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Income Tax Act 2007

Type Public General Act

Publication 2007-03-20

Last updated 2026-01-20

State In force

Department Statute Law Database

Source legislation.gov.uk

articles Not indexed

Reform history JSON API

Part 1 — Overview

Meaning of “adjusted net income”

1

(1) The following Acts make provision about income tax—

(a) ITEPA 2003 (which is about charges to tax on employment income, pension income and social security income and makes provision for the high income child benefit charge),

(b) ITTOIA 2005 (which is about charges to tax on trading income, property income, savings and investment income and some other miscellaneous income), and

(2) There are also provisions about income tax elsewhere: see in particular—

(a) Part 2 of TIOPA 2010 (double taxation relief),

(b) CAA 2001 (allowances for capital expenditure), and

(3) Schedule 1 to the Interpretation Act 1978 (c. 30) defines “the Income Tax Acts” (as all enactments relating to income tax).

The purpose of the issue requirement

2

(1) This Act has 17 Parts.

(2) Part 2 contains basic provisions about income tax including—

(a) provision about the annual nature of income tax (Chapter 1),

(b) the rates at which income tax is charged (Chapter 2), and

(3) Part 3 is about taxpayers' personal reliefs including—

(a) personal allowances (Chapter 2),

(b) blind persons' allowances (Chapter 2), and

(4) Part 4 is about loss relief including relief for—

(a) trade losses (Chapters 2 and 3),

(b) losses from property businesses (Chapter 4),

(d) losses on disposal of shares (Chapter 6), and

(e) losses from miscellaneous transactions (Chapter 7).

(5) Part 5 is about relief under the enterprise investment scheme.

(5A) Part 5A is about relief under the seed enterprise investment scheme.

(5B) Part 5B is about relief for social investments.

(6) Part 6 is about—

(a) relief for investment in venture capital trusts, and

(b) other matters relating to venture capital trusts.

(7) Part 7 is about community investment tax relief.

(8) Part 8 is about a variety of reliefs including relief for—

(a) interest payments (Chapter 1),

(b) gifts to charity including gift aid (Chapters 2 and 3),

(d) maintenance payments (Chapter 5).

(9) Part 9 contains special rules about settlements and trustees including—

(a) general provision about settlements and trustees (Chapter 2),

(b) special income tax rates for trusts (Chapters 3, 4 and 5),

(d) rules about trustees' discretionary payments (Chapter 7),

(e) ... and

(f) rules about heritage maintenance settlements (Chapter 10).

(9A) Part 9A is about the treatment of certain transactions in UK land.

(10) Part 10 contains special rules about charitable trusts etc.

(10A) Part 10A is about alternative finance arrangements.

(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(11ZA) Part 11ZA is about manufactured payments.

(11A) Part 11A is about leasing arrangements involving finance leases or loans.

(12) Part 12 is about accrued income profits.

(12A) Part 12A is about sale and lease-back etc.

(13) Part 13 is about tax avoidance in relation to—

(a) transactions in securities (Chapter 1),

(b) transfers of assets abroad (Chapter 2),

(d) sales of occupation income (Chapter 4), ...

(e) trade losses (Chapter 5) ...

(f) transfers of income streams (Chapter 5A).

(g) finance arrangements (Chapter 5B),

(h) loan or credit transactions (Chapter 5C),

(ha) disposals of assets through partnerships (Chapter 5D),

(hb) disguised investment management fees (Chapter 5E),

(hc) income-based carried interest (Chapter 5F),

(i) leases of plant and machinery (Chapter 6), and

(j) tax relief for interest (Chapter 7).

(14) Part 14 deals with some miscellaneous rules about income tax liability, including—

(za) an alternative basis for charge (the remittance basis) for certain income and gains of certain individuals (Chapter A1),

(a) limits on liability to income tax for non-UK residents (Chapter 1),

(aa) exemption for persons not domiciled in United Kingdom (Chapter 1A),

(b) special rules about residence and domicile (Chapters 2 and 2A), ...

(ba) rules about UK representatives of non-UK residents (Chapters 2B and 2C),

(d) imposition of the charge to income tax on the receipts of certain types of company being wound up (Chapter 3A).

(15) Part 15 is about the deduction of income tax at source.

(16) Part 16 contains definitions which apply for the purposes of the Income Tax Acts and other general provisions which apply for the purposes of those Acts.

(17) Part 17—

(a) contains provisions to be used in interpreting this Act,

(b) introduces Schedule 1 (minor and consequential amendments),

(d) introduces Schedule 3 (repeals and revocations, including of spent enactments),

(e) introduces Schedule 4 (index of defined expressions that apply for the purposes of this Act),

(f) confers powers on the Treasury to make orders, and

(g) makes provision about the coming into force of this Act.

Part 2 — Basic provisions

Chapter 1 — Charges to income tax

Overview of charges to income tax

3

(1) Income tax is charged under—

(a) Part 2 of ITEPA 2003 (employment income),

(b) Part 9 of ITEPA 2003 (pension income),

(d) Part 2 of ITTOIA 2005 (trading income),

(e) Part 3 of ITTOIA 2005 (property income),

(f) Part 4 of ITTOIA 2005 (savings and investment income), and

(g) Part 5 of ITTOIA 2005 (miscellaneous income).

(2) Income tax is also charged under other provisions, including—

(a) Chapter 5 of Part 4 of FA 2004 (registered pension schemes: tax charges),

(b) section 7 of F(No.2)A 2005 (social security pension lump sums),

(d) Chapter 2 of Part 12 of this Act (accrued income profits), ...

(e) Part 13 of this Act (tax avoidance), and

(f) Chapter 3A of Part 14 of this Act (banks etc in compulsory liquidation).

Income tax an annual tax

4

(1) Income tax is charged for a year only if an Act so provides.

(2) A year for which income tax is charged is called a “tax year”.

(3) A tax year begins on 6 April and ends on the following 5 April.

(4) “The tax year 2007-08” means the tax year beginning on 6 April 2007 (and any corresponding expression in which two years are similarly mentioned is to be read in the same way).

(5) Every assessment to income tax must be made for a tax year.

(6) Subsection (5) is subject to Chapter 15 of Part 15 (by virtue of which an assessment may relate to a return period).

Income tax and companies

5

Section 3 of CTA 2009 disapplies the provisions of the Income Tax Acts relating to the charge to income tax in relation to income of a company (not accruing to it in a fiduciary or representative capacity) if—

(a) the company is UK resident, or

(b) the company is non-UK resident and it is chargeable to corporation tax in respect of the income, or would be so chargeable but for an exemption.

Chapter 2 — Rates at which income tax is charged

The rates

The starting rate, basic rate and higher rate

6

(1) The main rates at which income tax is charged are—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) the basic rate, ...

(d) the additional rate.

(2) The ... basic rate , higher rate and additional rate for a tax year are the rates determined as such by Parliament for the tax year.

(2A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2C) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) For other rates at which income tax is charged see—

(za) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(zb) section 6B (Welsh basic, higher and additional rates),

(zc) section 6C (default basic, higher and additional rates),

(a) section 7 (starting rate for savings and savings nil rate),

(aa) section 7A (savings basic, higher and additional rates),

(b) section 8 (dividend nil rate, dividend ordinary rate , dividend upper rate and dividend additional rate), and

(4) See also section 80C of the Scotland Act 1998 which makes provision for the purposes of section 11A (income charged at Scottish rates)

The savings rate

7

(1) The starting rate for savings is 0%.

(2) The savings nil rate is 0%

The dividend ordinary rate and dividend upper rate

8

(A1) The dividend nil rate is 0%.

(1) The dividend ordinary rate is 8.75%.

(2) The dividend upper rate is 33.75%.

(3) The dividend additional rate is 39.35%.

The trust rate and dividend trust rate

9

(1) The trust rate is 45%.

(2) The dividend trust rate is 39.35%.

Income charged at particular rates

Income charged at the starting, basic and higher rates: individuals

10

(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2) Income tax on an individual's income up to the basic rate limit is charged at the basic rate ....

(3) Income tax is charged at the higher rate on an individual's income above the basic rate limit and up to the higher rate limit.

(3A) Income tax is charged at the additional rate on an individual's income above the higher rate limit.

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

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

(4) This section is subject to—

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

section 11A (income charged at Scottish rates),

section 11B (income charged at the Welsh basic, higher and additional rates),

section 11C (income charged at the default basic, higher and additional rates: non-UK resident individuals),

section 11D (savings income charged at the savings basic, higher and additional rates: individuals),

section 12 (savings income charged at the starting rate for savings),

section 12A (savings income charged at the savings nil rate),

section 13 (income charged at the dividend ordinary and dividend upper rates: individuals), and

any other provisions of the Income Tax Acts which provide for income of an individual to be charged at different rates of income tax in some circumstances.

(5) The basic rate limit is £37,700.

(5A) The higher rate limit for a tax year is equal to—

(a) twice the amount specified in subsection (1) of section 35 (personal allowance) for the tax year, plus

(b) the amount specified in subsection (2) of that section (amount at which personal allowance starts to be withdrawn).

(5B) Before the start of the tax year the Treasury must make an order specifying the amount which is, as a result of subsection (5A), the higher rate limit for the tax year.

(6) The basic rate limit and higher rate limit are increased in some circumstances: see—

(a) section 414(2) (gift aid relief), and

(b) section 192(4) of FA 2004 (relief for pension contributions).

(7) See section 21 for indexation of the basic rate limit.

Income charged at the basic rate: other persons

11

(1) Income tax is charged at the default basic rate on the income of persons other than individuals.

(2) This section is subject to—

section 14 (income charged at the dividend ordinary rate: other persons),

Chapters 3 to 5 of Part 9 (which provide for some income of trustees to be charged at the dividend trust rate or at the trust rate), and

any other provisions of the Income Tax Acts which provide for income of persons other than individuals to be charged at different rates of income tax in some circumstances.

Income charged at the savings rate

12

(1) Income tax is charged at the starting rate for savings ... on so much of an individual's income up to the starting rate limit for savings as—

(a) is savings income, and

(b) would otherwise be charged at the basic rate or the default basic rate.

(2) This is subject to any provisions of the Income Tax Acts (apart from section 10) which provide for income of an individual to be charged at different rates of income tax in some circumstances.

(3) The starting rate limit for savings is £5,000.

(4) See section 21 for indexation of the starting rate limit for savings.

(5) Section 16 has effect for determining the extent to which a person's income up to the starting rate limit for savings consists of savings income.

Income charged at the dividend ordinary and dividend upper rates: individuals

13

(1) Income tax is charged at the dividend ordinary rate on an individual's income which—

(a) is dividend income,

(b) would otherwise be charged at the ... basic rate, ... or the Welsh basic rate, and

(c) is not relevant foreign income charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).

(2) Income tax is charged at the dividend upper rate on an individual's income which—

(a) is dividend income, ...

(b) would otherwise be charged at the higher rate, ... or the Welsh higher rate, and

(2A) Income tax is charged at the dividend additional rate on an individual's income which—

(a) is dividend income,

(b) would otherwise be charged at the additional rate, ... or the Welsh additional rate, and

(3) Subsections (1) to (2A) are subject to any provisions of the Income Tax Acts (apart from section 10 or 11A or 11B) which provide for income to be charged at different rates of income tax in some circumstances.

(4) Section 16 has effect for determining the extent to which an individual's dividend income would otherwise be charged at the ... basic , higher or additional rate ... or the Welsh basic, higher or additional rate.

(5) In relation to an individual who is a Scottish taxpayer, references in this section to income that would otherwise be charged at a particular rate are to be read as references to income that would, if the individual were not a Scottish taxpayer, be charged at that rate (and subsection (4) is to be read accordingly).

Income charged at the dividend ordinary rate: other persons

14

(1) Income tax is charged at the dividend ordinary rate on the income of persons other than individuals which—

(a) is dividend income,

(b) would otherwise be charged at the basic rate, and

(c) is not relevant foreign income charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).

(2) This is subject to—

Chapters 3 to 5 of Part 9 (which provide for some income of trustees to be charged at the dividend trust rate or at the trust rate),

... and

any other provisions of the Income Tax Acts (apart from section 11) which provide for income of persons other than individuals to be charged at different rates of income tax in some circumstances.

Income charged at the trust rate and the dividend trust rate

15

For the circumstances in which income tax is charged at the trust rate and the dividend trust rate, see Chapters 3 to 5 of Part 9.

Savings and dividend income to be treated as highest part of total income

16

(1) This section has effect for determining —

(za) which part of a Scottish taxpayer's income consists of savings income,

(zb) the rate at which income tax would be charged on the non-savings income of a Welsh taxpayer apart from section 11B,

(a) the extent to which a person's income up to the starting rate limit for savings consists of savings income,

(aa) the extent to which a person's income above the starting rate limit for savings consists of savings income, and

(ab) the rate at which income tax would be charged on a person’s savings income above the starting rate limit for savings apart from sections 11D and 12A,

(b) the rate at which income tax would be charged on a person's dividend income apart from section 13.

(2) It also has effect for all other income tax purposes except for the purposes of—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) sections 535 to 537 of ITTOIA 2005 (gains from contracts for life insurance etc: top slicing relief).

(3) If a person has savings income but no dividend income, the savings income is treated as the highest part of the person's total income.

(4) If a person has dividend income but no savings income, the dividend income is treated as the highest part of the person's total income.

(5) If a person has both savings income and dividend income—

(a) the savings income and dividend income are together treated as the highest part of the person's total income, and

(b) the dividend income is treated as the higher part of that part of the person's total income.

(6) See section 1012 for the relationship between—

(a) the rules in this section, and

(b) other rules requiring particular income to be treated as the highest part of a person's total income.

(7) References in this section to dividend income do not include dividend income which is relevant foreign income charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).

Repayment: tax paid at basic rate instead of starting or savings rate

17

(1) This section applies if income tax at a rate greater than the starting rate for savings has been paid on income on which income tax is chargeable at the starting rate for savings.

(1A) This section also applies if income tax at a rate greater than the savings nil rate has been paid on income on which income tax is chargeable at the savings nil rate.

(2) If a claim is made, any necessary repayment of tax must be made.

Meaning of “savings income”

18

(1) This section applies for the purposes of the Income Tax Acts.

(2) “Savings income” is income—

(a) which is within subsection (3) or (4), and

(b) which is not relevant foreign income charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).

(3) Income is within this subsection if it is—

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

(b) income chargeable under Chapter 7 of Part 4 of ITTOIA 2005 (purchased life annuity payments), other than income from annuities specified in section 718(2) of that Act (annuities purchased from certain life assurance premium payments or under wills etc),

(d) income chargeable under Chapter 2 of Part 12 of this Act (accrued income profits).

(4) Income is within this subsection if—

(a) it is chargeable under Chapter 9 of Part 4 of ITTOIA 2005 (gains from contracts for life insurance etc), and

(b) an individual is, or personal representatives are, liable for income tax on it (under section 465 or 466 of that Act).

Meaning of “dividend income”

19

(1) This section applies for the purposes of the Income Tax Acts.

(2) “Dividend income” is income which is—

(a) chargeable under Chapter 3 of Part 4 of ITTOIA 2005 (dividends etc from UK resident companies),

(b) chargeable under Chapter 4 of that Part (dividends from non-UK resident companies),

(d) chargeable under Chapter 6 of that Part (release of loan to participator in close company), or

(e) a relevant foreign distribution chargeable under Chapter 8 of Part 5 of ITTOIA 2005 (income not otherwise charged).

(3) In subsection (2) “relevant foreign distribution” means a distribution of a non-UK resident company which—

(a) is not chargeable under Chapter 4 of Part 4 of ITTOIA 2005, but

(b) would be chargeable under Chapter 3 of that Part if the company were UK resident.

Starting rate limit and basic rate limit

The starting rate limit and the basic rate limit

20

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

Indexation of the starting rate limit and the basic rate limit

21

(1) This section applies if the consumer prices index for the September before the start of a tax year is higher than it was for the previous September.

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) The basic rate limit for the tax year is the amount found as follows.

Step 1

Increase the basic rate limit for the previous tax year by the same percentage as the percentage increase in the consumer prices index.

Step 2

If the result of Step 1 is a multiple of £100, it is the basic rate limit for the tax year.

If the result of Step 1 is not a multiple of £100, round it up to the nearest amount which is a multiple of £100.

That amount is the basic rate limit for the tax year.

(3A) The starting rate limit for savings for the tax year is the amount found as follows.

Step 1

Increase the starting rate limit for savings for the previous tax year by the same percentage as the percentage increase in the consumer prices index.

Step 2

If the result of Step 1 is a multiple of £10, it is the starting rate limit for savings for the tax year.

If the result of Step 1 is not a multiple of £10, round it up to the nearest amount which is a multiple of £10.

That amount is the starting rate limit for savings for the tax year.

(4) Subsections (3) and (3A) do not require a change to be made in the amounts deductible or repayable under PAYE regulations during the period beginning on 6 April and ending on 17 May in the tax year.

(5) Before the start of the tax year the Treasury must make an order replacing the amounts specified in sections 10 and 12 with the amounts which, as a result of subsections (3) and (3A), are the basic rate limit and starting rate limit for savings for the tax year.

(6) In this section “consumer prices index” means the all items consumer prices index published by the Statistics Board.

Chapter 3 — Calculation of income tax liability

Overview of Chapter

22

(1) This Chapter deals with the calculation of a person's income tax liability for a tax year.

(2) But it does not deal with any income tax liability mentioned in section 32.

(3) This Chapter needs to be read with Chapter 1 of Part 14 (limits on liability to income tax of non-UK residents).

The calculation of income tax liability

23

To find the liability of a person (“the taxpayer”) to income tax for a tax year, take the following steps. Step 1

Reliefs deductible at Step 2

24

(1) If the taxpayer is an individual, the provisions referred to at Step 2 of the calculation in section 23 are—

(a) the following—

section 72 (early trade losses relief),

Chapter 6 of Part 4 (share loss relief),

Chapter 3 of Part 8 (gifts of shares, securities and real property to charities etc),

sections 457 and 458 of this Act or section 266(7) of ICTA (payments to trade unions or police organisations),

section 41P of ITEPA 2003 (deduction for amount that reflects qualifying foreign employment income),

section 193(4) of FA 2004 (pension schemes: relief under net pay arrangement: excess relief), ...

section 194(1) of FA 2004 (pension schemes: relief on making of claim), and

section 845A of ITTOIA 2005 (claim for relief for qualifying new residents), and

(b) the following—

section 64 (trade loss relief against general income),

section 83 (carry-forward trade loss relief),

section 89 (terminal trade loss relief),

section 96 (post-cessation trade relief),

section 118 (carry-forward property loss relief),

section 120 (property loss relief against general income),

section 125 (post-cessation property relief),

section 128 (employment loss relief against general income),

section 152 (loss relief against miscellaneous income),

Chapter 1 of Part 8 (interest payments),

Chapter 1A of Part 8 (irrecoverable peer-to-peer loans),

Chapter 4 of Part 8 (annual payments ...),

section 574 (manufactured dividends on UK shares: payments by non-companies),

section 579 (manufactured interest on UK securities: payments not otherwise deductible),

Part 2 of CAA 2001 (plant and machinery allowances), in a case where the allowance is to be given effect under section 258 of that Act (special leasing of plant and machinery),

Part 8 of CAA 2001 (patent allowances), in a case where the allowance is to be given effect under section 479 of that Act (persons having qualifying non-trade expenditure),

section 555 of ITEPA 2003 (deduction for liabilities related to former employment),

section 446 of ITTOIA 2005 (strips of government securities: relief for losses),

section 454(4) of ITTOIA 2005 (listed securities held since 26 March 2003: relief for losses: persons other than trustees), and

section 600 of ITTOIA 2005 (relief for patent expenses).

(2) In any other case, the provisions referred to at Step 2 of the calculation in section 23 are—

(a) the provisions listed in subsection (1)(b), and

(b) regulation 18 of the Unauthorised Unit Trusts (Tax) Regulations 2013.

Reliefs and allowances deductible at Steps 2 and 3: supplementary

25

(1) This section supplements the provisions about reliefs and allowances in Steps 2 and 3 of the calculation in section 23.

(2) At Steps 2 and 3, deduct the reliefs and allowances in the way which will result in the greatest reduction in the taxpayer's liability to income tax.

(3) Subsection (2) is subject to—

section 65(2) to (4) (priority rule in relation to trade loss relief against general income),

section 80(2) (ring fence income),

section 83(3) and (4) (carry-forward trade loss relief against trade profits),

section 89(3) (terminal trade loss relief against trade profits),

section 93(2) (terminal trade loss relief and mineral extraction trade),

section 95(2) (foreign trades etc reliefs only against qualifying foreign income),

section 115(2) (restrictions on reliefs for firms exploiting films),

section 118(3) and (4) (carry-forward property loss relief against property business profits),

section 121(2) and (3) (priority rule in relation to property loss relief against general income),

section 129(2) to (4) (priority rule in relation to employment loss relief against general income),

section 133(4) (share loss relief against general income),

section 152(4) and (7) (loss relief against miscellaneous income),

sections 412A(4), 412B(3) and 412C(3) (relief for irrecoverable peer-to-peer loans only against interest on certain loans),

sections 574(3) to (8) and 575 (manufactured dividends on UK shares: restrictions on deductions),

section 579(2) to (5) and 580 (manufactured interest on UK securities: restrictions on deductions),

section 258 of CAA 2001 (special leasing of plant or machinery),

section 479 of that Act (persons having qualifying non-trade expenditure),

section 601 of ITTOIA 2005 (how relief for patent expenses is given), and

any other provision of the Income Tax Acts under which reliefs or allowances deductible at Step 2 or 3 are not permitted to be deducted from particular components of income or are required to be deducted from particular components of income or in a different order.

(4) A relief or allowance may be deducted at Step 2 or 3 only so far as there is sufficient income from which to deduct it.

(5) In deciding whether there is sufficient income from which to deduct a relief or allowance, reliefs and allowances already deducted at Step 2 or 3 must be taken into account.

(6) Nothing in Step 2 or 3 is to be read as permitting a relief or allowance to be deducted more than once.

Tax reductions

26

(1) If the taxpayer is an individual, the provisions referred to at Step 6 of the calculation in section 23 are—

(a) the following—

Chapter 3 of Part 3 of this Act ... (tax reductions for married couples and civil partners),

Chapter 3A of Part 3 of this Act (transferable tax allowance for married couples and civil partners),

Chapter 1 of Part 5 (EIS relief),

Chapter 1 of Part 5A (SEIS relief),

Chapter 1 of Part 5B (relief for social investments),

Chapter 2 of Part 6 (VCT relief),

Chapter 1 of Part 7 (community investment tax relief),

section 399B (relief for non-deductible interest on loan to invest in partnership with residential property business),

section 414A(3) (gift aid where devolved basic rate is above basic rate),

section 453 (qualifying maintenance payments),

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

section 461 (spreading of patent royalty receipts),

section 353(1A) of ICTA (relief for interest on loan to buy life annuity),

section 192A of FA 2004 (relief at source: additional relief),

section 274A of ITTOIA 2005 (property business: relief for non-deductible costs of a dwelling-related loan),

section 535 of ITTOIA 2005 (top slicing relief), and

section 539 of ITTOIA 2005 (relief for deficiencies), and

(b) the following—

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

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

section 401 of ITTOIA 2005 (relief: distribution repaying shares or security issued in earlier distribution), ...

sections 677 and 678 of ITTOIA 2005 (relief where foreign estates have borne UK income tax).

sections 2 and 6 of TIOPA 2010 (double taxation relief: relief by agreement), and

section 18(1)(b) and (2) of TIOPA 2010 (relief for foreign tax where no double taxation arrangements).

(2) In any other case, the provisions referred to at Step 6 of the calculation in section 23 are—

(a) the provisions listed in subsection (1)(b),

(aa) section 274B of ITTOIA 2005 (trusts with accumulated or discretionary income derived from property business: relief for non-deductible costs of dwelling-related loans), and

(b) section 26 of FA 2005 (trusts with vulnerable beneficiary: income tax relief).

Order of deducting tax reductions: individuals

27

(1) This section makes provision about the order in which tax reductions are to be deducted at Step 6 of the calculation in section 23, if the taxpayer is an individual.

(2) Deduct the tax reductions in the order which will result in the greatest reduction in the taxpayer's liability to income tax for the tax year.

(3) Subsection (2) is subject to subsections (4) to (6).

(4) If the taxpayer is entitled to tax reductions for the tax year under more than one of the provisions listed in subsection (5), a tax reduction under a provision mentioned earlier in the list must be deducted before a tax reduction under a provision mentioned later in the list.

(5) The provisions are—

Chapter 2 of Part 6 (VCT relief),

Chapter 1 of Part 5 (EIS relief),

Chapter 1 of Part 5A (SEIS relief),

Chapter 1 of Part 5B (relief for social investments),

Chapter 1 of Part 7 (community investment tax relief),

section 353(1A) of ICTA (relief for interest on loan to buy life annuity),

section 453 (qualifying maintenance payments),

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

Chapter 3 of Part 3 of this Act ... (tax reductions for married couples and civil partners).

(6) If the taxpayer is entitled to a tax reduction under—

(a) sections 2 and 6 of TIOPA 2010 (double taxation arrangements: relief by agreement), or

(b) section 18(1)(b) and (2) of TIOPA 2010 (relief for foreign tax where no double taxation arrangements),

that tax reduction must be deducted after any other tax reduction to which the taxpayer is entitled for the tax year.

Order of deducting tax reductions: other persons

28

(1) This section makes provision about the order in which tax reductions are to be deducted at Step 6 of the calculation in section 23, if the taxpayer is a person other than an individual.

(2) Deduct the tax reductions in the order which will result in the greatest reduction in the taxpayer's liability to income tax for the tax year.

(3) Subsection (2) is subject to subsections (4) and (5).

(4) If the taxpayer is entitled to a tax reduction under—

(a) sections 2 and 6 of TIOPA 2010 (double taxation arrangements: relief by agreement), or

(b) section 18(1)(b) and (2) of TIOPA 2010 (relief for foreign tax where no double taxation arrangements),

that tax reduction must be deducted after any other tax reduction to which the taxpayer is entitled for the tax year, subject to subsection (5).

(5) If the taxpayer is a trustee and is entitled to a tax reduction under section 26 of FA 2005 (trusts with vulnerable beneficiary: income tax relief) that tax reduction must be deducted after any other tax reduction to which the taxpayer is entitled for the tax year.

Tax reductions: supplementary

29

(1) This section supplements the provisions about tax reductions in Step 6 of the calculation in section 23.

(2) A tax reduction may be deducted at Step 6 only so far as there is sufficient tax calculated at Step 5 of the calculation from which to deduct it.

(3) In deciding whether there is sufficient tax calculated at Step 5 from which to deduct a tax reduction, tax reductions already deducted at Step 6 must be taken into account.

(4) Subsections (2) and (3) apply in addition to—

(a) sections 36(1) to (5) and (7) and 41 of TIOPA 2010 (limits on credit for foreign tax), and

(b) any other provision of the Income Tax Acts that limits the amount of a tax reduction.

(4A) If the taxpayer is an individual, the total of the tax reductions within subsection (4B) that are deducted at Step 6 must not be greater than—

A − B

where—

A is the amount of tax calculated at Step 5, and

B is the total amount of the tax treated under section 414 (gift aid) as deducted from gifts made by the taxpayer in the tax year.

(4B) A tax reduction is within this subsection if it is under—

Chapter 1 of Part 5 (EIS relief),

Chapter 1 of Part 5A (SEIS relief),

Chapter 1 of Part 5B (relief for social investments),

Chapter 2 of Part 6 (VCT relief), or

Chapter 1 of Part 7 (community investment tax relief).

(4C) Subsection (4A) applies in addition to subsections (2) and (3).

(5) For the purposes of this Chapter, a person is treated as being entitled to a tax reduction under sections 2 and 6 of TIOPA 2010 if the person is entitled to credit against income tax under double taxation arrangements.

Additional tax

30

(1) If the taxpayer is an individual, the provisions referred to at Step 7 of the calculation in section 23 are—

section 414A(4) read with section 414A(5) (gift aid where devolved basic rate is below basic rate),

section 424 (gift aid: charge to tax),

section 809ZN (tainted gift aid donations: charge to tax),

section 809ZO (tainted charity donations by trustees: charge to tax),

Chapter 8 of Part 10 of ITEPA 2003 (high income child benefit charge),

section 192B of FA 2004 (relief at source: excessive relief given),

section 205 of FA 2004 (pension schemes: the short service refund lump sum charge),

section 206 of FA 2004 (pension schemes: the special lump sum death benefits charge),

section 208 of FA 2004 (pension schemes: the unauthorised payments charge),

section 209 of FA 2004 (pension schemes: the unauthorised payments surcharge),

section 214 of FA 2004 (pension schemes: the lifetime allowance charge),

section 227 of FA 2004 (pension schemes: the annual allowance charge), and

section 244A of FA 2004 (pension schemes: the overseas transfer charge),

section 7 of F(No.2)A 2005 (social security pension lump sum).

(2) If the taxpayer is a trustee, the provisions referred to at Step 7 of the calculation in section 23 are—

section 496 (discretionary payments by trustees: tax pool adjustment),

section 809ZN (tainted gift aid donations: charge to tax), and

section 809ZO (tainted charity donations by trustees: charge to tax).

Total income: supplementary

31

(1) This section applies for the purposes of calculating total income.

(2) Income from which a deduction in respect of income tax is to be made (or treated as made) at the basic rate , the Welsh basic rate or the Scottish basic rate ... in force for a tax year is treated as income of that tax year.

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

(4) Subsection (2) applies even if all or part of the income, or the dividend or other distribution, accrued or will accrue in a different tax year.

(5) An assessment that has become final and conclusive for income tax purposes for a tax year is also final and conclusive for the purposes of calculating total income.

Liability not dealt with in the calculation

32

The liabilities referred to in section 22(2) are income tax liability—

under section 74C(5) (non-active traders: withdrawal of relief),

under section 79(1) (capital allowances restrictions: withdrawal of relief),

under section 81(6) (dealings in commodity futures: withdrawal of relief),

under section 103B(5) (non-active partners: withdrawal of relief),

under section 235 (withdrawal or reduction of EIS relief),

under section 257G (withdrawal or reduction of SEIS relief),

under section 257S (withdrawal or reduction of relief for social investments),

under sections 266 to 270 (withdrawal or reduction of VCT relief),

under section 372 (withdrawal or reduction of CITR),

under section 512 (heritage maintenance settlements: application of property for non-heritage purposes),

under Chapter 1 of Part 13 (transactions in securities),

under regulations made under section 918(4) (foreign payers of manufactured dividends: Real Estate Investment Trusts: the reverse charge),

under section 920 or 923 (foreign payers of manufactured interest or manufactured overseas dividends: the reverse charge),

under Chapter 15, 16 or 17 of Part 15 (deduction of tax at source: collection mechanisms),

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

under paragraph 11(3) of Schedule 20 to FA 1994 (recovery of excess credit for overseas tax: changes for facilitating self-assessment),

of the person who is (or persons who are) the responsible person in relation to an employer-financed retirement benefits scheme under section 394(2) of ITEPA 2003,

under Chapter 5 of Part 4 of FA 2004 (registered pension schemes: tax charges), except any liability under a provision mentioned in section 30(1), ...

under section 682(4) of ITTOIA 2005 (assessments, adjustments and claims after the administration period), so far as the liability represents a tax reduction given effect at Step 6 of the calculation in section 23, and

under section 24(4) of TIOPA 2010 (recovery of excess credit for overseas tax).

Part 3 — Personal reliefs

Chapter 1 — Introduction

Overview of Part

33

(1) This Part provides for personal reliefs.

(2) Chapter 2 provides for entitlement to a personal allowance and a blind person's allowance.

(3) Chapter 3 provides for tax reductions for married couples and civil partners where a party to the marriage or civil partnership is born before 6 April 1935.

(3A) Chapter 3A provides for a transferable tax allowance for married couples and civil partners.

(4) Chapter 4 contains provision applicable for the purposes of Chapters 2 , 3 and 3A, in particular—

(a) requirements about residence etc of claimants to allowances under Chapter 2 or tax reductions under Chapter 3 or 3A, and

(b) indexation of the amounts of the allowances under Chapter 2 and tax reductions under Chapter 3.

Introduction

Allowances under Chapter

34

(1) In this Chapter—

(a) section 35 deals with entitlement to a personal allowance,

(b) section 38 deals with entitlement to a blind person's allowance, and

(2) An allowance under this Chapter is given effect at Step 3 of the calculation in section 23.

(3) See also—

(a) section 809G, in relation to tax years before 2025-26 where a claim for the remittance basis to apply is made, and

(b) section 845E of ITTIOA 2005, in relation to tax years from 2025-26 where a foreign income claim, a foreign employment election or a foreign gain claim is made.

Those sections provide that where an individual makes such a claim or election for a tax year, the individual is not entitled to any allowance under this Chapter for that tax year.

Personal allowances

Personal allowance for those aged under 65

35

(1) An individual who makes a claim is entitled to a personal allowance of £12,570 for a tax year if the individual meets the requirements of section 56 (residence etc).

(2) For an individual whose adjusted net income exceeds £100,000, the allowance under subsection (1) is reduced by one-half of the excess.

(3) If the amount of any allowance that remains after the operation of subsection (2) would otherwise not be a multiple of £1, it is to be rounded up to the nearest amount which is a multiple of £1.

(4) For the meaning of “adjusted net income” see section 58.

Personal allowance for those aged 65 to 74

36

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

Personal allowance for those aged 75 and over

37

(1) An individual who makes a claim is entitled to a personal allowance of £10,660, or (if greater) the section 35 amount, for a tax year if the individual—

(a) was born before 6 April 1938, and

(b) meets the requirements of section 56 (residence etc).

(2) If the allowance under subsection (1) is greater than the section 35 amount, for an individual whose adjusted net income for the tax year exceeds £27,700, the allowance under subsection (1)—

(a) is reduced by an amount equal to half of that excess income, but

(b) is not reduced below the section 35 amount.

(2A) In this section “the section 35 amount” means the amount of any allowance to which the individual would be entitled under section 35 for the tax year if the individual had been born after 5 April 1948.

(3) For the meaning of “adjusted net income” see section 58.

38

(1) An individual who makes a claim is entitled to a blind person's allowance of £3,250 for a tax year if the individual—

(a) meets the first or second condition for the whole or part of the tax year, and

(b) meets the requirements of section 56 (residence etc).

(2) The first condition is that the individual is—

(a) registered as a severely sight-impaired adult in a register kept under section 77(1) of the Care Act 2014 (registers kept by local authorities in England), or

(b) registered as a severely sight-impaired adult in a register kept under section 18(1) of the Social Services and Well-being (Wales) Act 2014 (registers kept by local authorities in Wales).

(3) The second condition is that—

(a) the individual is ordinarily resident in Scotland or Northern Ireland, and

(b) because of the individual's blindness, the individual is unable to do any work for which eyesight is essential.

(4) If an individual who is entitled to a blind person's allowance for a particular tax year—

(a) became registered as a blind person in a register kept under section 29 of the National Assistance Act 1948 or as a severely sight-impaired person in a register kept under section 77(1) of the Care Act 2014 or section 18(1) of the Social Services and Well-being (Wales) Act 2014 in the tax year, but

(b) obtained the evidence of blindness or of severe sight-impairment on the basis of which the registration was made in the preceding tax year,

the individual is treated as having met the first condition for the whole of the preceding tax year.

39

(1) This section applies to an individual who is entitled to a blind person's allowance under section 38 for a tax year if—

(a) the individual is a person whose spouse or civil partner is living with the individual for the whole or any part of the tax year, and

(b) the spouse or civil partner meets the requirements of section 56 (residence etc).

(2) If—

(a) the allowance exceeds the individual's remaining relievable income,

(b) the individual makes an election, and

the individual's spouse or civil partner is entitled to an allowance for the tax year equal to the amount of the excess.

(3) The individual's remaining relievable income is the amount found by—

(a) taking the amount of the individual's net income, and

(b) subtracting any personal allowance to which the individual is entitled for the tax year.

Election for transfer of allowance under section 39

40

(1) An election under section 39—

(a) must be made not more than 4 years after the end of the tax year to which it relates, and

(b) cannot be withdrawn.

(2) If an individual makes an election for a tax year under section 39 the individual is treated as also giving notice under section 51(4) that section 51(1) (tax reductions for married couples and civil partners: transfer of unused relief) is to apply for the tax year.

Supplementary

Allowances in year of death

41

(1) Any allowance to which an individual is entitled under this Chapter for any tax year, including the tax year in which the individual dies, is given in full.

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Chapter 3 — Tax reductions for married couples and civil partners: persons born before 6 April 1935

Introduction

Tax reductions under Chapter

42

(1) This Chapter contains provisions about entitlement to tax reductions in a case where a party to a marriage or civil partnership was born before 6 April 1935.

(2) Individuals are entitled to tax reductions under the following provisions of this Chapter—

(a) section 45 (marriages before 5 December 2005),

(b) section 46 (marriages and civil partnerships on or after 5 December 2005),

(d) section 48 (joint election to transfer relief under section 45 or 46),

(e) section 49 (election for partial transfer back of relief),

(f) section 51 (transfer of unused relief), and

(g) section 52 (transfer back of unused relief).

(3) The tax reductions under sections 45 to 49 are subject to section 54 (tax reductions in the year of marriage or entry into civil partnership).

(4) A tax reduction under this Chapter is given effect at Step 6 of the calculation in section 23.

Meaning of “the minimum amount”

43

In this Chapter “the minimum amount” means £4,530.

Election for new rules to apply

44

(1) In this Chapter “an election for the new rules to apply” means an election made by a husband and wife who got married before 5 December 2005 , or by the civil partners in a civil partnership which results from a relevant conversion, for the new rules to apply to them instead of the old rules.

(2) In subsection (1)—

“the new rules” means the rules for relief under section 46 (marriages and civil partnerships on or after 5 December 2005), and

“the old rules” means the rules for relief under section 45 (marriages before 5 December 2005).

(3) An election for the new rules to apply—

(a) must be made jointly by the parties to the marriage or civil partnership,

(b) must be made before the first tax year for which it is to be in force,

(d) cannot be withdrawn.

Married couple's allowance

Marriages before 5 December 2005

45

(1) If a man—

(a) makes a claim for a tax year, and

(b) meets the conditions set out in subsection (2) or the conditions set out in subsection (2A),

he is entitled to a tax reduction for the tax year of 10% of the amount specified in subsection (3)(a) ... .

(2) The conditions are that—

(a) for the whole or part of the tax year he is married and his wife is living with him,

(b) the marriage took place before 5 December 2005 and no election for the new rules to apply is in force for the tax year,

(d) he meets the requirements of section 56 (residence etc).

(2A) The conditions are that—

(a) for the whole or part of the tax year he is in a civil partnership and his female civil partner is living with him,

(b) the civil partnership results from a relevant conversion and no election for the new rules to apply is in force for the tax year,

(d) he meets the requirements of section 56 (residence etc).

(3) The amount is—

(a) £11,700 if either the man or his wife or civil partner is aged 75 or over at some time in the tax year ...

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) For a man whose adjusted net income for the tax year exceeds £39,200, the amounts specified in subsection (3) are reduced by half the excess.

(5) But subsection (4) does not reduce the amounts specified in subsection (3) below the minimum amount.

(6) For the meaning of “adjusted net income” see section 58.

Marriages and civil partnerships on or after 5 December 2005

46

(1) If an individual—

(a) makes a claim for a tax year, and

(b) meets the conditions set out in subsection (2),

the individual is entitled to a tax reduction for the tax year of 10% of the amount specified in subsection (3)(a) ....

(2) The conditions are that—

(a) for the whole or part of the tax year the individual is married or in a civil partnership and is living with the spouse or civil partner,

(b) the marriage took place, or the civil partnership was formed, on or after 5 December 2005 or, if the marriage took place before that date or if the civil partnership results from a relevant conversion, an election for the new rules to apply is in force for the tax year,

(d) the individual meets the requirements of section 56 (residence etc), and

(e) the individual's net income for the tax year exceeds that of the spouse or civil partner or, if they have the same amount of net income for the tax year, the individual is specified in an election as the person to be entitled to relief under this section for the year.

(3) The amount is—

(a) £11,700, if either the individual, or the spouse or civil partner, is aged 75 or over at some time in the tax year ...

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) For an individual whose adjusted net income for the tax year exceeds £39,200, the amounts specified in subsection (3) are reduced by half the excess.

(5) But subsection (4) does not reduce the amounts specified in subsection (3) below the minimum amount.

(6) An election under subsection (2)(e)—

(a) is to be made jointly by the parties to the marriage or civil partnership, and

(b) is to be made not more than 4 years after the end of the tax year to which the election relates.

(7) For the meaning of “adjusted net income” see section 58.

Elections to transfer relief

Election by individual to transfer relief under section 45 or 46

47

(1) If—

(a) an individual's spouse or civil partner is entitled to a tax reduction under section 45 or 46 for a tax year, and

(b) the individual meets the conditions set out in subsection (2),

the individual is entitled to a tax reduction for that tax year of 10% of half the minimum amount.

(2) The conditions are that the individual—

(a) has made an election which is in force for the tax year,

(b) makes a claim, and

(3) If an individual is entitled to a tax reduction under subsection (1), the tax reduction to which the individual's spouse or civil partner is entitled under section 45 or 46 is calculated for the tax year as if the appropriate amount were reduced by half the minimum amount.

(4) In subsection (3) “the appropriate amount” means—

(a) if the individual's spouse or civil partner is entitled to a tax reduction under section 45, the amount specified in section 45(3)(a) ... , after any reductions under section 45(4) and 54(2), or

(b) if the individual's spouse or civil partner is entitled to a tax reduction under section 46, the amount specified in section 46(3)(a) ... , after any reductions under sections 46(4) and 54(2).

Joint election to transfer relief under section 45 or 46

48

(1) If—

(a) an individual's spouse or civil partner is entitled to a tax reduction under section 45 or 46 for a tax year, and

(b) the conditions set out in subsection (2) are met,

the individual is entitled to a tax reduction for that tax year of 10% of the minimum amount.

(2) The conditions are that—

(a) the individual and the individual's spouse or civil partner have made a joint election which is in force for the tax year,

(b) the individual makes a claim, and

(3) If an individual is entitled to a tax reduction under subsection (1), the tax reduction to which the individual's spouse or civil partner is entitled under section 45 or 46 is calculated for the tax year as if the appropriate amount were reduced by the minimum amount.

(4) In subsection (3) “the appropriate amount” means—

(a) if the individual's spouse or civil partner is entitled to a tax reduction under section 45, the amount specified in section 45(3)(a) ... , after any reductions under section 45(4) and 54(2), or

(b) if the individual's spouse or civil partner is entitled to a tax reduction under section 46, the amount specified in section 46(3)(a) ... , after any reductions under sections 46(4) and 54(2).

Election for partial transfer back of relief

49

(1) If an individual whose spouse or civil partner is entitled under section 48(1) to a tax reduction for a tax year—

(a) has made an election which is in force for the tax year, and

(b) makes a claim,

the individual is entitled to a tax reduction for that tax year of 10% of half the minimum amount (in addition to any tax reduction to which the individual is entitled under section 45 or 46).

(2) The amount of the tax reduction to which the individual's spouse or civil partner is entitled under section 48(1) for that tax year is 10% of half the minimum amount (instead of 10% of the minimum amount).

Procedure for making and withdrawing elections under sections 47 to 49

50

(1) This section applies to elections under sections 47 to 49.

(2) An election—

(a) must, except in the cases dealt with by subsection (3), be made before the first tax year in which it is to be in force, and

(b) continues in force in each subsequent tax year until it is withdrawn.

(3) An election—

(a) may be made in the first tax year in which it is to be in force if that is the tax year in which the marriage takes place or the civil partnership is formed, and

(b) may be made in the first 30 days of the first tax year in which it is to be in force if appropriate notice is given before the tax year.

(4) In subsection (3), “appropriate notice” means notice given to an officer of Revenue and Customs by the individual or (in the case of a joint election) individuals concerned that it is intended to make the election.

(5) An election may be withdrawn only by—

(a) a notice given by the individual or individuals by whom the election was made, or

(b) a subsequent election under section 47, 48 or 49.

(6) If an election is withdrawn under subsection (5)(a), the withdrawal does not have effect until the tax year after the one in which the notice is given.

(7) A notice under subsection (5)(a)—

(a) must be given to an officer of Revenue and Customs, and

(b) must be in the form specified by the Commissioners for Her Majesty's Revenue and Customs.

Transfer of unused relief

51

(1) If—

(a) an individual's spouse or civil partner is entitled to a tax reduction under section 45 or 46 for a tax year,

(b) the spouse or civil partner's MCA tax reductions are greater than the spouse or civil partner's comparable tax liability, and

the individual is entitled to a tax reduction for that tax year equal to the unused part of the spouse or civil partner's MCA tax reductions.

(2) The spouse or civil partner's MCA tax reductions are the sum of—

(a) the tax reduction to which the spouse or civil partner is entitled under section 45 or 46, and

(b) any tax reduction under section 49 to which the spouse or civil partner is entitled for the tax year.

(3) The unused part of the spouse or civil partner's MCA tax reductions is equal to—

(a) the spouse or civil partner's MCA tax reductions, less

(b) the spouse or civil partner's comparable tax liability.

(4) The conditions are that—

(a) the spouse or civil partner gives notice to an officer of Revenue and Customs that subsection (1) is to apply for the tax year,

(b) the individual makes a claim, and

(5) The tax reduction to which the individual is entitled under subsection (1) is in addition to any tax reduction to which the individual is entitled under section 47 or 48.

(6) The meaning of “comparable tax liability” is given in section 53.

Transfer back of unused relief

52

(1) If—

(a) an individual's spouse or civil partner is entitled to a tax reduction under section 47 or 48 for a tax year,

(b) the tax reduction is greater than the spouse or civil partner's comparable tax liability, and

the individual is entitled to a tax reduction for that tax year equal to the unused part of the spouse or civil partner's tax reduction.

(2) The unused part of the spouse or civil partner's tax reduction is equal to—

(a) the tax reduction to which the spouse or civil partner is entitled, less

(b) the spouse or civil partner's comparable tax liability.

(3) The conditions are that—

(a) the spouse or civil partner gives notice to an officer of Revenue and Customs that subsection (1) is to apply for the tax year, and

(b) the individual makes a claim.

(4) The tax reduction to which the individual is entitled under subsection (1) is in addition to any tax reduction to which the individual is entitled under section 45, 46 or 49.

(5) The meaning of “comparable tax liability” is given in section 53.

Transfer of unused relief: general

53

(1) For the purposes of sections 51 and 52, the comparable tax liability of an individual is the amount of the individual's tax left after Step 6 of the calculation in section 23 for the tax year, making that calculation with the modifications set out in subsections (2) and (3).

(2) In making that calculation, do not deduct any tax reduction under—

(a) sections 2 and 6 of TIOPA 2010 (double taxation arrangements: relief by agreement), or

(b) section 18(1)(b) and (2) of TIOPA 2010 (relief for foreign tax where there are no double taxation arrangements).

(3) If the individual's entitlement to a tax reduction under this Chapter is extinguished under section 423(4) (gift aid: restriction of reliefs) to any extent, deduct from the amount calculated in accordance with subsections (1) and (2) the amount by which the tax reduction is reduced.

(4) A notice under section 51 or 52—

(a) must be given not more than 4 years after the end of the tax year to which it relates,

(b) must be in the form specified by the Commissioners for Her Majesty's Revenue and Customs, and

(5) For the purposes of this section a person is treated as being entitled to a tax reduction under sections 2 and 6 of TIOPA 2010 if the person is entitled to credit against income tax under double taxation arrangements.

Supplementary

Tax reductions in the year of marriage or entry into civil partnership

54

(1) Subsection (2) applies if an individual—

(a) gets married or enters into a civil partnership in a tax year, and

(b) claims a tax reduction under section 45 or 46 for that tax year.

(2) In calculating the amount of the tax reduction (if any) to which the individual is entitled under that section, the amounts specified in section 45(3) or 46(3) (as applicable) are reduced by one twelfth for each month of the tax year which is a month ending before the date on which—

(a) the marriage took place, or

(b) the civil partnership was formed.

(3) The reference in subsection (2) to the amounts specified in section 45(3) or 46(3) is to those amounts after any reduction under section 45(4) or 46(4).

(4) But if—

(a) the individual has previously been married or in a civil partnership in the same tax year, and

(b) the conditions in section 45(2) or (2A) or 46(2) are met in relation to the earlier marriage or civil partnership,

subsection (2) applies only if the claim is in respect of the later marriage or civil partnership.

(5) If a claim under section 47, 48 or 49 is for the tax year in which the marriage takes place, or the civil partnership is formed, the references in those sections to the minimum amount are to be read as references to the minimum amount reduced by one twelfth for each month of the tax year which is a month ending before the date on which—

(a) the marriage took place, or

(b) the civil partnership was formed.

(6) In this section, “month” means a period beginning with the sixth day of a calendar month and ending with the fifth day of the next calendar month.

Sections 45 to 53: supplementary

55

(1) An individual is not entitled to more than one tax reduction under sections 45 to 48 for a tax year (regardless of whether the individual is a party to more than one marriage or civil partnership in the tax year).

(2) For the purposes of sections 45 and 46 an individual is treated as having reached the age of 75 in a tax year if the individual was due to reach the age of 75 in the tax year, but dies in the tax year before reaching that age.

(3) Unless this Chapter provides otherwise, a tax reduction to which an individual is entitled under this Chapter for a tax year, including the tax year in which the individual dies, is given in full.

Chapter 4 — General

Residence etc of claimants

56

(1) This section applies in relation to an individual who claims—

(a) an allowance under Chapter 2 (personal allowance and blind person's allowance) for a tax year, or

(b) a tax reduction under Chapter 3 or 3A (tax reductions for married couples and civil partners) for a tax year.

(2) The individual meets the requirements of this section if the individual—

(a) is UK resident for the tax year, or

(b) meets the condition in subsection (3).

(3) An individual meets the condition in this subsection if, at any time in the tax year, the individual—

(za) is a national of the United Kingdom or a national of an EEA state,

(a) is resident in the Isle of Man or the Channel Islands,

(b) has previously resided in the United Kingdom and is resident abroad for the sake of the health of—

(i) the individual, or

(ii) a member of the individual's family who is resident with the individual,

(d) is employed in the service of any territory under Her Majesty's protection,

(e) is employed in the service of a missionary society, or

(f) is a person whose late spouse or late civil partner was employed in the service of the Crown.

Indexation of allowances

57

(1) This section provides for increases in the amounts specified in—

(a) section 35(1) (personal allowance),

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(d) section 38(1) (blind person's allowance),

(e) section 43 (tax reductions for married couples and civil partners: the minimum amount),

(f) section 45(3)(a) ... (marriages before 5 December 2005),

(g) section 46(3)(a) ... (marriages and civil partnerships on or after 5 December 2005), and

(h) sections 36(2), ... 45(4) and 46(4) (adjusted net income limit).

(2) It applies if the consumer prices index for the September before the start of a tax year is higher than it was for the previous September.

(3) For the tax year—

(a) the allowances specified in sections 35(1) and 38(1),

(b) the amounts specified in sections 45(3)(a) ... and 46(3)(a) ..., and

are found as follows.

Step 1

Multiply the allowance, amount or (as the case may be) the minimum amount for the previous tax year by the same percentage as the percentage increase in the consumer prices index.

Step 2

If the result of Step 1 is a multiple of £10, it is the increase for the tax year.

If the result of Step 1 is not a multiple of £10, round it up to the nearest amount which is a multiple of £10.

That amount is the increase for the tax year.

Step 3

Add the increase for the tax year to the allowance, amount or (as the case may be) the minimum amount for the previous tax year.

The result is the allowance, amount or (as the case may be) the minimum amount for the tax year.

(4) For the tax year, the adjusted net income limits specified in sections ... ... 45(4) and 46(4) are found as follows.

Step 1

Increase the adjusted net income limit for the previous tax year by the same percentage as the percentage increase in the consumer prices index.

Step 2

If the result of Step 1 is a multiple of £100, it is the adjusted net income limit for the tax year.

If the result of Step 1 is not a multiple of £100, round it up to the nearest amount which is a multiple of £100.

That amount is the adjusted net income limit for the tax year.

(5) Subsections (1) to (4) do not require a change to be made in the amounts deductible or repayable under PAYE regulations during the period beginning on 6 April and ending on 17 May in the tax year.

(6) Before the start of the tax year the Treasury must make an order replacing the amounts specified in the provisions listed in subsection (1) with the amounts which, as a result of this section, are the allowances, amounts, the minimum amount and the adjusted net income limits for the tax year.

(7) In this section “consumer prices index” means the all items consumer prices index published by the Statistics Board.

(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “adjusted net income”

58

(1) For the purposes of Chapters 2 and 3, an individual's adjusted net income for a tax year is calculated as follows.

Step 1Take the amount of the individual's net income for the tax year.

Step 2If in the tax year the individual makes, or is treated under section 426 as making, a gift that is a qualifying donation for the purposes of Chapter 2 of Part 8 (gift aid) deduct the grossed up amount of the gift.

Step 3If the individual is given relief in accordance with section 192 of FA 2004 (relief at source) in respect of any contribution paid in the tax year under a pension scheme, deduct the gross amount of the contribution.

Step 4Add back any relief under section 457 or 458 (payments to trade unions or police organisations) that was deducted in calculating the individual's net income for the tax year.The result is the individual's adjusted net income for the tax year.

(2) The grossed up amount of a gift is the amount of the gift grossed up by reference to the basic rate for the tax year ....

(3) The gross amount of a contribution is the amount of the contribution before deduction of tax under section 192(1) of FA 2004.

(4) Subsection (6) of section 809ZM (removal of income tax relief in respect of tainted donations etc) excludes certain donations from being deducted at step 2 in subsection (1).

Part 4 — Loss relief

Chapter 1 — Introduction

Overview of Part

59

(1) This Part provides for income tax relief for—

(a) losses in a trade, profession or vocation (and certain post-cessation payments and events) (see Chapters 2 and 3),

(b) losses in a UK property business or overseas property business (and, in the case of a UK property business, certain post-cessation payments and events) (see Chapter 4),

(d) losses on a disposal of certain shares (see Chapter 6), and

(e) losses in certain miscellaneous transactions (see Chapter 7).

(2) This Part needs to be read with Chapter 3 of Part 2 (calculation of income tax liability).

(3) For rules about the calculation of losses for the purposes of this Part, see—

(a) section 26 of ITTOIA 2005 (losses of a trade, profession or vocation calculated on same basis as profits),

(b) sections 272 and 272ZA of ITTOIA 2005 (which apply section 26 of that Act, so that losses of a UK property business or overseas property business are calculated on the same basis as profits),

(d) section 872 of ITTOIA 2005 (losses from miscellaneous transactions calculated on same basis as miscellaneous income).

Chapter 2 — Trade losses

Introduction

Overview of Chapter

60

(1) This Chapter—

(a) provides for trade loss relief against general income (see sections 64 to 70),

(b) provides for early trade losses relief (see sections 72 to 74),

(d) provides for carry-forward trade loss relief (see sections 83 to 88),

(e) provides for terminal trade loss relief (see sections 89 to 94),

(f) contains restrictions on the above reliefs for trades, professions and vocations carried on wholly outside the United Kingdom (see section 95), and

(g) provides for post-cessation trade relief (see sections 96 to 100).

(2) This Chapter is subject to paragraph 2 of Schedule 1B to TMA 1970 (claims for loss relief involving two or more years).

(3) For a rule treating an individual as starting or permanently ceasing to carry on a trade, profession or vocation for income tax purposes (including those of this Part), see—

(a) section 17 of ITTOIA 2005 (effect of becoming or ceasing to be a UK resident),...

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) For the purposes of this Chapter sideways relief is—

(a) trade loss relief against general income, or

(b) early trade losses relief.

(5) References in this Chapter to a firm are to be read in the same way as references to a firm in Part 9 of ITTOIA 2005 (which contains special provision about partnerships).

Non-partners: losses of a tax year

61

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

Partners: losses of a tax year etc

62

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

Prohibition against double counting

63

If relief is given under any provision of this Chapter for a loss or part of a loss, relief is not to be given for—

(a) the same loss, or

(b) the same part of the loss,

under any other provision of this Chapter or of the Income Tax Acts.

Trade loss relief against general income

Deduction of losses from general income

64

(1) A person may make a claim for trade loss relief against general income if the person—

(a) carries on a trade in a tax year, and

(b) makes a loss in the trade in the tax year (“the loss-making year”).

(2) The claim is for the loss to be deducted in calculating the person's net income—

(a) for the loss-making year,

(b) for the previous tax year, or

(See Step 2 of the calculation in section 23.)

(3) If the claim is made in relation to both tax years, the claim must specify the tax year for which a deduction is to be made first.

(4) Otherwise the claim must specify either the loss-making year or the previous tax year.

(5) The claim must be made on or before the first anniversary of the normal self-assessment filing date for the loss-making year.

(6) Nothing in this section prevents a person who makes a claim specifying a particular tax year in respect of a loss from making a further claim specifying the other tax year in respect of the unused part of the loss.

(7) This section applies to professions and vocations as it applies to trades.

(8) This section needs to be read with—

(a) section 65 (how relief works),

(b) sections 66 to 70 (restrictions on the relief),

(ba) sections 74ZA to 74D (general restrictions on relief),

(bb) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(d) section 80 (restrictions on those reliefs in relation to ring fence income),

(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

How relief works

65

(1) This subsection explains how the deductions are to be made.

The amount of the loss to be deducted at any step is limited in accordance with sections 24A and 25(4) and (5).

Step 1

Deduct the loss in calculating the person's net income for the specified tax year.

Step 2

This step applies only if the claim is made in relation to both tax years.

Deduct the part of the loss not deducted at Step 1 in calculating the person's net income for the other tax year.

Other claims

If the loss has not been deducted in full at Steps 1 and 2, the person may use the part not so deducted in giving effect to any other relief under this Chapter (depending on the terms of the relief).

(2) There is a priority rule if a person—

(a) makes a claim for trade loss relief against general income (“the first claim”) in relation to the loss-making year, and

(b) makes a separate claim in respect of a loss made in the following tax year in relation to the same tax year as the first claim.

(3) The rule is that priority is given to making deductions under the first claim.

(4) For this purpose a “separate claim” means—

(a) a claim for trade loss relief against general income, or

(b) a claim for employment loss relief against general income under section 128.

Restriction on relief for uncommercial trades

Restriction on relief unless trade is commercial

66

(1) Trade loss relief against general income for a loss made in a trade in a tax year is not available unless the trade is commercial.

(2) The trade is commercial if it is carried on throughout ... the tax year—

(a) on a commercial basis, and

(b) with a view to the realisation of profits of the trade.

(3) If at any time a trade is carried on so as to afford a reasonable expectation of profit, it is treated as carried on at that time with a view to the realisation of profits.

(4) If the trade forms part of a larger undertaking, references to profits of the trade are to be read as references to profits of the undertaking as a whole.

(5) If there is a change in the tax year in the way in which the trade is carried on, the trade is treated as carried on throughout the tax year in the way in which it is carried on by the end of the tax year.

(6) The restriction imposed by this section does not apply to a loss made in the exercise of functions conferred by or under an Act.

(7) This section applies to professions and vocations as it applies to trades.

Restriction on relief for “hobby” farming or market gardening

Restriction on relief in case of farming or market gardening

67

(1) This section applies if a loss is made in a trade of farming or market gardening in a tax year (“the current tax year”).

(2) Trade loss relief against general income is not available for the loss if a loss, calculated without regard to capital allowances, was made in the trade in each of the previous 5 tax years (see section 70).

(3) This section does not prevent relief for the loss from being given if—

(a) the carrying on of the trade forms part of, and is ancillary to, a larger trading undertaking,

(b) the farming or market gardening activities meet the reasonable expectation of profit test (see section 68), or

(c) the trade was started, or treated as started, at any time within the 5 tax years before the current tax year (see section 69 below, as well as section 17 of ITTOIA 2005).

Reasonable expectation of profit

68

(1) This section explains how the farming or market gardening activities (“the activities”) meet the reasonable expectation of profit test for the purposes of section 67.

(2) The test is decided by reference to the expectations of a competent farmer or market gardener (a “competent person”) carrying on the activities.

(3) The test is met if—

(a) a competent person carrying on the activities in the current tax year would reasonably expect future profits (see subsection (4)), but

(b) a competent person carrying on the activities at the beginning of the prior period of loss (see subsection (5)) could not reasonably have expected the activities to become profitable until after the end of the current tax year.

(4) In determining whether a competent person carrying on the activities in the current tax year would reasonably expect future profits regard must be had to—

(a) the nature of the whole of the activities, and

(b) the way in which the whole of the activities were carried on in the current tax year.

(5) “The prior period of loss” means—

(a) the 5 tax years before the current tax year, or

(b) if losses in the trade, calculated without regard to capital allowances, were also made in successive tax years before those 5 tax years (see section 70), the period comprising both the successive tax years and the 5 tax years.

Whether trade is the same trade

69

(1) This section applies for the purposes of sections 67 and 68.

(2) If there is a change in the persons carrying on a trade which involves all of the persons carrying it on before the change permanently ceasing to carry it on—

(a) the trade is treated as permanently ceasing to be carried on, and

(b) a new trade is treated as starting to be carried on,

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Income Tax Act 2007

Part 1 — Overview

Meaning of “adjusted net income”

1

The purpose of the issue requirement

2

Part 2 — Basic provisions

Chapter 1 — Charges to income tax

Overview of charges to income tax

3

Income tax an annual tax

4

Income tax and companies

5

Chapter 2 — Rates at which income tax is charged

The rates

The starting rate, basic rate and higher rate

6

The savings rate

7

The dividend ordinary rate and dividend upper rate

8

The trust rate and dividend trust rate

9

Income charged at particular rates

Income charged at the starting, basic and higher rates: individuals

10

Income charged at the basic rate: other persons

11

Income charged at the savings rate

12

Income charged at the dividend ordinary and dividend upper rates: individuals

13

Income charged at the dividend ordinary rate: other persons

14

Income charged at the trust rate and the dividend trust rate

15

Savings and dividend income to be treated as highest part of total income

16

Repayment: tax paid at basic rate instead of starting or savings rate

17

Meaning of “savings income”

18

Meaning of “dividend income”

19

Starting rate limit and basic rate limit

The starting rate limit and the basic rate limit

20

Indexation of the starting rate limit and the basic rate limit

21

Chapter 3 — Calculation of income tax liability

Overview of Chapter

22

The calculation of income tax liability

23

Reliefs deductible at Step 2

24

Reliefs and allowances deductible at Steps 2 and 3: supplementary

25

Tax reductions

26

Order of deducting tax reductions: individuals

27

Order of deducting tax reductions: other persons

28

Tax reductions: supplementary

29

Additional tax

30

Total income: supplementary

31

Liability not dealt with in the calculation

32

Part 3 — Personal reliefs

Chapter 1 — Introduction

Overview of Part

33

Chapter 2 — Personal allowance and blind person's allowance

Introduction

Allowances under Chapter