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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

(2) Income tax is charged on the income at the rates referred to in this section instead of at the rates which would otherwise apply (for which see Chapter 2 of Part 2 (rates at which income tax is charged)).

(3) Income tax is charged on the income at the dividend trust rate so far as the income is dividend income.

(4) Otherwise, income tax is charged on the income at the trust rate.

(5) Section 488 disapplies this section in cases relating to Schedule 2 share incentive plans.

Meaning of “accumulated or discretionary income”

480

(1) Income is accumulated or discretionary income so far as—

(a) it must be accumulated, or

(b) it is payable at the discretion of the trustees or any other person,

and it is not excluded by subsection (3).

(2) The cases covered by subsection (1)(b) include cases where the trustees have, or any other person has, any discretion over one or more of the following matters—

(a) whether, or the extent to which, the income is to be accumulated,

(b) the persons to whom the income is to be paid, and

(3) Income is excluded for the purposes of subsection (1) so far as—

(a) before being distributed, it is the income of any person other than the trustees,

(b) it is income from property within subsection (4), or

(c) it is income from service charges which are paid in respect of dwellings in the United Kingdom and are held on trust.

(4) Property is within this subsection if it—

(a) is held for the purposes of a superannuation fund to which section 615(3) of ICTA (superannuation funds relating to undertakings outside the UK) applies, but

(b) is not held as a member of a property investment LLP.

(5) In subsection (3)(c) “service charges” has the meaning given by section 18 of the Landlord and Tenant Act 1985 (but as if that section also applied in relation to dwellings in Scotland and Northern Ireland).

Other amounts to be charged at special rates for trustees

481

(1) This section applies if—

(a) the trustees of a settlement are liable for income tax on an amount of a type set out in section 482,

(b) the trustees are not trustees of a unit trust scheme, and

(2) Income tax is charged on the amount at one of the rates referred to in this section instead of at the rate which would otherwise apply (for which see Chapter 2 of Part 2 (rates at which income tax is charged)).

This is subject to subsection (5).

(3) If the amount is within Type 1 or Type 12 as set out in section 482, income tax is charged on the amount at the dividend trust rate.

(4) Otherwise, income tax is charged on the amount at the trust rate.

(5) Income tax is not to be charged as mentioned in subsection (2) so far as the amount—

(a) is accumulated or discretionary income,

(b) would be accumulated or discretionary income apart from section 480(3)(a) or (c), or

(6) Property is within this subsection if it is held for the purposes of a superannuation fund to which section 615(3) of ICTA (superannuation funds relating to undertakings outside the UK) applies.

Types of amount to be charged at special rates for trustees

482

The types of amount referred to in section 481 are as follows. Type 1

Sums paid by personal representatives to trustees

483

(1) This section applies if, during or at the end of the administration period for an estate—

(a) the personal representatives pay the trustees of a settlement a sum representing income of the personal representatives, and

(b) if this Chapter had applied to personal representatives, income tax would have been charged on that income at the dividend trust rate or at the trust rate.

(2) The sum is treated as—

(a) being paid as income, and

(b) having borne income tax at the applicable rate.

(3) In this section—

“administration period” has the meaning given by section 653 of ITTOIA 2005, and

“the applicable rate” means the rate referred to in section 663(1) of ITTOIA 2005 (the applicable rate for grossing up basic amounts of estate income).

Chapter 4 — Trustees' expenses and special rates for trustees

Trustees' expenses to be set against trustees' trust rate income

484

(1) This section applies if the trustees of a settlement incur allowable expenses in a tax year (“the current tax year”).

(2) The allowable expenses are to be set against the trustees' trust rate income for the current tax year in accordance with section 486.

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

(4) So far as any of the trustees' trust rate income has an amount set against it in accordance with section 486, income tax is charged on it at the rate or rates which would apply apart from Chapter 3 (see Chapter 2 of Part 2).

(5) Expenses are allowable for the purposes of this Chapter only so far as—

(a) they are expenses of the trustees, and

(b) they are properly chargeable to income, ignoring the express terms of the settlement.

(6) Expenses are not allowable for the purposes of this Chapter if they are expenses which (apart from this section) have fallen, or may fall, to be taken into account for the purpose of calculating the trustees' liability to income tax for any tax year.

Carry forward of unused expenses

485

(1) This section applies if (apart from this section) the trustees incur an allowable expense in a tax year prior to the current tax year (“the earlier tax year”).

(2) For the purposes of this Chapter the trustees are treated as having incurred the allowable expense in the current tax year so far as conditions A and B are met in relation to the expense.

(3) Condition A is that the allowable expense could not be set against the trustees' trust rate income for the earlier tax year only because the trustees' trust rate income was insufficient or they had no trust rate income.

(4) Condition B is that the allowable expense has not been set against the trustees' trust rate income for a tax year prior to the current tax year as a result of this section.

How allowable expenses are to be set against trust rate income

486

(1) Take the following steps to determine how the allowable expenses are to be set against the trustees' trust rate income for the current tax year.

Step 1

Reduce the allowable expenses by the proportion of those expenses (if any) which is excluded in accordance with section 487.

References at Steps 3 to 6 below to the allowable expenses are references to the expenses as so reduced.

Step 2

Identify the type or types of income which make up the trust rate income.

The possible types are dividend income, savings income and other income.

Step 3

If there is dividend income within subsection (2)—

(a) gross up by reference to the dividend ordinary rate so much of the allowable expenses as is necessary to give a result equal to the amount of that income, or

(b) if there are not enough allowable expenses to give that result, gross them all up by reference to that rate.

The grossed up amount is set against the dividend income within subsection (2).

Step 4

If there are remaining expenses and there is dividend income not within subsection (2)—

(a) gross up by reference to the dividend ordinary rate so much of the remaining expenses as is necessary to give a result equal to the amount of that income, or

(b) if there are not enough remaining expenses to give that result, gross them all up by reference to that rate.

The grossed up amount is set against the dividend income not within subsection (2).

For the purposes of this step “the remaining expenses” are the allowable expenses so far as they have not been grossed up at Step 3.

Step 5

If there are remaining expenses and there is savings income—

(a) gross up by reference to the basic rate so much of the remaining expenses as is necessary to give a result equal to the amount of that income, or

(b) if there are not enough remaining expenses to give that result, gross them all up by reference to that rate.

The grossed up amount is set against the savings income.

For the purposes of this step “the remaining expenses” are the allowable expenses so far as they have not been grossed up at Step 3 or 4.

Step 6

If there are remaining expenses and there is other income—

(a) gross up by reference to the basic rate so much of the remaining expenses as is necessary to give a result equal to the amount of that income, or

(b) if there are not enough remaining expenses to give that result, gross them all up by reference to that rate.

The grossed up amount is set against the other income.

For the purposes of this step “the remaining expenses” are the allowable expenses so far as they have not been grossed up at Step 3, 4 or 5.

(2) Income is within this subsection so far as it is—

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

(b) chargeable under Chapter 5 of that Part (stock dividends from UK resident companies), or

(3) If income tax would, apart from Chapter 3, be charged on any income mentioned at Steps 3 to 6 at a rate different to the rate mentioned at the step in question, for the purpose of setting any expenses against that income, gross up the expenses by reference to the different rate instead of at the rate mentioned.

Non-UK resident trustees

487

(1) This section applies if a proportion of the income arising to the trustees in the current tax year is untaxed income.

(2) A proportion of the allowable expenses is excluded for the purposes of section 486.

(3) That proportion is the same as the proportion of the income arising to the trustees which is untaxed income.

(4) For the purposes of this section the income arising to the trustees is untaxed income so far as they are not liable to income tax on it wholly or partly because they—

(a) have been non-UK resident, or

(b) have been treated as resident in a territory outside the United Kingdom under double taxation arrangements.

(5) If the income tax charged on the income arising to the trustees is limited under Chapter 1 of Part 14 (limits on liability to income tax of non-UK residents), the untaxed income includes so much of the income so arising which is disregarded income (within the meaning of that Chapter) except so far as the disregarded income is within subsection (6).

(6) The disregarded income is within this subsection so far as—

(a) sums representing income tax have been deducted from the income, or

(b) sums representing income tax have been treated as deducted from or paid in respect of the income, ...

488

(1) This section applies if—

(a) income arises to the trustees of a Schedule 2 share incentive plan, and

(b) the income consists of dividends or other distributions in respect of shares held by the trustees in relation to which the requirements of Part 4 of Schedule 2 to ITEPA 2003 (... share incentive plans: types of shares that may be awarded) are met.

(2) Section 479 applies in relation to the income only if and when condition A or condition B has been met.

(3) Condition A is that—

(a) the applicable period in relation to the shares has ended, and

(b) that period came to an end without the shares being awarded to a participant in accordance with the plan.

(4) Condition B is that the trustees disposed of the shares before the end of the applicable period in relation to the shares.

(5) For the purpose of determining whether shares are awarded to a participant within the applicable period in relation to them, shares acquired by the trustees at an earlier time are taken to be awarded to a participant before shares of the same class acquired by the trustees at a later time.

(6) References in this section to shares being awarded to a participant include references to the shares being acquired on behalf of the participant as dividend shares.

“The applicable period” in relation to shares

489

(1) This section sets out how the applicable period in relation to any shares (“the relevant shares”) is determined for the purposes of section 488.

(2) The length of the applicable period depends on whether any shares in the relevant company were readily convertible assets at the time the relevant shares were acquired by the trustees.

(3) If any were, the applicable period is the period of two years beginning with the acquisition date.

(4) If none were, the applicable period is—

(a) the period of 5 years beginning with the acquisition date, or

(b) if within that period any shares in the relevant company become readily convertible assets, the period of two years beginning with the date on which they did so,

whichever ends first.

(5) Subsections (2) to (4) are subject to subsection (6).

(6) If the relevant shares were acquired by the trustees by virtue of a payment in respect of which a deduction is allowed under section 989 of CTA 2009 (deduction for contribution to plan trust), the applicable period is the period of 10 years beginning with the acquisition date.

(7) In this section—

“the acquisition date” means the date on which the trustees acquired the relevant shares,

“readily convertible assets” has, subject to subsection (8), the meaning given by sections 701 and 702 of ITEPA 2003, and

“the relevant company” means the company in which the relevant shares are shares.

(8) In determining for the purposes of this section whether shares are readily convertible assets, ignore any market for the shares that—

(a) is created by virtue of the trustees acquiring shares for the purposes of the Schedule 2 share incentive plan, and

(b) exists solely for the purposes of that plan.

Interpretation of Chapter

490

(1) This Chapter forms part of the SIP code (see section 488 of ITEPA 2003 (... share incentive plans)).

(2) Therefore expressions used in this Chapter and contained in the index at the end of Schedule 2 to ITEPA 2003 have the meaning indicated by that index.

(3) For the purposes of this Chapter shares which are subject to provision for forfeiture are treated as acquired by the trustees if and when the forfeiture occurs.

Chapter 6 — Trustees' first slice of trust rate income

Special rates not to apply to first slice of trustees' trust rate income

491

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

Cases where settlor has made more than one settlement

492

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

Chapter 7 — Discretionary payments

Discretionary payments by trustees

493

(1) Sections 494 and 495 apply for income tax purposes if—

(a) in a tax year the trustees of a settlement make an annual payment to a person (“the beneficiary”) in the exercise of a discretion (whether exercisable by the trustees or any other person),

(b) the trustees are UK resident for the tax year, and

(2) Condition A is that what is paid to the beneficiary is, only because of the payment, income of the beneficiary for income tax or corporation tax purposes.

“Income” does not include employment income.

(3) Condition B is that the payment is treated for income tax purposes as the income of a settlor under section 629 of ITTOIA 2005 (income paid to relevant children of settlor).

“Settlor” is to be read in accordance with section 620 of ITTOIA 2005.

(4) The payment is referred to in sections 494 and 495 as “the discretionary payment”.

(5) In this Chapter “payment” includes payment in money's worth.

Grossing up of discretionary payment and payment of income tax

494

(1) The discretionary payment is treated as if it were made after the deduction of a sum representing income tax at the trust rate on the grossed up amount of the discretionary payment.

(2) The grossed up amount of the discretionary payment is the actual amount of the discretionary payment grossed up by reference to the trust rate.

(3) The person mentioned in subsection (4) is treated as having paid income tax of an amount equal to the sum deducted as mentioned in subsection (1).

(4) That person is—

(a) if condition A in section 493 is met, the beneficiary, and

(b) if condition B in section 493 is met, the settlor.

Statement about deduction of income tax

495

(1) If the person who is treated as having paid income tax requests it in writing, the trustees must provide that person with a statement showing—

(a) the grossed up amount of the discretionary payment,

(b) the sum deducted as mentioned in section 494(1), and

(2) A statement under this section must be in writing.

(3) The duty to comply with a request under this section is enforceable by the person who made it.

Income tax charged on trustees

496

(1) Income tax is charged for a tax year if—

(a) in the tax year the trustees of a settlement make payments as a result of which income tax is treated as having been paid under section 494, and

(b) amount A is greater than amount B.

(2) Amount A is the total amount of the income tax treated under section 494 as having been paid.

(3) Amount B is the amount of the trustees' tax pool available for the tax year (see section 497).

(4) The amount of the tax charged under this section is equal to the difference between amounts A and B.

(5) The trustees are liable for the tax.

Calculation of trustees' tax pool

497

(1) Take the following steps to calculate the amount of the trustees' tax pool available for a tax year (“the current tax year”).

This is subject to subsections (2) and (3).

Step 1

Take the amount of the trustees' tax pool available for the previous tax year and deduct from that amount (but not so that it goes below nil)—

(a) the total amount of income tax treated under section 494 as having been paid as a result of payments made by the trustees in the previous tax year, and

(b) the amount to which the trustees are entitled under section 496B in respect of the previous tax year.

Step 2

Add together all amounts of income tax for which the trustees are liable for the current tax year and which are of a type set out in section 498.

Step 3

Add the sum calculated at Step 2 to the amount resulting from Step 1.

(2) If the trustees were non-UK resident for the previous tax year, references in subsection (1) to the previous tax year are to be read as references to the last tax year prior to the current tax year for which the trustees were UK resident.

(3) If—

(a) the current tax year is the tax year during which the settlement is established, or

(b) the trustees have been UK resident for no tax year prior to the current tax year,

ignore Steps 1 and 3 and, accordingly, the trustees' tax pool available for the current tax year is the sum calculated at Step 2.

Types of income tax for the purposes of section 497

498

(1) The types of amount referred to at Step 2 in section 497 are as follows.

Type 1

The amount of any tax on income (other than income of a kind mentioned below in relation to Type ... 3A) charged at the dividend trust rate or at the trust rate.

...

...

Type 3A

The amount of tax at the nominal rate on any amount in respect of which—

(a) the trustees are liable to income tax under section 467 of ITTOIA 2005 (gains from contracts for life insurance etc),

(b) the trustees are liable to income tax at the trust rate by virtue of section 482 above, and

...

Type 5

The amount of tax on any income determined in accordance with section 26 of FA 2005 (special tax treatment for trusts for the benefit of vulnerable persons).

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

(2A) In relation to Type 3A, the reference to the nominal rate is a reference to a rate equal to the difference between the trust rate and the basic rate .

(3) In relation to Types 1 to 4, references to income do not include income the tax on which is reduced in accordance with section 26 of FA 2005.

Chapter 8 — Trustees' expenses and beneficiary's income

Application of Chapter

499

(1) This Chapter applies if—

(a) in a tax year (“the current tax year”) income arises to the trustees of a settlement, and

(b) before being distributed, some or all of that income is income of another person (“the beneficiary”).

(2) It contains provision about how the beneficiary's income mentioned in subsection (1)(b) (“the beneficiary's income”) can be reduced for income tax purposes by reference to expenses of the trustees.

Restrictions on use of trustees' expenses to reduce the beneficiary’s income

500

(1) Expenses of the trustees can be used to reduce the beneficiary's income for income tax purposes only so far as—

(a) the expenses are incurred by the trustees in the current tax year or in an earlier tax year, and

(b) as a result of the expenses being chargeable to income as mentioned in subsection (2) or (3), the beneficiary's entitlement to the beneficiary's income is reduced by reference to the expenses.

(2) Expenses are chargeable to income for the purposes of subsection (1)(b) if they are chargeable to income by the trustees under a term of the settlement (subject to any overriding law which prevents the expenses from being so chargeable).

(3) Expenses are also chargeable to income for the purposes of subsection (1)(b) if they—

(a) are not chargeable to income by the trustees under a term of the settlement, but

(b) are chargeable to income by the trustees in accordance with any law (subject to any overriding term of the settlement which prevents the expenses from being so chargeable).

(4) Expenses cannot be used to reduce the beneficiary's income for income tax purposes so far as they are expenses which have fallen, or may fall, to be taken into account for the purpose of calculating the trustees' liability to income tax for any tax year.

Non-UK resident beneficiaries

501

(1) This section applies if—

(a) expenses of the trustees are to be used to reduce the beneficiary's income for income tax purposes, and

(b) a proportion of the beneficiary's income is untaxed income (see section 502).

(2) A proportion of those expenses is not to be so used.

(3) That proportion is the same as the proportion of the beneficiary's income which is untaxed income.

(4) In subsection (3) the references to the beneficiary's income and untaxed income do not, in either case, include so much (if any) of that income as is equal to the amount of income tax, or of any foreign tax, for which the trustees are liable on that income.

(5) “Foreign tax” means any tax which—

(a) is of a similar character to income tax, and

(b) is imposed by the laws of a territory outside the United Kingdom.

Meaning of “untaxed income” in section 501

502

(1) For the purposes of section 501 the beneficiary's income is untaxed income so far as the beneficiary is not liable to income tax on it wholly or partly because the beneficiary—

(a) has been non-UK resident, or

(b) has been treated as resident in a territory outside the United Kingdom under double taxation arrangements.

(2) If the income tax charged on the beneficiary for the beneficiary's income is limited under Chapter 1 of Part 14 (limits on liability to income tax of non-UK residents), the untaxed income includes so much of the beneficiary's income which is disregarded income (within the meaning of that Chapter) except so far as the disregarded income is within subsection (3).

(3) The disregarded income is within this subsection so far as—

(a) sums representing income tax have been deducted from the income, or

(b) sums representing income tax have been treated as deducted from or paid in respect of the income, ...

How beneficiary’s income is reduced

503

(1) This section applies if the beneficiary's income is to be reduced for income tax purposes by expenses of the trustees.

(2) The beneficiary's income is to be reduced in the following order—

first, reduce dividend income within subsection (3) (if any),

second, reduce dividend income not within that subsection (if any),

third, reduce savings income (if any), and

fourth, reduce other income (if any).

(3) Income is within this subsection so far as it is—

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

(b) chargeable under Chapter 5 of that Part (stock dividends from UK resident companies), or

(4) If the trustees are liable for income tax charged on a component of the beneficiary's income at a particular rate, then any reduction of that component is to be made in accordance with the steps set out in subsection (5).

(5) Here are the steps.

Step 1

Deduct from the component the amount of income tax charged on it at the particular rate for which the trustees are liable.

Step 2

Take the result from Step 1 and reduce it (but not below nil) by the amount of the trustees' expenses so far as they have not already been used to reduce other components of the beneficiary's income.

Step 3

Take the result from Step 2 and gross it up by reference to the particular rate.

The result is the reduced amount of the component of the beneficiary's income.

Chapter 9 — Unauthorised unit trusts

Treatment of income of unauthorised unit trust

504

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

Relief for trustees of unauthorised unit trust

505

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

Special rules for trustees affected by section 733 of ICTA

506

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

Chapter 10 — Heritage maintenance settlements

Introduction

Overview of Chapter

507

(1) This Chapter makes provision about income arising from heritage maintenance property comprised in a heritage maintenance settlement.

(2) In this Chapter—

“heritage body” means a body or charity of a kind mentioned in paragraph 3(1)(a)(ii) of Schedule 4 to IHTA 1984 (maintenance funds for historic buildings etc),

“heritage direction” means a direction under paragraph 1 of that Schedule,

“heritage maintenance property” means any property in respect of which a heritage direction has effect,

“heritage maintenance settlement” means a settlement which comprises heritage maintenance property, and

“property maintenance purpose” means any of the purposes mentioned in paragraph 3(1)(a)(i) of that Schedule.

(3) If a settlement comprises both heritage maintenance property and other property, the heritage maintenance property and the other property are treated as comprised in separate settlements for the purposes of Chapters 2 to 8 of this Part and the following provisions—

(a) sections 64 to 66 and sections 75 to 79 (trade loss relief against general income),

(b) sections 83 to 88 (carry-forward trade loss relief), and

Trustees' election in respect of income etc

Election by trustees

508

(1) The trustees of a heritage maintenance settlement may elect for this section to have effect for a tax year.

(2) If an election under subsection (1) has effect for a tax year, the rules in subsections (3) and (4) apply.

(3) Income arising in the year from the heritage maintenance property comprised in the settlement, which would otherwise be treated as income of the settlor under Chapter 5 of Part 5 of ITTOIA 2005, is not to be so treated.

(4) Any sum applied out of the heritage maintenance property in the year for a property maintenance purpose, which would otherwise be treated for income tax purposes as the income of a person—

(a) because of the person's interest in (or occupation of) the property in respect of which the sum is applied, or

(b) under section 633 of ITTOIA 2005 (capital sums paid to settlor by trustees of settlement),

is not to be so treated.

(5) An election under subsection (1) must be made on or before the first anniversary of the normal self-assessment filing date for the tax year to which it relates.

Change of circumstances during a tax year

509

(1) If a change of circumstances arises during a tax year—

(a) the part of the year before the change and the part of the year after the change are to be treated as separate tax years for the purposes of section 508, this section and section 510, and

(b) separate elections under section 508(1) may be made for each part.

(2) A change of circumstances arises if conditions A and B are met.

(3) Condition A is that for any part of the tax year—

(a) a heritage direction has effect, and

(b) income arising from the heritage maintenance property comprised in the settlement is treated as income of the settlor under Chapter 5 of Part 5 of ITTOIA 2005.

(4) Condition B is that for the remaining part of the year one or both of the following paragraphs applies—

(a) no heritage direction has effect, and

(b) no income arising from property comprised in the settlement is treated as income of the settlor under Chapter 5 of Part 5 of ITTOIA 2005.

Absence of election and income treated as income of settlor: special rules

Sums applied for property maintenance purposes

510

(1) This section applies if—

(a) income arises from the heritage maintenance property comprised in a heritage maintenance settlement in a tax year in respect of which no election is made under section 508,

(b) the income is treated under Chapter 5 of Part 5 of ITTOIA 2005 as income of the settlor, and

(2) Any such sum which is so applied in that year, which would otherwise be treated for income tax purposes as the income of a person—

(a) because of the person's interest in (or occupation of) the property in respect of which the sum is applied, or

(b) under section 633 of ITTOIA 2005 (capital sums paid to settlor by trustees of settlement),

is not to be so treated.

Prevention of double taxation: reimbursement of settlor

511

(1) This section applies to income arising from heritage maintenance property if—

(a) the income is treated under Chapter 5 of Part 5 of ITTOIA 2005 as income of the settlor,

(b) the income is applied in reimbursing the settlor for expenditure incurred by the settlor for a property maintenance purpose, and

(i) a trade, or

(ii) a UK property business,

carried on by the settlor.

(2) Any such income—

(a) is not to be brought into account as a receipt in calculating the profits of that trade or business, and

(b) is not to be treated as income of the settlor otherwise than under Chapter 5 of Part 5 of ITTOIA 2005.

Application of property for non-heritage purposes: charge to tax

Charge to tax on some settlements

512

(1) Income tax is charged in respect of a heritage maintenance settlement on any of the occasions described in cases A to D, subject to sections 516 and 517.

(2) Case A is where any of the property comprised in the settlement (whether capital or income) is applied otherwise than—

(a) for a property maintenance purpose, or

(b) as respects income not so applied and not accumulated, for the benefit of a heritage body.

(3) Case B is where any of that property, on ceasing to be comprised in the settlement, devolves otherwise than on a heritage body.

(4) Case C is where the heritage direction ceases to have effect in respect of the settlement.

(5) Case D is where any of the property comprised in the settlement, on ceasing at any time to be comprised in the settlement—

(a) devolves on a heritage body, and

(b) at or before that time an interest under the settlement is or has been acquired for a consideration in money or money's worth by that or another such body.

(6) For the purposes of subsection (5)(b) any acquisition from another such body is to be ignored.

Income charged

513

(1) Tax is charged under section 512 on the whole of the income—

(a) which has arisen in the relevant period from the property comprised in the settlement, and

(b) which has not been applied (whether or not it has been first accumulated) for a property maintenance purpose or for the benefit of a heritage body.

(2) In this section “relevant period” means—

(a) if tax has become chargeable under section 512 in respect of the settlement on a previous occasion, the period since the last occasion, and

(b) in any other case, the period since the settlement took effect.

(3) Tax charged under section 512 is in addition to any tax otherwise chargeable.

(4) All the provisions of the Income Tax Acts relating to assessments and to the collection and recovery of income tax (so far as applicable) are to apply to that charge.

Persons liable

514

The persons liable for any tax charged under section 512 are the trustees of the settlement.

Rate of tax

515

Tax is charged under section 512 at the rate found by—

(a) taking the additional rate for the tax year during which the charge arises, and

(b) reducing it by the trust rate for that year.

Transfer of property between settlements

516

(1) This section applies if the whole of the property comprised in a settlement becomes comprised in another settlement because of a tax-free transfer.

(2) The occasion of charge under section 512, which would otherwise occur at the time of transfer, occurs when tax first becomes chargeable under that section in respect of any settlement comprising the transferred property (“the chargeable settlement”).

(3) For the purposes of section 513(1) as it applies to the chargeable settlement, the relevant period is adjusted so that it begins—

(a) on the occasion when tax last became chargeable under section 512 in respect of any previous settlement from which the property was transferred, or

(b) if there has been no such occasion, when such previous settlement (or the first of them) took effect.

(4) In this section “tax-free transfer” means a transfer of property from one settlement into another in either of the following cases—

(a) where paragraph 9(1) of Schedule 4 to IHTA 1984 provides (or, but for paragraph 9(4) of that Schedule, would provide) an exception from charge in respect of the property, or

(b) where, both immediately before and immediately after the transfer, the property is heritage maintenance property.

Exemption for income treated as income of settlor

517

(1) Tax is not chargeable under section 512 in respect of income which is treated under section 624 or 629 of ITTOIA 2005 as income of the settlor.

(2) If such income arises in a tax year, any sums applied in the year—

(a) for a property maintenance purpose, or

(b) for the benefit of a heritage body,

are to be treated as paid first out of that income and, so far as there is any excess, out of income that does not fall within subsection (1).

Part 10 — Special rules about charitable trusts etc

Introduction

Overview of Part

518

(1) This Part makes provision about some gifts and payments made to charitable trusts, including provision imposing charges to income tax and conferring exemptions from those charges (see sections 520 to 523).

(2) This Part also provides for some of the income of charitable trusts and others to be exempt from charges to income tax (see sections 524 to 537).

(3) In the provisions of this Part containing exemptions, references to total income of a charitable trust are to the total income of the trustees of the charitable trust concerned.

(4) See sections 538 and 538A for provision about making claims for the exemptions under this Part.

(5) In the case of a charitable trust which has a non-exempt amount for a tax year (see section 540), the exemptions under this Part are subject to restrictions (see section 539).

(6) The non-exempt amount for a tax year depends on the charitable trust's attributable income and gains for the tax year and its non-charitable expenditure for the tax year (see sections 540 and 543 to 564).

Meaning of “charitable trust”

519

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

Gifts and other payments

Gifts entitling donor to gift aid relief: income tax treated as paid

520

(1) This section applies if a gift is made to a charitable trust by an individual and the gift is a qualifying donation for the purposes of Chapter 2 of Part 8 (gift aid).

(2) The charitable trust is treated as receiving, under deduction of income tax at the basic rate for the tax year in which the gift is made, a gift of an amount equal to the grossed up amount of the gift.

(3) The grossed up amount of the gift is the amount of the gift grossed up by reference to the basic rate for the tax year in which the gift is made.

(4) The income tax treated as deducted is treated as income tax paid by the trustees of the charitable trust.

Gifts entitling donor to gift aid relief: income tax liability and exemption

521

(1) This section applies if gifts are made to charitable trusts by individuals and the gifts are qualifying donations for the purposes of Chapter 2 of Part 8 (gift aid).

(2) Income tax is charged on the gifts under this section.

(3) It is charged on the grossed up amount of the gifts arising in the tax year.

(4) But a gift is not taken into account in calculating total income so far as it is applied to charitable purposes only.

(5) 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 in which the gift is made.

(6) The trustees of the charitable trust are liable for any tax charged under this section.

(7) Schedule 19 to FA 2008 contains provision for transitional payments to charitable trusts in respect of gifts made in the tax years 2008-09 to 2010-11.

Gifts of money from companies: income tax liability and exemption

522

(1) This section applies if gifts of sums of money are made to charitable trusts by companies.

(2) But this section does not apply to a gift of a sum of money made by a company that is itself a charity (see section 523).

(3) Income tax is charged on the gifts under this section.

(4) It is charged on the full amount of the gifts arising in the tax year.

(5) But a gift is not taken into account in calculating total income so far as it is applied to charitable purposes only.

(6) The trustees of the charitable trust are liable for any tax charged under this section.

Payments from other charities: income tax liability and exemption

523

(1) This section applies to payments which—

(a) are received by charitable trusts from other charities,

(b) are not made for full consideration in money or money's worth,

(d) are not of a description which (on a claim) would be exempt from income tax under any of the exemptions conferred by this Part.

(2) This section does not apply to a payment which arises from a source outside the United Kingdom.

(3) Income tax is charged under this section on the payments.

(4) It is charged on the full amount of the payments arising in the tax year.

(5) But a payment is not taken into account in calculating total income so far as it is applied to charitable purposes only.

(6) The amount charged under this section in the case of certain payments made by the trustees of a charitable trust in the exercise of a discretion is subject to section 494 (grossing up of discretionary payments from trusts).

(7) The trustees of the charitable trust are liable for any tax charged under this section.

Other exemptions

Exemption for profits etc of charitable trades

524

(1) The income mentioned in subsection (2) is not taken into account in calculating total income if conditions A and B are met.

(2) The income referred to in subsection (1) is—

(a) the profits of a trade carried on by a charitable trust,

(b) amounts treated as adjustment income of a charitable trust under section 228 of ITTOIA 2005 in respect of a trade carried on by the trust, and

(c) post-cessation receipts arising from a trade carried on by a charitable trust which are received by the trustees of the trust or to which they are entitled.

(3) Condition A is—

(a) in the case of the profits of a trade, that the profits are profits of a tax year in relation to which the trade is a charitable trade,

(b) in the case of an amount treated as adjustment income, that the amount arises in a tax year in relation to which the trade is a charitable trade, and

(c) in the case of a post-cessation receipt, that the trade was a charitable trade in relation to the tax year in which the cessation occurred.

See section 525 as to when a trade is a charitable trade in relation to a tax year.

(4) Condition B is that the profits are, or the amount or post-cessation receipt is, (as the case may be) applied to the purposes of the charitable trust only.

(5) Sections 232(1) and (2), 235 and 236 of ITTOIA 2005 (when adjustment income is treated as arising) apply for the purposes of subsection (3) as they apply for the purposes of Chapter 17 of Part 2 of that Act.

(6) In this section “post-cessation receipt” means an amount that is a post-cessation receipt for the purposes of Chapter 18 of Part 2 of ITTOIA 2005 (post-cessation receipts) (see sections 246 to 253 of that Act).

Meaning of “charitable trade”

525

(1) For the purposes of this Part a trade carried on by a charitable trust is a charitable trade in relation to a tax year if throughout ... the tax year—

(a) the trade is exercised in the course of carrying out a primary purpose of the charitable trust, or

(b) the work in connection with the trade is mainly carried out by beneficiaries of the charitable trust.

(2) For the purposes of subsection (1)(a), if a trade is exercised partly in the course of carrying out a primary purpose of the charitable trust and partly otherwise, each part is to be treated as a separate trade.

(3) For the purposes of subsection (1)(b), if work in connection with a trade is carried out partly but not mainly by beneficiaries, the part in connection with which work is carried out by beneficiaries and the other part are to be treated as separate trades.

(4) If different parts of a trade are treated as separate trades under subsection (2) or (3), a just and reasonable apportionment is to be made for that purpose of—

(a) expenses and receipts of the trade, and

(b) any amounts which are treated as adjustment income under section 228 of ITTOIA 2005 in respect of the trade, or which are post-cessation receipts arising from the trade for the purposes of Chapter 18 of Part 2 of that Act.

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exemption for profits etc of small-scale trades

526

(1) The income mentioned in subsection (2) is not taken into account in calculating total income if conditions A and B are met.

(2) The income referred to in subsection (1) is—

(a) the profits of a trade carried on by a charitable trust,

(b) amounts treated as adjustment income of a charitable trust under section 228 of ITTOIA 2005 in respect of a trade carried on by the trust, and

(c) post-cessation receipts arising from a trade carried on by a charitable trust which are received by the trustees of the trust or to which they are entitled.

(3) Subsection (1) does not apply in respect of—

(a) profits of a trade that are, apart from this section, exempt from income tax chargeable under Part 2 of ITTOIA 2005,

(b) amounts treated as adjustment income that are, apart from this section, exempt from income tax chargeable under Chapter 17 of Part 2 of that Act, or

(c) post-cessation receipts that are, apart from this section, exempt from income tax chargeable under Chapter 18 of Part 2 of that Act.

(4) Condition A is—

(a) in the case of the profits of a trade, that the profits are profits of a tax year in relation to which the condition specified in section 528 (condition as to trading and miscellaneous incoming resources) is met,

(b) in the case of an amount treated as adjustment income, that the amount arises in such a tax year, and

(5) Condition B is that the profits are, or the amount or post-cessation receipt is, (as the case may be) applied to the purposes of the charitable trust only.

(6) Sections 232(1) and (2), 235 and 236 of ITTOIA 2005 (when adjustment income is treated as arising) apply for the purposes of subsection (4) as they apply for the purposes of Chapter 17 of Part 2 of that Act.

(7) In this section “post-cessation receipt” means an amount that is a post-cessation receipt for the purposes of Chapter 18 of Part 2 of that Act (post-cessation receipts) (see sections 246 to 253 of that Act).

Exemption from charges under provisions to which section 1016 applies

527

(1) Any income or gains of a charitable trust that is or are chargeable to income tax under or by virtue of any provision to which section 1016 applies is not or are not taken into account in calculating total income if conditions A and B are met.

(2) Subsection (1) does not apply in respect of any income or gains chargeable to income tax by virtue of any of—

(a) section 1086(2) of CTA 2010 (chargeable payments connected with exempt distributions),

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

(d) Chapter 5 of Part 5 of that Act (settlements: amounts treated as income of settlor), and

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

(f) any other enactment specified in an order made by the Treasury.

(3) Subsection (1) does not apply in respect of any income that is, or gains that are, apart from this section, exempt from income tax chargeable under or by virtue of any provision to which section 1016 applies.

(4) Condition A is that the income is, or the gains are, for a tax year in relation to which the condition specified in section 528 is met.

(5) Condition B is that the income is, or the gains are, applied to the purposes of the charitable trust only.

Condition as to trading and miscellaneous incoming resources

528

(1) The condition in this section is met in relation to a tax year if—

(a) the sum of the charitable trust's trading incoming resources and miscellaneous incoming resources for the tax year does not exceed the requisite limit for the tax year, or

(b) the trustees of the charitable trust had, at the beginning of the tax year, a reasonable expectation that it would not do so.

(2) The charitable trust's “trading incoming resources” for the tax year are—

(a) the incoming resources which are required to be taken into account in calculating the profits of, or losses made in, ... the tax year of any non-exempt trade carried on by the charitable trust, and

(b) the incoming resources which are treated as adjustment income under section 228 of ITTOIA 2005 in respect of such a trade, or which are post-cessation receipts arising from such a trade.

“Post-cessation receipt” has the meaning given by section 526(7).

(3) For the purposes of subsection (2) a trade is a “non-exempt trade” if any profits of the trade would not, apart from section 526, be exempt from income tax chargeable under Part 2 of ITTOIA 2005.

(4) The charitable trust's “miscellaneous incoming resources” for the tax year are the incoming resources which are required to be taken into account in calculating non-exempt miscellaneous income or non-exempt miscellaneous losses for the tax year.

(5) In this section—

“non-exempt miscellaneous income” means income or gains chargeable to income tax under or by virtue of any provision to which section 1016 applies that is not, or are not, apart from section 526 or 527, exempt from income tax chargeable under or by virtue of that provision, and

“non-exempt miscellaneous losses” means losses arising from a transaction which is of such a nature that if income or gains had arisen from it the income would have been non-exempt miscellaneous income.

(6) The requisite limit—

(a) is 25% of the charitable trust's total incoming resources for the tax year, but

(b) must not be less than £8,000 or more than £80,000.

Exemption for profits from fund-raising events

529

(1) The profits of a trade carried on by a charitable trust are not taken into account in calculating total income so far as they arise from a VAT-exempt event.

(2) Subsection (1) applies so far as the profits are either applied for charitable purposes or transferred to another charity.

(3) An event is a VAT-exempt event if the supply of goods and services by the charitable trust in connection with the event would be exempt from value added tax under Group 12 of Schedule 9 to the Value Added Tax Act 1994 (c. 23) (fund-raising events by charities and other qualifying bodies).

Exemption for profits from lotteries

530

(1) The profits accruing to a charitable trust from a lottery are not taken into account in calculating total income if conditions A and B are met.

(2) Condition A is that—

(a) the lottery is an exempt lottery within the meaning of the Gambling Act 2005 by virtue of Part 1 or 4 of Schedule 11 to that Act,

(ab) the lottery is promoted in accordance with a lottery operating licence within the meaning of Part 5 of that Act, or

(b) the lottery is promoted and conducted in accordance with Article 133 or 135 of the Betting, Gaming, Lotteries and Amusements (Northern Ireland) Order 1985 (S.I. 1985/1204 (N.I. 11)).

(3) Condition B is that the profits are applied to the purposes of the charitable trust only.

Exemption for property income etc

531

(1) Income which is chargeable to income tax under Part 2 of ITTOIA 2005 (trading income) as a result of section 261 of that Act is not taken into account in calculating total income so far as—

(a) it arises in respect of rents or other receipts from an estate, interest or right in or over land, and

(b) the estate, interest or right is vested in any person in trust for a charitable trust or for charitable purposes.

(2) Income which is chargeable to income tax under Part 3 of ITTOIA 2005 (property income) is not taken into account in calculating total income so far as—

(a) it arises in respect of an estate, interest or right in or over land, and

(b) the estate, interest or right is vested in any person in trust for a charitable trust or for charitable purposes.

(2A) Distributions to which section 548 of CTA 2010 (Real Estate Investment Trusts: distributions) applies and which are chargeable to income tax under Part 2 or Part 3 of ITTOIA 2005 are not taken into account in calculating total income so far as they arise in respect of shares vested in a person in trust for a charitable trust or for charitable purposes.

(3) Subsection (1) to (2A) apply so far as the income is applied to charitable purposes only.

Exemption for savings and investment income

532

(1) The income mentioned in subsection (2) is not taken into account in calculating total income if—

(a) it is income of a charitable trust, or

(b) it is required, under an Act, court judgment, charter, trust deed or will, to be applied to charitable purposes only.

(2) The income referred to in subsection (1) is—

(a) interest,

(b) a dividend or other distribution of a UK resident company,

(d) an annuity payment under a purchased life annuity,

(e) profits on the disposal of deeply discounted securities, or

(f) income treated for the purposes of regulation 15 of the Unauthorised Unit Trusts (Tax) Regulations 2013 as received by a unit holder from an exempt unauthorised unit trust.

(3) Subsection (1) applies only so far as the income falls within, and is dealt with under, Part 4 of ITTOIA 2005 (see section 366 of that Act as to provisions given priority over Part 4).

(4) Subsection (1) applies so far as the income is applied to charitable purposes only.

(5) In this section—

“deeply discounted security” has the same meaning as in Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted securities) (see section 430 of that Act),

“disposal”, in relation to a deeply discounted security, has the same meaning as in Chapter 8 of Part 4 of that Act (see section 437(1) of that Act),

“dividend”, in relation to a UK resident company, has the same meaning as in Chapter 3 of Part 4 of that Act (dividends etc from UK resident companies etc) (see section 382(4) of that Act),

“interest” includes anything treated as interest for the purposes of Chapter 2 of Part 4 of that Act (interest), and

“purchased life annuity” has the same meaning as in Chapter 7 of Part 4 of that Act (purchased life annuity payments) (see section 423 of that Act).

Exemption for public revenue dividends

533

(1) Public revenue dividends on securities which are in the name of trustees are not taken into account in calculating total income so far as the dividends are applicable and applied only for the repair of—

(a) a cathedral, college, church or chapel, or

(b) a building used only for the purposes of divine worship.

(2) In this section “public revenue dividends” means—

(a) income from securities which is payable out of the public revenue of the United Kingdom or Northern Ireland, or

(b) income from securities issued by or on behalf of a government or a public or local authority in a country outside the United Kingdom.

Exemption for transactions in deposits

534

(1) Profits or gains arising to a charitable trust from the disposal of exempt deposit rights are not taken into account in calculating total income.

(2) Subsection (1) applies so far as the profits or gains are applied to charitable purposes only.

(3) For the purposes of this section, the exercise of an exempt deposit right is a disposal of it, except so far as the right is a right to receive interest.

(4) In this section “exempt deposit rights” means—

(a) a right to receive, with or without interest, a principal amount stated in, or determined in accordance with, the current terms of issue of an eligible debt security, where in accordance with those terms the issue of uncertificated units of the eligible debt security corresponds to the issue of a certificate of deposit,

(b) a right to receive the principal amount stated in a certificate of deposit, with or without interest, and

(5) In this section—

“eligible debt security” has the meaning given in regulation 3(1) of the Uncertificated Securities Regulations 2001 (S.I. 2001/3755),

“uncertificated”, in relation to a unit, has the meaning given in regulation 3(1) of the Uncertificated Securities Regulations 2001,

“uncertificated right” means a right in respect of which no certificate of deposit has been issued, although the person for the time being entitled to it is entitled to call for the issue of such a certificate, and

“unit” has the meaning given in regulation 3(1) of the Uncertificated Securities Regulations 2001.

Exemption for offshore income gains

535

(1) Offshore income gains accruing to a charitable trust are not taken into account in calculating total income.

(2) Subsection (1) applies if the gain is applicable and applied to charitable purposes only.

(3) In this section “offshore income gain” has the same meaning as in Chapter 5 of Part 2 of the Offshore (Tax) Funds Regulations 2009 (S.I. 2009/3001).

(4) See regulation 31(3) to (5) of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001), which—

(a) applies where property held on charitable trusts ceases to be subject to charitable trusts, and

(b) provides for any gain accruing under that subsection to be treated as an offshore income gain not accruing to a charity.

Exemption for certain miscellaneous income

536

(1) The income mentioned in subsection (3) is not taken into account in calculating total income if—

(a) it is income of a charitable trust, or

(b) it is required, under an Act, court judgment, charter, trust deed or will, to be applied to charitable purposes only.

(2) Subsection (1) applies so far as the income is applied to charitable purposes only.

(3) The income referred to in subsection (1) is—

(a) royalties and other income from intellectual property that do not fall within Chapter 2 of Part 2 of ITTOIA 2005 (receipts of a trade etc),

(b) income derived from a relevant telecommunication right that is not income falling within Chapter 2 of Part 2 of ITTOIA 2005 (receipts of a trade etc),

(d) relevant foreign distributions.

(4) In this section—

“intellectual property” has the same meaning as in section 579 of ITTOIA 2005,

“relevant foreign distribution” means a distribution of a non-UK resident company which—is not chargeable to tax under Chapter 4 of Part 4 of ITTOIA 2005 (dividends from non-UK resident companies), butwould be chargeable to tax under Chapter 3 of that Part of that Act (dividends etc from UK resident companies etc) if the company were a UK resident company, and

“relevant telecommunication right” has the same meaning as in Chapter 10 of Part 2 of that Act (trade profits: certain telecommunications rights) (see section 146 of that Act).

Exemption for income from estates in administration

537

(1) If the person liable under section 659 of ITTOIA 2005 for any income tax charged under section 649 of that Act (charge to tax on estate income) is the trustee of a charitable trust, the estate income is not taken into account in calculating total income.

(2) Subsection (1) applies so far as the estate income is applied to the purposes of the charitable trust only.

(3) In this section “estate income” has the same meaning as in Chapter 6 of Part 5 of ITTOIA 2005 (beneficiaries' income from estates in administration) (see section 649(2) of that Act).

Claims

Requirement to make claim

538

(1) The exemptions under this Part require a claim.

(2) Subsection (1) does not apply to an exemption under—

(a) section 534 (exemption for transactions in deposits), or

(b) section 535 (exemption for offshore income gains).

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

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

Restrictions on exemptions

539

(1) This section applies if a charitable trust has a non-exempt amount for a tax year (see section 540).

(2) The exemptions under this Part do not apply, and are treated as never having applied, to so much of any income of the charitable trust for the tax year as is attributed under section 541 to the non-exempt amount.

(3) Section 256(4) of TCGA 1992 contains corresponding restrictions which apply in relation to section 256(1) of that Act (gains accruing to charities not to be chargeable gains).

The non-exempt amount

540

(1) A charitable trust has a non-exempt amount for a tax year if it has—

(a) non-charitable expenditure for the tax year (amount A), and

(b) attributable income and gains for the tax year (amount B).

(2) The non-exempt amount for the tax year is—

(a) amount A, or

(b) if less, amount B.

(3) For the purposes of this Part—

(a) a charitable trust's “attributable income” for a tax year is the charitable trust's income for the tax year that is exempt from income tax as a result of any of the exemptions under this Part,

(b) a charitable trust's “attributable gains” for a tax year are any gains accruing to the charitable trust in the tax year that as a result of section 256(1) of TCGA 1992, are not chargeable gains, and

(c) a charitable trust's “attributable income and gains” for a tax year is the sum of its attributable income for the tax year and its attributable gains for the tax year.

(4) In applying subsection (3)(a) ignore any restrictions on the exemptions under this Part which result from section 539(2).

(5) In applying subsection (3)(b) ignore any restriction on the exemption under section 256(1) of TCGA 1992 which results from section 256(4) of that Act.

Attributing income to the non-exempt amount

541

(1) This section applies if a charitable trust has a non-exempt amount for a tax year.

(2) Attributable income of the charitable trust for the tax year may be attributed to the non-exempt amount but only so far as the non-exempt amount has not been used up.

(3) The non-exempt amount can be used up (in whole or in part) by—

(a) attributable income being attributed to it under this section, or

(b) attributable gains being attributed to it under section 256A of TCGA 1992.

(4) The whole of the non-exempt amount must be used up by—

(a) attributable income being attributed to the whole of it under this section,

(b) attributable gains being attributed to the whole of it under section 256A of TCGA 1992, or

(c) a combination of attributable income being attributed to some of it under this section and attributable gains being attributed to the rest of it under section 256A of TCGA 1992.

(5) See section 542 for the way in which income is to be attributed to the non-exempt amount under this section.

How income is attributed to the non-exempt amount

542

(1) This section is about the ways in which attributable income can be attributed to a non-exempt amount under section 541.

(2) The trustees of the charitable trust may specify the attributable income that is to be attributed to the non-exempt amount.

(3) A specification under subsection (2) is made by notice to an officer of Revenue and Customs.

(4) Subsection (6) applies if—

(a) an officer of Revenue and Customs requires the trustees of a charitable trust to make a specification under this section, and

(b) the trustees have not given notice under subsection (3) of the specification before the end of the required period.

(5) The required period is 30 days beginning with the day on which the officer made the requirement.

(6) An officer of Revenue and Customs may determine the attributable income that is to be attributed to the non-exempt amount.

Non-charitable expenditure

Meaning of “non-charitable expenditure”

543

(1) For the purposes of this Part a charitable trust's non-charitable expenditure for a tax year is—

(a) any loss made in the tax year in a trade carried on by the charitable trust unless—

(i) the trade is a charitable trade in relation to the tax year, or

(ii) the trade is not a charitable trade in relation to the tax year but profits of the trade arising in the tax year would be exempt from income tax as a result of one of the exemptions in sections 526, 529 or 530,

(b) any payment made in the tax year by the charitable trust in connection with a trade in circumstances where relief is available under section 96 (post-cessation trade relief) unless—

(i) the trade was a charitable trade in relation to the tax year in which the cessation occurred, or

(ii) the trade was not a charitable trade in relation to that tax year but profits of the trade arising immediately before the cessation would have been exempt from income tax as a result of one of the exemptions in sections 526, 529 or 530,

(c) any loss made in the tax year in a trade, or in a UK property business or an overseas property business, carried on by the charitable trust, if—

(i) the loss relates to land, and

(ii) profits of the trade, or income of the business, generated from the land in the tax year would not be exempt from income tax as a result of the exemptions in section 531,

(d) any payment made in the tax year by the charitable trust in connection with a trade or UK property business in circumstances where relief is available under section 96 or 125 (post-cessation trade or property relief), if—

(i) the payment relates to land, and

(ii) profits of the trade, or income of the business, generated from the land immediately before the cessation would not have been exempt from income tax as a result of the exemptions in section 531,

(e) any loss made in the tax year in a miscellaneous transaction entered into by the charitable trust otherwise than in the course of carrying out a charitable purpose,

(f) any expenditure incurred by the charitable trust in the tax year, not falling within paragraphs (b) or (d), which is not incurred for charitable purposes only and is not required to be taken into account in calculating—

(i) the profits of, or losses made in, any trade, UK property business or overseas property business carried on by the charitable trust, or

(ii) the profit or loss made in any miscellaneous transaction entered into by the charitable trust,

(g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(h) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(i) the amount of any of the charitable trust's funds that is invested in the tax year in an investment which is not an approved charitable investment (see section 558), and

(j) any amount lent in the tax year by the charitable trust, if the loan is neither an investment nor an approved charitable loan (see section 561).

But anything which falls within more than one of the above paragraphs counts as non-charitable expenditure only once.

(2) An amount may also be non-charitable expenditure for a tax year as a result of section 562 (excess expenditure treated as non-charitable expenditure of earlier years).

(3) This section needs to be read with—

section 525 (meaning of “charitable trade”),

sections 544 to 548 (supplementary provision in relation to this section, in particular in relation to subsection (1)(f), (i) and (j)),

sections 549 to 557 (transactions with substantial donors),

section 558 (approved charitable investments), and

section 561 (approved charitable loans).

Section 543: supplementary

544

(1) This section applies for the purposes of section 543.

(2) For rules about the calculation of losses, see—

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

(b) section 272 of that Act (which applies 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), and

(3) A transaction is a miscellaneous transaction if it is of such a nature that, if income or gains had arisen from it—

(a) ignoring section 527 (exemption from charges under provisions to which section 1016 applies), it would have been charged to income tax under or by virtue of any provision to which section 1016 applies, and

(b) the trustees of the charitable trust would have been liable for any tax so chargeable.

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

Section 543(1)(f): meaning of expenditure

545

(1) For the purposes of section 543(1)(f) “expenditure” includes expenditure of a capital nature.

(2) None of the following is “expenditure” for those purposes—

(a) the investment of any of the charitable trust's funds,

(b) the making of a loan by the charitable trust, or

Section 543(1)(f): tax year in which certain expenditure treated as incurred

546

(1) This section applies for the purposes of section 543(1)(f).

(2) Subsection (3) applies to expenditure which is referable to commitments (whether or not of a contractual nature) that the charitable trust has entered into before or during a tax year.

(3) The expenditure is treated as incurred in the tax year if, had the charitable trust been required to draw up accounts that met the requirements mentioned in subsection (4), the expenditure would have been required to be taken into account in preparing those accounts.

(4) The requirements referred to in subsection (3) are—

(a) that the accounts are drawn up for the tax year, and

(b) that UK generally accepted accounting practice applies with respect to them.

Section 543(1)(f): payment to body outside the UK

547

A payment made, or to be made, to a body situated outside the United Kingdom is non-charitable expenditure under section 543(1)(f) if—

(a) it is incurred for charitable purposes only, but

(b) the trustees of the charitable trust have not taken such steps as the Commissioners for Her Majesty's Revenue and Customs consider are reasonable in the circumstances to ensure that the payment will be applied for charitable purposes.

Section 543(1)(i) and (j): investments and loans

548

(1) Subsection (2) applies if in a tax year a charitable trust—

(a) realises the whole or part of an investment which was made in the tax year and is not an approved charitable investment (see section 558), or

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Income Tax Act 2007

Meaning of “accumulated or discretionary income”

480

Other amounts to be charged at special rates for trustees

481

Types of amount to be charged at special rates for trustees

482

Sums paid by personal representatives to trustees

483

Chapter 4 — Trustees' expenses and special rates for trustees

Trustees' expenses to be set against trustees' trust rate income

484

Carry forward of unused expenses

485

How allowable expenses are to be set against trust rate income

486

Non-UK resident trustees

487

Chapter 5 — Share incentive plans

Application of section 479 to trustees of approved share incentive plans

488

“The applicable period” in relation to shares

489

Interpretation of Chapter

490

Chapter 6 — Trustees' first slice of trust rate income

Special rates not to apply to first slice of trustees' trust rate income

491

Cases where settlor has made more than one settlement

492

Chapter 7 — Discretionary payments

Discretionary payments by trustees

493

Grossing up of discretionary payment and payment of income tax

494

Statement about deduction of income tax

495

Income tax charged on trustees

496

Calculation of trustees' tax pool

497

Types of income tax for the purposes of section 497

498

Chapter 8 — Trustees' expenses and beneficiary's income

Application of Chapter

499

Restrictions on use of trustees' expenses to reduce the beneficiary’s income

500

Non-UK resident beneficiaries

501

Meaning of “untaxed income” in section 501

502

How beneficiary’s income is reduced

503

Chapter 9 — Unauthorised unit trusts

Treatment of income of unauthorised unit trust

504

Relief for trustees of unauthorised unit trust

505

Special rules for trustees affected by section 733 of ICTA

506

Chapter 10 — Heritage maintenance settlements

Introduction

Overview of Chapter

507

Trustees' election in respect of income etc

Election by trustees

508

Change of circumstances during a tax year

509

Absence of election and income treated as income of settlor: special rules

Sums applied for property maintenance purposes

510

Prevention of double taxation: reimbursement of settlor

511

Application of property for non-heritage purposes: charge to tax

Charge to tax on some settlements

512

Income charged

513