assignment.

(4) For the purposes of this Chapter the “unreduced amount” of a taxed receipt which is a corporation tax receipt is the amount of the corporation tax receipt as a result of section 34 or 35 of ICTA, before the operation of section 37(2) or (3) of ICTA.

(5) Subsection (6) applies to a taxed receipt which is a corporation tax receipt arising as a result of section 34(2) of ICTA (obligation on tenant to carry out work under lease).

(6) If the obligation to carry out work includes the carrying out of work which gives, or will give, rise to qualifying expenditure under CAA 2001, the unreduced amount of the taxed receipt is calculated as if the obligation had not included the carrying out of that work.

Taking account of reductions in corporation tax receipts

297

(1) This section applies if—

(a) in calculating the amount of a corporation tax receipt, there is a reduction under section 37(2) or (3) of ICTA by reference to the amount chargeable on the superior interest for the purposes of that section, and

(b) the amount chargeable on the superior interest is the taxed receipt for the purposes of this Chapter.

(2) For the purposes of this Chapter references to a reduction under section 37(2) or (3) of ICTA in a corporation tax receipt by reference to the amount chargeable on the superior interest are to the difference between—

(a) the amount of the corporation tax receipt before the operation of section 37(2) or (3) of ICTA, and

(b) the amount of the receipt after the operation of that subsection,

so far as attributable to the amount chargeable on the superior interest for the purposes of section 37 of ICTA.

(3) In sections 290(5)(a) (meaning of “unused amount”) and 295(1)(a) (limit on reductions and deductions) references to reductions under section 288 by reference to the taxed receipt include references to reductions under section 37(2) or (3) of ICTA in corporation tax receipts by reference to the amount chargeable on the superior interest.

(4) Sections 292 to 294 apply as follows—

(a) the corporation tax receipt is treated as if it were a lease premium receipt for the purposes of sections 293 and 294,

(b) references in those sections to the reduction under section 288 by reference to the taxed receipt are, in relation to the corporation tax receipt, to the reduction under section 37(2) or (3) of ICTA by reference to the amount chargeable on the superior interest, and

(i) in the case of a corporation tax receipt as a result of section 34 of ICTA, the period treated in calculating the amount of the receipt as being the duration of the lease, and

(ii) in the case of a corporation tax receipt as a result of section 35 of ICTA, the period treated in calculating the amount of the receipt as being the duration of the lease remaining at the date of the assignment.

Taking account of deductions for rent as a result of section 37(4) or 87(2) of ICTA

298

(1) Subsection (2) applies if—

(a) in calculating the profits of a trade, profession or vocation for an accounting period ending after 5th April 2005 but before 1st April 2009, a company is treated as paying rent under section 87(2) of ICTA by reference to the amount chargeable for the purposes of that section, and

(b) the amount chargeable is the taxed receipt for the purposes of this Chapter.

(2) References in sections 290(5)(b) and 295(3)(c) to the deductions allowed for expenses under section 61 by reference to the taxed receipt include references to the deductions allowed in calculating the profits of the trade, profession or vocation for the rent that the company is treated as paying under section 87(2) of ICTA by reference to the amount chargeable.

(3) Subsection (4) applies if—

(a) in calculating the profits of a Schedule A business or an overseas property business (within the meaning of section 70A(4) of ICTA) for an accounting period ending after 5th April 2005 but before 1st April 2009, a company is treated as paying rent as a result of section 37(4) of ICTA by reference to the amount chargeable on the superior interest for the purposes of that section, and

(b) the amount chargeable on the superior interest is the taxed receipt for the purposes of this Chapter.

(4) References in sections 290(5)(c) and 295(1)(b) to the deductions allowed for expenses under section 292 by reference to the taxed receipt include references to the deductions allowed in calculating the profits of the Schedule A business or overseas property business (within the meaning of section 70A(4) of ICTA) for the rent that the company is treated as paying as a result of section 37(4) of ICTA by reference to the amount chargeable on the superior interest.

Certain administrative provisions

Payment of tax by instalments

299

(1) This section applies if—

(a) there is a receipt under section 277 (lease premiums) in respect of a premium which is payable by instalments, or

(b) there is a receipt under any of sections 279 to 281 (sums payable instead of rent, for surrender of lease or for variation or waiver of terms of lease) in respect of a sum which is payable by instalments.

(2) The person who is liable to pay tax by reference to the receipt may choose to pay the tax by such instalments as an officer of Revenue and Customs may allow.

(3) The period over which the instalments of tax must be paid—

(a) must be 8 years or less, and

(b) must end before, or at the same time as, the time when the last of the instalments mentioned in subsection (1)(a) or (b) is payable.

Statement of accuracy for purposes of section 282

300

(1) This section applies if any of the persons mentioned in subsection (3) provides an officer of Revenue and Customs with a statement showing—

(a) whether or not there is, or may be, a receipt under section 282 (assignments for profit of lease granted at undervalue), and

(b) the amount of any receipt.

(2) an officer of Revenue and Customs must certify the accuracy of the statement, if satisfied as to its accuracy.

(3) The persons referred to in subsection (1) are—

(a) the landlord who granted the lease,

(b) a person who assigned it, or

Claim for repayment of tax payable by virtue of section 284

301

(1) This section applies if—

(a) there is a receipt under section 284 (sales with right to reconveyance), and

(b) the date on which the estate or interest would fall to be reconveyed was not fixed under the terms of the sale.

(2) If the seller makes a claim, the seller must be repaid the amount by which A exceeds B, where—

A is the amount of tax paid by the seller which was payable by virtue of section 284, and

B is the amount of tax that would have been so payable if the date on which the estate or interest was reconveyed had been taken as the date fixed by the terms of the sale.

(3) The claim must be made within 4 years after the day on which the estate or interest was reconveyed.

Claim for repayment of tax payable by virtue of section 285

302

(1) This section applies if—

(a) there is a receipt under section 285 (sale and leaseback transactions), and

(b) the date for the grant of the lease was not fixed under the terms of the sale.

(2) If the seller makes a claim, the seller must be repaid the amount by which A exceeds B, where—

A is the amount of tax paid by the seller which was payable by virtue of section 285, and

B is the amount of tax that would have been so payable if the date on which the lease was granted had been taken as the date fixed by the terms of the sale.

(3) The claim must be made within 4 years after the day on which the lease was granted.

Effective duration of lease

Rules for determining effective duration of lease

303

(1) The following rules apply for determining the effective duration of a lease for the purposes of this Chapter.

Rule 1: If-

(a) the terms of the lease or any other circumstances make it unlikely that the lease will continue beyond a date before the end of the term for which the lease was granted, and

(b) the premium was not substantially greater than it would have been had the term been one ending on that date,

Rule 2: If the terms of the lease include provision for the extension of the lease beyond a given date by notice given by the tenant, account may be taken of any circumstances making it likely that the lease will be so extended.

Rule 3: If the tenant or a person connected with the tenant is, or may become, entitled to a further lease or the grant of a further lease (whenever commencing)—

(a) of the same premises, or

(b) of premises including the whole or part of the same premises,

the term of the lease may be treated as continuing until the end of the term of the further lease.

(2) The rules are to be applied in accordance with section 304.

(2A) In Rule 1 “premium” includes—

(a) an amount treated as a premium under section 278 (amount treated as lease premium where work required),

(b) a sum payable by the tenant under the terms subject to which the lease is granted instead of the whole or a part of the rent for a period,

(c) a sum payable by the tenant under the terms subject to which the lease is granted as consideration for the surrender of the lease, and

(d) a sum payable by the tenant (otherwise than by way of rent) as consideration for the variation or waiver of a term of the lease.

(3) In this section and section 304, in relation to Scotland, “term”, where referring to the duration of a lease, means period.

Applying the rules in section 303

304

(1) The rules in section 303 apply by reference to the facts known or ascertainable—

(a) at the time of the grant of the lease, or

(b) if the determination is for the purposes of section 281 (sums payable for variation or waiver of terms of lease), at the time when the contract for the variation or waiver is entered into.

(2) In applying those rules, it is assumed that all parties concerned, whatever their relationship, act as if they were at arm's length.

(3) Subsection (5) applies if—

(a) special benefits were conferred by the lease or in connection with its grant, or

(b) payments were made which one would not expect to be made by parties acting at arm's length unless such benefits had been conferred.

(4) But subsection (5) does not apply if it can be shown that the special benefits were not conferred nor the payments made for the purpose of securing—

(a) an income tax advantage in the application of this Chapter, or

(b) a corporation tax advantage in the application of Chapter 4 of Part 4 of CTA 2009 (profits of property business: lease premiums etc).

(5) In applying paragraph (b) of rule 1 in section 303, it is assumed that the special benefits would not have been conferred nor the payments made if the lease had been granted for a term ending on the date mentioned in that rule.

(6) In this section “special benefits” means benefits other than—

(a) vacant possession and beneficial occupation of the premises, or

(b) the right to receive rent at a reasonable commercial rate in respect of the premises.

Information about effective duration of lease

305

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Other interpretative provisions

Provisions about premiums

306

(1) For the purposes of this Chapter, the presumption is that a sum paid on or in connection with the granting of a tenancy has been paid by way of premium.

(2) This does not apply if the sum is rent.

(3) This also does not apply so far as other sufficient consideration for the payment can be shown to have been given.

(4) In this section “sum” includes the value of any consideration.

(5) Where rule 3 in section 303 (rules for determining effective duration of lease) applies, the premium, or an appropriate part of it, payable for or in connection with either lease mentioned in that rule may be treated for the purposes of this Chapter as having been required under the other.

Interpretation

307

(1) In this Chapter “premium” includes any similar sum payable to the immediate or a superior landlord or to a person connected with such a person.

(2) In subsection (1) “sum” includes the value of any consideration.

(3) In the application of this Chapter to Scotland—

“premium” includes, in particular, a grassum payable to the landlord under the lease in respect of which the grassum is payable or the landlord under any other lease of the property, and

“reversion” means the interest of the landlord in the property subject to the lease.

(4) In the application of this Chapter to Scotland—

(a) references to a lease being granted out of a taxed lease are to the grant of a sublease of land subject to the taxed lease, and

(b) references to the lease so granted are to be read as references to the sublease.

Chapter 5 — Profits of property businesses: other rules about receipts and deductions

Furnished accommodation: receipts and deductions

Furnished lettings

308

(1) In calculating the profits of a property business which consists of or includes a furnished letting—

(a) any sum payable for the use of furniture is brought into account as a receipt, and

(b) a deduction is allowed for expenses of a revenue nature incurred in connection with the provision of furniture.

(2) But subsection (1) does not apply to receipts or expenses brought into account in calculating the profits of a trade which consists of, or involves, making furniture available for use in premises.

(3) A furnished letting is a lease or other arrangement under which—

(a) a sum is payable in respect of the use of premises, and

(b) the person entitled to the use of the premises is also entitled, in connection with that use, to the use of furniture.

(4) In this section—

(a) “premises” includes a caravan and a houseboat, and

(b) “sum” includes the value of any consideration.

Rent-a-room relief

309

(1) The rules for calculating the profits of an individual's UK property business are subject to Chapter 1 of Part 7 (rent-a-room relief).

(2) That Chapter provides relief on income from the use of furnished accommodation in the individual's only or main residence (see, in particular, sections 793 and 797).

Treatment of receipts on acquisition of business

Acquisition of business: receipts from transferor’s UK property business

310

(1) This section applies if—

(a) a person (“the transferor”) permanently ceased to carry on a UK property business at any time,

(b) at that time the transferor transferred to another (“the transferee”) the right to receive sums arising from the carrying on of any business (“the transferred business”) comprised in the transferor's UK property business, and

(2) Sums—

(a) which the transferee receives as a result of the transfer, and

(b) which are not brought into account in calculating the profits of the transferor's UK property business for any period before the cessation,

are brought into account in calculating the profits of the transferee's UK property business in the period of account in which they are received.

(3) Any sums mentioned in subsection (1)(b) which are received after the cessation of the transferor's property business are not post-cessation receipts (see Chapter 10).

(4) This section has effect as if it were contained in Chapter 10.

Reverse premiums as receipts

Reverse premiums

311

(1) This section applies if—

(a) a person receives a reverse premium, and

(b) the reverse premium is not brought into account under section 101(2) in calculating the profits of any trade carried on by the person.

(2) The person is treated as—

(a) entering into a transaction mentioned in section 264 (if the land to which the property transaction relates is in the United Kingdom) or section 265 (if that land is outside the United Kingdom), and

(b) receiving the reverse premium as a result of that transaction.

(3) Accordingly, the reverse premium is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction.

(4) Subsection (5) applies if—

(a) two or more of the parties to the property arrangements are connected persons, and

(b) the terms of those arrangements are not such as would reasonably have been expected if those persons had been dealing at arm's length.

(5) The whole amount or value of the reverse premium is brought into account in the period of account in which the property transaction is entered into.

(6) Expressions used in this section and sections 99 to 103 have the same meaning in this section as they do in those sections.

Deductions for expenditure on energy-saving items

Deduction for expenditure on energy-saving items

312

(1) This section applies if—

(a) a person carries on a property business in relation to land which consists of or includes a dwelling-house,

(b) the person incurs expenditure in acquiring and installing an energy-saving item in the dwelling-house or in a building containing the dwelling-house (see subsections (5) to (7)),

(d) a deduction for the expenditure is not prohibited by the wholly and exclusively rule but would otherwise be prohibited by the capital prohibition rule (see subsection (8)), and

(e) no allowance under CAA 2001 may be claimed in respect of the expenditure.

(2) In calculating the profits of the business, a deduction for the expenditure is allowed.

(3) But any deduction is subject to—

(a) section 313 (restrictions on the relief), and

(b) any provision made by regulations under section 314.

(4) If, on a just and reasonable apportionment of any expenditure, part of the expenditure would qualify for the relief (but the remainder would not), a deduction is allowed for that part.

(5) “Energy-saving item” means—

(a) cavity wall insulation,

(b) loft insulation, or

(c) such other descriptions of items of an energy-saving nature as are for the time being specified in regulations made by the Treasury.

(6) The Treasury may by regulations provide for an item to be treated as an energy-saving item only if it satisfies such conditions as may be—

(a) specified in, or

(b) determined in accordance with,

the regulations.

(7) The conditions may include conditions imposed by reference to information or documents issued by any body, person or organisation.

(8) In this section—

“the capital prohibition rule” means the rule in section 33 (capital expenditure), as applied by section 272, and

“the wholly and exclusively rule” means the rule in section 34 (expenses not wholly and exclusively for trade and unconnected losses), as applied by section 272.

Restrictions on relief

313

(1) This section restricts deductions that would otherwise be allowable under section 312.

(2) No deduction is allowed if, when the energy-saving item is installed, the dwelling-house—

(a) is in the course of construction, or

(b) is comprised in land in which the person does not have an interest or is in the course of acquiring an interest or further interest.

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) No deduction is allowed if—

(a) the person derives rent-a-room receipts from the dwelling-house, and

(b) those receipts are brought into account in calculating the profits of the business in accordance with section 793 or 797 (rent-a-room relief).

(5) No deduction is allowed in respect of expenditure treated by section 57 (as applied by section 272) as incurred on the date on which the person starts to carry on the business unless the expenditure was incurred not more than 6 months before that date.

(6) No deduction is allowed in respect of expenditure incurred in acquiring and installing the energy-saving item in a building containing the dwelling-house in so far as the expenditure is not for the benefit of the dwelling-house.

Regulations

314

(1) In relation to any deduction under section 312, the Treasury may make regulations for—

(a) restricting or reducing the amount of expenditure for which the deduction is allowable,

(b) excluding entitlement to the deduction in such cases as may be specified in, or determined in accordance with, the regulations,

(c) determining who is (and is not) entitled to the deduction if different persons have different interests in land that consists of or includes the whole or part of a building containing one or more dwelling-houses,

(d) making apportionments if the property business is carried on by persons in partnership or an interest in land is beneficially owned by persons jointly or in common.

(2) The apportionments that may be made include apportionments to companies within the charge to corporation tax.

(3) Regulations under this section may—

(a) make different provision for different cases, and

(b) contain incidental, supplemental, consequential and transitional provision and savings (including provision as to appeals in relation to apportionments mentioned in subsection (1)(d)).

Deductions for expenditure on sea walls

Deduction for expenditure on sea walls

315

(1) This section applies if in a tax year a person —

(a) is the owner or tenant of any premises, and

(b) incurs expenditure in making a sea wall or other embankment necessary for the preservation or protection of the premises against the encroachment or overflowing of the sea or any tidal river.

(2) In calculating the profits of any property business carried on by the person in relation to the premises, a deduction is allowed for the expenditure in each tax year in the deduction period.

(3) The deduction period comprises—

(a) the tax year in which the expenditure is incurred, and

(b) the next 20 tax years.

(4) The amount of the deduction is 1/21 of the expenditure.

(5) No deduction is allowed for any expenditure in respect of which a capital allowance has been made.

(6) Section 316 deals with the case of an interest in the premises being transferred (and this section applies in that case as if the reference to the person in subsection (2) above included the transferor and the transferee).

(7) In calculating the profits of a property business on the cash basis, any reference in this section to the incurring of expenditure is to the paying of expenditure.

Transfer of interest in premises

316

(1) This section applies if, during the deduction period, the whole of the person's interest in the premises or in any part of them is transferred, whether by operation of law or otherwise.

(2) For the tax year in which the transfer takes place—

(a) the transferor and the transferee are entitled to a part of any deduction under section 315, and

(b) the amount of the deduction is determined by what is just and reasonable.

(3) For subsequent tax years in the deduction period, the entitlement to any deduction under section 315 depends on whether the interest transferred is in the whole of the premises or in part of them.

(4) If the interest transferred is in the whole of the premises, the transferee (but not the transferor) is entitled to any deduction under section 315.

(5) If the interest transferred is in part of the premises—

(a) the transferor and the transferee are entitled to a part of any deduction under section 315, and

(b) the amount of the deduction is determined by reference to what is properly referable to the part of the premises.

(6) This section is supplemented by sections 317 (ending of lease of premises) and 318 (transfer involving company within the charge to corporation tax).

Ending of lease of premises

317

(1) If a person's interest in the premises is a lease that comes to an end before the end of the deduction period, the interest is treated as if transferred to the following persons.

(2) If a new lease of the premises is granted and the new tenant makes a payment in respect of the embankment in question to the old tenant, the transferee is the new tenant.

(3) Otherwise the transferee is the owner of the interest in immediate reversion on the lease (or, in Scotland, the landlord).

Transfer involving company within the charge to corporation tax

318

(1) This section explains how section 316 works if—

(a) the transferor is a person within the charge to income tax and the transferee is a company within the charge to corporation tax, or

(b) the transferor is a company within the charge to corporation tax and the transferee is a person within the charge to income tax.

(2) Section 316 applies only for the purpose of determining—

(a) whether the person within the charge to income tax is entitled to a deduction (or part of a deduction) under section 315, and

(b) the amount of any such deduction.

(3) Accordingly, any reference to—

(a) whether a person is entitled to a deduction (or part of a deduction) under section 315, or

(b) the amount of any such deduction,

is ignored if the person is a company within the charge to corporation tax.

(4) For any entitlement of a company within the charge to corporation tax to a deduction for any of the expenditure, see sections 255 to 257 of CTA 2009 (corresponding corporation tax provision).

Mineral royalties

Relief in respect of mineral royalties

319

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Apportionments on sale of land

Nature of item apportioned on sale of estate or interest in land

320

(1) This section applies if—

(a) a person sells an estate or interest in land,

(b) on the sale a part of a receipt or outgoing in respect of the estate or interest is apportioned to the seller, and

(2) In calculating the profits of the seller's property business, the part apportioned is treated as being of the same nature as the receipt or outgoing.

Mutual business

321

(1) Nothing in this Part is to be read as applying the rules relating to mutual business to property businesses.

(2) Accordingly, receipts and expenses are to be brought into account in calculating the profits of a person's property business even if a relationship of mutuality exists between that person and another.

Chapter 6 — Commercial letting of furnished holiday accommodation

Introduction

322

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Definition

Meaning of “commercial letting of furnished holiday accommodation”

323

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Meaning of “relevant period” in sections 325 and 326

324

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Meaning of “qualifying holiday accommodation”

325

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Under-used holiday accommodation: averaging elections

326

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Separate profit calculations

Capital allowances and loss relief

327

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Earned income and relevant UK earnings for pension purposes

328

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Chapter 7 — Adjustment income

Adjustment on change of basis

Application of Chapter

329

(1) This Chapter applies if—

(a) a person carrying on a UK property business changes, from one period of account to the next, the basis on which profits of the business are calculated for income tax purposes,

(b) the old basis accorded with the law or practice applicable in relation to the period of account before the change, and

(2) The practice applicable in any case means the accepted practice in cases of that description as to how profits of a UK property business should be calculated for income tax purposes.

(3) Subsections (3) to (6) of section 227 (what is meant by a person changing the basis on which profits are calculated) apply for the purposes of this section as they apply for the purposes of that section (but as if any reference to a trade were to a UK property business).

Adjustment income and adjustment expense

330

(1) An amount by way of adjustment must be calculated in accordance with section 231, which applies in relation to a UK property business as it applies in relation to a trade.

(2) If the amount produced by the calculation is positive, it is treated as income and charged to income tax under this Chapter.

It is referred to in this Chapter as “adjustment income”.

(3) If the amount produced by the calculation is negative, a deduction is allowed for it in calculating the profits of the business.

It is referred to in this Chapter as an “adjustment expense”.

(4) This section is subject to section 234 (no adjustment for certain expenses previously brought into account), which applies in relation to a UK property business as it applies in relation to a trade.

Income charged

331

(1) Tax is charged under this Chapter on the full amount of any adjustment income arising in the tax year.

(2) This is subject to section 334A (spreading on leaving cash basis and related election).

Person liable

332

The person liable for any tax charged under this Chapter is the person receiving or entitled to the adjustment income.

Treatment of adjustment income and adjustment expense

Treatment of adjustment income

333

(1) Adjustment income is treated as arising on the last day of the first period of account for which the new basis is adopted.

(2) But if there is a change of basis resulting from a tax adjustment affecting the calculation of any amount brought into account in respect of depreciation, adjustment income is treated as arising only when the asset to which it relates is realised or written off.

(3) Adjustment income is treated for the purposes of Part 4 of ITA 2007(loss relief) as profits of the UK property business for the tax year in which tax is charged on it.

Treatment of adjustment expense

334

(1) An adjustment expense is treated as an expense of the business arising on the last day of the first period of account for which the new basis is adopted.

(2) But if there is a change of basis resulting from a tax adjustment affecting the calculation of any amount brought into account in respect of depreciation, an adjustment expense is treated as arising only when the asset to which it relates is realised or written off.

Chapter 8 — Rent receivable in connection with a UK section 12(4) concern

Charge to tax on rent receivable in connection with a UK section 12(4) concern

335

Income tax is charged on rent receivable in connection with a UK section 12(4) concern.

Meaning of “rent receivable in connection with a UK section 12(4) concern”

336

(1) For the purposes of this Chapter rent is receivable in connection with a UK section 12(4) concern if—

(a) it is receivable in respect of an estate, interest or right in or over land in the United Kingdom, and

(b) the estate, interest or right is used, occupied or enjoyed in connection with a concern listed in section 12(4).

(2) For the purposes of this Chapter rent is also receivable in connection with a UK section 12(4) concern if—

(a) it is receivable in respect of an estate, interest or right in or over land in the United Kingdom,

(b) the lease or other agreement under which it is receivable provides for its recoupment by reducing royalties or payments of a similar nature, and

(c) the reduction applies if the estate, interest or right is used, occupied or enjoyed in connection with a concern listed in section 12(4).

(3) In this Chapter “rent” includes—

(a) a receipt mentioned in section 266(3), and

(b) any other receipt in the nature of rent.

Income charged

337

(1) Tax is charged under this Chapter on the full amount of the profits arising in the tax year.

(2) This is subject to—

section 339 (deduction for management expenses of owner of mineral rights), ...

Person liable

338

The person liable for any tax charged under this Chapter is the person receiving or entitled to the rent.

Management expenses of owner of mineral rights

Deduction for management expenses of owner of mineral rights

339

(1) This section applies if in a tax year—

(a) a person lets a right to work minerals in the United Kingdom, and

(b) the person pays a sum wholly and exclusively as an expense of management or supervision of the minerals in the tax year.

(2) In calculating the amount of rent receivable in connection with a UK section 12(4) concern, a deduction is allowed for the sum for the tax year.

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mineral royalties

Relief in respect of mineral royalties

340

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “mineral lease or agreement” and “mineral royalties”

341

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Extended meaning of “mineral royalties” etc. in Northern Ireland

342

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Power of Board to determine what counts as “mineral royalties”

343

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 9 — Rent receivable for UK electric-line wayleaves

Charge to tax on rent receivable for UK electric-line wayleaves

Charge to tax on rent receivable for a UK electric-line wayleave

344

Income tax is charged on rent receivable for a UK electric-line wayleave.

Meaning of “rent receivable for a UK electric-line wayleave”

345

(1) For the purposes of this Chapter rent is receivable for a UK electric-line wayleave if—

(a) it is receivable in respect of an easement, servitude or right in or over land in the United Kingdom, and

(b) the easement, servitude or right is enjoyed in connection with an electric, telegraph or telephone wire or cable.

(2) The reference to the enjoyment of an easement, servitude or right in connection with an electric, telegraph or telephone wire or cable includes (in particular) its enjoyment in connection with—

(a) a pole or pylon supporting such a wire or cable, or

(b) apparatus used in connection with such a wire or cable.

(3) In this Chapter “rent” includes—

(a) a receipt mentioned in section 266(3), and

(b) any other receipt in the nature of rent.

Extent of charge to tax

346

(1) Rent receivable for a UK electric-line wayleave is not chargeable to tax under this Chapter for a tax year if—

(a) a person carries on a UK property business in relation to some or all of the land to which the wayleave relates, and

(b) receipts (other than rents receivable for UK electric-line wayleaves) in respect of some or all of that land are brought into account in calculating the profits of the business for the tax year.

(2) In such a case, the rent receivable for the UK electric-line wayleave is brought into account in calculating the profits of the person's UK property business.

(3) The rules for determining whether an amount is chargeable to tax under this Chapter also need to be read with section 22(2) (payments for wayleaves if person carries on a trade).

(4) That subsection secures that an amount which would otherwise be chargeable to tax under this Chapter may be brought into account instead in calculating the profits of a trade.

Income charged

347

Tax is charged under this Chapter on the full amount of the profits arising in the tax year.

Person liable

348

The person liable for any tax charged under this Chapter is the person receiving or entitled to the rent.

Chapter 10 — Post-cessation receipts

Charge to tax on post-cessation receipts

349

Income tax is charged on post-cessation receipts arising from a UK property business.

Extent of charge to tax

350

(1) A post-cessation receipt is chargeable to tax under this Chapter only so far as the receipt is not otherwise chargeable to income or corporation tax.

(2) Accordingly, a post-cessation receipt arising from a UK property business is not chargeable to tax under this Chapter so far as it is brought into account in calculating the profits of the business for any period.

Income charged

351

(1) Tax is charged under this Chapter on the full amount of the receipts received in the tax year.

(2) This is subject to—

(a) sections 254 and 255 (allowable deductions), and

(b) section 257 (election to carry back),

which apply for the purposes of this Chapter as they apply for the purposes of Chapter 18 of Part 2 (but as if any reference to a trade were to a UK property business).

(3) Further to subsection (2), section 254 applies for the purposes of this Chapter as if for subsection (2A) of that section there were substituted—

(2A) If the time immediately before the person permanently ceases to carry on the UK property business falls in a cash basis tax year, assume for the purposes of subsection (2) that the profits of the business are calculated on the cash basis.

(4) For the purposes of sections 254 (as so applied) and 353, a tax year is “a cash basis tax year” in relation to a property business if the profits of the business for the tax year are calculated on the cash basis (see section 271D).

Person liable

352

The person liable for any tax charged under this Chapter is the person receiving or entitled to the receipts.

Meaning of “post-cessation receipts”

Basic meaning of “post-cessation receipt”

353

(1) In this Chapter “post-cessation receipt” means a sum—

(a) which is received after a person permanently ceases to carry on a UK property business, and

(b) which arises from the carrying on of the business before the cessation.

(1A) If the time immediately before a person permanently ceases to carry on a UK property business falls in a cash basis tax year (see section 351(4)), a sum is to be treated as a post-cessation receipt only if it would have been brought into account in calculating the profits of the business on the cash basis had it been received at that time.

(2) Subsection (3) applies if—

(a) a firm carries on a UK property business,

(b) a person ceases to be a partner in the firm, and

(c) at least one of the persons with whom the partner carried on the business before ceasing to be a partner continues to carry it on afterwards.

(3) The partner is treated for the purposes of this Chapter as permanently ceasing to carry on the business.

Other rules about what counts as a “post-cessation receipt”

354

(1) Section 355 (transfer of rights if transferee does not carry on UK property business) treats certain amounts as being, or not being, post-cessation receipts for the purposes of this Chapter.

(2) The following provisions (which treat certain amounts as post-cessation receipts) apply for the purposes of this Chapter as they apply for the purposes of Chapter 18 of Part 2 (but as if any reference to a trade were to a UK property business)—

section 82(6) (contributions to local enterprise organisations or urban regeneration companies),

section 104(3) (distribution of assets of mutual concerns),

section 109(2) (receipt by donor or connected person of benefit attributable to certain gifts),

section 248 (debts paid after cessation) (reading the reference in subsection (3) to section 96 of ITA 2007 as a reference to section 125 of that Act) ,

section 249 (debts released after cessation), as qualified, where appropriate, by section 48(4) (car ... hire), and

section 250 (receipts relating to post-cessation expenditure) (reading the reference in subsection (1) to section 96 of ITA 2007 as a reference to section 125 of that Act) .

(3) This Chapter also needs to be read with—

(a) section 310(3) (which treats certain amounts as not being post-cessation receipts), and

(b) section 844 (which treats certain income as a post-cessation receipt: unremittable income).

Transfer of rights if transferee does not carry on UK property business

355

(1) This section applies if—

(a) a person (“the transferor”) permanently ceases to carry on a UK property business,

(b) the transferor transfers to another person (“the transferee”) for value the right to receive sums arising from the carrying on of any business (“the transferred business”) comprised in the transferor's UK property business, and

(2) The transferor is treated as receiving a post-cessation receipt.

(3) The amount of the receipt is—

(a) the amount or value of the consideration for the transfer, if the transfer is at arm's length, or

(b) the value of the rights transferred as between parties at arm's length, if the transfer is not at arm's length.

(4) Any sums mentioned in subsection (1)(b) which are received after the cessation of the property business are not post-cessation receipts.

Supplementary

Application to Schedule A businesses

356

(1) In this Chapter (except in sections 353(1A) and 355, and in the modification of section 254 in section 351(3)) any reference to a UK property business includes one within the charge to corporation tax .

(2) In this Chapter (except in section 355) any reference to a person permanently ceasing to carry on a UK property business includes, in the case of a company, the occurrence of an event treated under section 289 of CTA 2009 (company starting or ceasing to be within the charge to corporation tax) as the company permanently ceasing to carry on the business.

(3) In applying any provision of Chapter 18 of Part 2 for the purposes of this Chapter references to the calculation of the profits of a trade for corporation tax purposes are to be read as references to the calculation of the profits of a UK property business for corporation tax purposes.

Chapter 11 — Overseas property income

Charge to tax on overseas property income

357

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “overseas property income”

358

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income charged

359

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Person liable

360

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 12 — Supplementary

Changes in trustees and personal representatives

361

(1) This section applies if there is a change—

(a) in the trustees of a trust, or

(b) in the personal representatives of a person,

at a time when they are carrying on a property business.

(2) For income tax purposes, the change does not result in—

(a) any of the trustees or personal representatives before the change permanently ceasing to carry on the business, or

(b) any of the trustees or personal representatives after the change starting to carry on the business.

Effect of company starting or ceasing to be within charge to income tax

362

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Overseas property businesses and overseas land: adaptation of rules

363

(1) This section applies if a provision of this Part—

(a) applies to an overseas property business or land outside the United Kingdom, but

(b) is expressed by reference to a domestic concept of law.

(2) In relation to that business or land, the provision is to be read so as to produce the result most closely corresponding with that produced by the provision in relation to a UK property business or land in the United Kingdom.

Meaning of “lease” and “premises”

364

(1) In this Part “lease” includes—

(a) an agreement for a lease (so far as the context permits), and

(b) any tenancy,

but does not include a mortgage.

(2) In this Part “premises” includes land.

Part 4 — Savings and investment income

Chapter 1 — Introduction

Overview of Part 4

365

(1) This Part imposes charges to income tax under—

(a) Chapter 2 (interest),

(aa) Chapter 2A (disguised interest),

(b) Chapter 3 (dividends etc. from UK resident companies etc.),

(d) Chapter 5 (stock dividends from UK resident companies),

(e) Chapter 6 (release of loan to participator in close company),

(f) Chapter 7 (purchased life annuity payments),

(g) Chapter 8 (profits from deeply discounted securities),

(h) Chapter 9 (gains from contracts for life insurance etc.),

(i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(j) Chapter 11 (transactions in deposits),

(k) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(l) Chapter 13 (sales of foreign dividend coupons).

(2) Part 6 deals with exemptions from the charges under this Part.

(3) See, in particular, any exemptions mentioned in the particular Chapters.

(4) The charges under this Part apply to non-UK residents as well as UK residents but this is subject to section 368(2) (charges on non-UK residents only on UK source income).

(5) This section needs to be read with the relevant priority rules (see sections 2 and 366).

Provisions which must be given priority over Part 4

366

(1) Any income, so far as it falls within—

(a) any Chapter of this Part, and

(b) Chapter 2 of Part 2 (receipts of a trade, profession or vocation),

is dealt with under Part 2.

(2) Any income, so far as it falls within—

(a) any Chapter of this Part, and

(b) Chapter 3 of Part 3 so far as the Chapter relates to a UK property business,

is dealt with under Part 3.

(3) Any income, so far as it falls within—

(a) any Chapter of this Part other than Chapter 3 or 6, and

(b) Part 2, 9 or 10 of ITEPA 2003 (employment income, pension income or social security income),

is dealt with under the relevant Part of ITEPA 2003.

(4) Nothing in this section prevents amounts both—

(a) being counted as income for the purposes of Chapter 9 of this Part (gains from contracts for life insurance etc.), and

(b) being taken into account in calculating income, or counting as income, for the purposes of other Parts of this Act,

but see section 527 (reduction for sums taken into account otherwise than under Chapter 9).

Priority between Chapters within Part 4

367

(1) Any income, so far as it falls within Chapter 2 (interest) and Chapter 8 (profits from deeply discounted securities), is dealt with under Chapter 8.

(2) Any income, so far as it falls within Chapter 3 (dividends etc. from UK resident companies etc.) and another Chapter, is dealt with under Chapter 3 (but this is subject to subsection (3)).

(3) Any income, so far as it falls within—

(a) Chapter 2 (interest) as a result of section 372 (building society dividends) , 378A (offshore fund distributions) or 379 ( payments by registered societies or certain co-operatives ), and

(b) Chapter 3 or Chapter 4 (or both),

is dealt with under Chapter 2.

Territorial scope of Part 4 charges

368

(1) Income arising to a UK resident is chargeable to tax under this Part whether or not it is from a source in the United Kingdom.

(2) Income arising to a non-UK resident is chargeable to tax under this Part only if it is from a source in the United Kingdom.

(2A) If income arising to an individual who is UK resident arises in the overseas part of a split year, it is to be treated for the purposes of this section as arising to a non-UK resident.

(3) References in this section to income which is from a source in the United Kingdom include, in the case of any income which does not have a source, references to income which has a comparable connection to the United Kingdom.

(4) This section is subject to any express or implied provision to the contrary in this Part (or elsewhere in the Income Tax Acts).

Chapter 2 — Interest

Charge to tax on interest

369

(1) Income tax is charged on interest.

(2) The following sections extend what is treated as interest for certain purposes—

section 372 (building society dividends),

section 373 (open-ended investment company interest distributions),

section 376 (authorised unit trust interest distributions),

section 378A (offshore fund distributions),

section 379 ( payments by registered societies or certain co-operatives ),

section 380 (funding bonds),

section 380A (FSCS payments representing interest), and

section 381 (discounts).

(3) For exemptions, see in particular—

(a) Chapter 2 of Part 6 (national savings income),

(b) Chapter 3 of Part 6 (income from individual investment plans),

(d) Chapter 6 of Part 6 (income from FOTRA securities),

(e) sections 749 to 756A( repayment interest, interest arising from repayment supplements, ... damages for personal injury, employees' share schemes, repayments of student loans, unpaid relevant contributions, the redemption of funding bonds , certain foreign currency securities and interest on certain deposits of victims of National-Socialist persecution) ...

(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) Subsection (1) is also subject to Chapter 3 of Part 12 of ITA 2007 (exemption for interest on securities to which Chapter 2 of that Part applies) .

(5) See also Chapter 3A of Part 14 of ITA 2007 (which provides for the receipts of certain types of company being wound up to be charged to income tax under that Chapter instead of under any other provision that would otherwise apply).

Income charged

370

(1) Tax is charged under this Chapter on the full amount of the interest arising in the tax year.

(2) Subsection (1) is subject to Part 8 (foreign income: special rules).

Person liable

371

The person liable for any tax charged under this Chapter is the person receiving or entitled to the interest.

Other income taxed as interest

Building society dividends

372

(1) Any dividend paid by a building society is treated as interest for the purposes of this Act.

(2) In this section “dividend”includes any distribution (whether or not described as a dividend) .

Open-ended investment company interest distributions

373

(1) This section applies if the distribution accounts of an open-ended investment company show the total amount available for distribution to owners of shares in the company as available for distribution as yearly interest.

(2) Subsection (1) is subject to subsection (7) .

(3) For income tax purposes payments of yearly interest are treated as made to the owners of the shares by the company.

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) The amount of the payment treated as made to each owner is so much of the total amount mentioned in subsection (1) as is proportionate to the owner's shares.

(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7) This section does not apply if the open-ended investment company is an approved personal pension scheme.

(8) See section 375 for the interpretation of this section and section 374.

Date when interest payments under section 373 made

374

(1) This section applies for determining the date on which payments of interest under section 373 are treated as made.

(2) The date on which the payments are treated as made depends on whether a date is specified for any distribution for the distribution period in question by or in accordance with—

(a) the company's instrument of incorporation and its prospectus in issue for the time being (including any supplements), or

(b) in the case of an open-ended investment company which is part of an umbrella company, such parts of those documents of the umbrella company as apply to the open-ended investment company.

(3) If such a date is so specified, the payments are treated as made on that date.

(4) If no such date is so specified, the payments are treated as made on the last day of that period.

Interpretation of sections 373 and 374

375

(1) In sections 373 and 374 and this section—

“approved personal pension scheme” has the same meaning as in Chapter 4 of Part 14 of ICTA (see section 630(1) of that Act),

“distribution” includes investment on behalf of an owner of shares in respect of the owner's accumulation shares,

“distribution accounts” means the accounts showing how the total amount available for distribution to owners of shares is calculated,

“distribution period” means the period by reference to which that amount is ascertained,

“the OEIC Regulations” means the Open-ended Investment Companies (Tax) Regulations 1997 (S.I. 1997/1154),

“open-ended investment company” has the same meaning as in Chapter 3 of Part 12 of ICTA (unit trust schemes etc.) (see section 468(10) and (11) of ICTA, as inserted by regulation 10 of the OEIC Regulations),

“owner of shares” has the same meaning as in that Chapter (see section 468(10) and (15) of that Act, as so inserted), and

“umbrella company” has the meaning given by section 615 of CTA 2010.

(2) In subsection (1) “accumulation share” means a share in respect of which income is credited periodically to the capital part of the company's scheme property.

(3) In subsection (2) “scheme property” has the same meaning as in Chapter 3 of Part 12 of ICTA (unit trust schemes etc.) (see section 468(10) and (13) of ICTA, as inserted by regulation 10 of the OEIC Regulations).

Authorised unit trust interest distributions

376

(1) This section applies if the distribution accounts of an authorised unit trust show the total amount available for distribution to unit holders as available for distribution as yearly interest.

(2) Subsection (1) is subject to subsection (7) .

(3) For income tax purposes payments of yearly interest are treated as made to the unit holders.

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) The amount of the payment treated as made to each unit holder is so much of the total amount mentioned in subsection (1) as is proportionate to the unit holder's rights.

(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7) This section does not apply if the authorised unit trust is an approved personal pension scheme.

(8) See section 378 for the interpretation of this section and section 377.

Date when interest payments under section 376 made

377

(1) This section applies for determining the date on which payments of interest under section 376 are treated as made.

(2) The date on which the payments are treated as made depends on whether a date is specified by or in accordance with the trust's terms for any distribution for the distribution period in question.

(3) If such a date is so specified, the payments are treated as made on that date.

(4) If no such date is so specified, the payments are treated as made on the last day of that period.

Interpretation of sections 376 and 377

378

In sections 376 and 377—

“approved personal pension scheme” has the same meaning as in Chapter 4 of Part 14 of ICTA (see section 630(1) of that Act),

“distribution” includes investment on behalf of a unit holder in respect of the holder's accumulation units,

“distribution accounts” means the accounts showing how the total amount available for distribution to unit holders is ascertained, and

“distribution period” means the period by reference to which that amount is ascertained.

Industrial and provident society payments

379

(1) Any dividend, bonus or other sum payable to a shareholder in—

(a) registered society , or

(b) a UK agricultural or fishing co-operative,

is treated as interest for income tax purposes if it is payable by reference to the amount of the shareholder's holding in its share capital.

(2) In subsection (1)—

“registered society” means— a registered society within the meaning of the Co-operative and Community Benefit Societies Act 2014, a society registered or treated as registered under the Industrial and Provident Societies Act (Northern Ireland) 1969, a society registered as a credit union under the Credit Unions (Northern Ireland) Order 1985 ( S.I. 1985/1205 (N.I. 12)), or an SCE formed in accordance with Council Regulation ( EC ) No 1435/2003 on the Statute for a European Cooperative Society, and

“UK agricultural or fishing co-operative” means a co-operative association—which is established in the United Kingdom and UK resident, andwhose primary object is assisting its members in—carrying on agricultural or horticultural businesses on land occupied by them in the United Kingdom, orcarrying on businesses consisting in the catching or taking of fish or shellfish.

(3) In subsection (2) “co-operative association” means a body with a written constitution from which the Secretary of State considers that it is in substance a co-operative association.

(4) For the purposes of subsection (3), the Secretary of State must have regard to the way in which the body's constitution provides for its income to be applied for its members' benefit and all other relevant provisions.

(5) In Northern Ireland subsections (3) and (4) apply with the substitution for “the Secretary of State” of “ the Department of Agriculture and Rural Development” ”.

Funding bonds

380

(1) This section applies to the issue of funding bonds to a creditor in respect of a liability to pay interest on a debt incurred by a government, public institution, other public authority or body corporate.

(2) The issue is treated for income tax purposes as if it were the payment of so much of that interest as equals the market value of the bonds at their issue.

(3) In this section “funding bonds” includes any bonds, stocks, shares, securities or certificates of indebtedness (but does not include any instrument providing for payment in the form of goods or services or a voucher) .

Discounts

381

(1) All discounts, other than discounts in deeply discounted securities, are treated as interest for the purposes of this Act.

(2) In this section “deeply discounted securities” means securities to which Chapter 8 of this Part applies (profits from deeply discounted securities).

Chapter 3 — Dividends etc. from UK resident companies and tax treated as paid in respect of certain distributions

Introduction

Contents of Chapter

382

(1) This Chapter—

(a) imposes a charge to income tax on dividends and other distributions of UK resident companies (see section 383),

(b) treats dividends as paid in some circumstances (see sections 386 to 391), ...

(c) makes special provision where the charge is in respect of shares awarded under a Schedule 2 share incentive plan (see sections 392 to 396), and

(d) treats distributions as made in some circumstances (see section 396A).

(2) This Chapter also makes provision about ... tax being treated as paid and reliefs available in respect of certain distributions which applies whether or not the distributions are otherwise dealt with under this Chapter (see sections 399 to 401).

(3) For exemptions from the charge under this Chapter, see in particular—

Chapter 3 of Part 6 (income from individual investment plans),

Chapter 5 of that Part (venture capital trust dividends),

section 770 (amounts applied by SIP trustees acquiring dividend shares or retained for reinvestment), and

section 498 of ITEPA 2003 (no charge on shares ceasing to be subject to SIP in certain circumstances).

(4) In this Chapter “dividends” does not include income treated as arising under section 410 (stock dividends).

Charge to tax on dividends and other distributions

383

(1) Income tax is charged on dividends and other distributions of a UK resident company.

(2) For income tax purposes such dividends and other distributions are to be treated as income.

(3) For the purposes of subsection (2), it does not matter that those dividends and other distributions are capital apart from that subsection.

Income charged

384

(1) Tax is charged under this Chapter on the amount or value of the dividends paid and other distributions made in the tax year.

(2) Subsection (1) is subject to—

section 393(2) and (3) (later charge where cash dividends retained in SIPs are paid over), and

section 394(3) (distribution when dividend shares cease to be subject to SIP).

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Person liable

385

(1) The person liable for any tax charged under this Chapter is—

(a) the person to whom the distribution is made or is treated as made (see Part 6 of ICTA and sections 386(3) , 389(3) and 396A ), or

(b) the person receiving or entitled to the distribution.

(2) Subsection (1) is subject to—

section 393(4) (later charge where cash dividends retained in SIPs are paid over), and

section 394(4) (distribution when dividend shares cease to be subject to SIP).

Amounts treated as dividends

Open-ended investment company dividend distributions

386

(1) This section applies if the distribution accounts of an open-ended investment company show the total amount available for distribution to owners of shares in the company as available for distribution as dividends.

(2) Subsection (1) is subject to subsection (5).

(3) For income tax purposes dividends are treated as paid to the owners of the shares by the company.

(4) The amount of the dividends treated as paid to each owner is so much of the total amount mentioned in subsection (1) as is proportionate to the owner's shares.

(5) This section does not apply if the open-ended investment company is an approved personal pension scheme.

(6) See section 388 for the interpretation of this section and section 387.

Date when dividends paid under section 386

387

(1) This section applies for determining the date on which dividends are treated as paid under section 386.

(2) The date on which the dividends are treated as paid depends on whether a date is specified for the distribution period in question by or in accordance with—

(a) the company's instrument of incorporation and its prospectus in issue for the time being (including any supplements), or

(b) in the case of an open-ended investment company which is part of an umbrella company, such parts of those documents of the umbrella company as apply to the open-ended investment company.

(3) If such a date is so specified, the dividends are treated as paid on that date.

(4) If no such date is so specified, the dividends are treated as paid on the last day of that period.

Interpretation of sections 386 and 387

388

(1) In sections 386 and 387 and this section—

“approved personal pension scheme” has the same meaning as in Chapter 4 of Part 14 of ICTA (see section 630(1) of that Act),

“distribution” includes investment on behalf of an owner of shares in respect of the owner's accumulation shares,

“distribution accounts” means the accounts showing how the total amount available for distribution to owners of shares is calculated,

“distribution period” means the period by reference to which that amount is ascertained,

“the OEIC Regulations” means the Open-ended Investment Companies (Tax) Regulations 1997 (S.I. 1997/1154),

“open-ended investment company” has the same meaning as in Chapter 3 of Part 12 of ICTA (unit trust schemes etc.) (see section 468(10) and (11) of ICTA, as inserted by regulation 10 of the OEIC Regulations),

“owner of shares” has the same meaning as in that Chapter (see section 468(10) and (15) of that Act, as so inserted), and

“umbrella company” has the meaning given by section 615 of CTA 2010.

(2) In subsection (1) “accumulation share” means a share in respect of which income is credited periodically to the capital part of the company's scheme property.

(3) In subsection (2) “scheme property” has the same meaning as in Chapter 3 of Part 12 of ICTA (unit trust schemes etc.) (see section 468(10) and (13) of ICTA, as inserted by regulation 10 of the OEIC Regulations).

Authorised unit trust dividend distributions

389

(1) This section applies if the distribution accounts of an authorised unit trust show the total amount available for distribution to unit holders as available for distribution as dividends.

(2) Subsection (1) is subject to subsection (6).

(3) For income tax purposes dividends are treated as paid to the unit holders.

(4) The amount of the dividends treated as paid to each unit holder is so much of the total amount mentioned in subsection (1) as is proportionate to the unit holder's rights.

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