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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

(a) the amount of the payments treated as made on a transfer of securities is to be determined under section 632(4) or (5), 633(5) or 662(4) (cases where interest is not accounted for separately),

(b) there has been a failure to pay interest due on the securities, and

(c) as a result of the failure, on the interest payment day which is or follows the settlement day the value of the right to receive the interest payable on the securities is less than the interest payable.

(2) The calculation under section 632(4) or (5), 633(5) or 662(4) is to be made by reference to that value instead of the interest.

Transfers with unrealised interest: interest in default

660

(1) This section applies if—

(a) securities are transferred with unrealised interest,

(b) there has been a failure to pay interest due on the securities transferred, and

(c) as a result of the failure, on the day of the transfer the value of the right to receive the unrealised interest (“the unrealised interest value”) is less than the unrealised interest.

(2) The amount of the payment treated as made to the transferor under section 634(2) is taken to be the unrealised interest value instead of the amount of the unrealised interest.

(3) The amount of accrued income profits under section 631(1) is taken to be the unrealised interest value instead of the amount of the unrealised interest.

(4) Subsections (2) and (3) are subject to section 661 (successive transfers with unrealised interest in default).

(5) For the purposes of this section and section 661, a person is treated as transferring securities of a particular kind which the person acquired later before securities of that kind acquired earlier.

(6) See also section 681 (exemption for unrealised interest received by transferee after transfer).

Successive transfers with unrealised interest in default

661

(1) The amount taken as the unrealised interest value for the purposes of section 660(2) or (3) is reduced if the person (“T”) who makes the transfer referred to in section 660(1) also acquired the securities with the right to receive unrealised interest.

(2) The amount of the reduction depends on whether subsection (3) applies.

(3) This subsection applies if—

(a) T has received, as transferee, some or all of that unrealised interest, and

(b) T is liable for income tax on it for the tax year in which it was received.

(4) If subsection (3) applies, the reduction is equal to the value on the day of the transfer to T of the right to receive the unrealised interest (“the earlier value”) less the total so received.

(5) If subsection (3) does not apply, the reduction is equal to the earlier value.

(6) But if the reduction under subsection (4) or (5) exceeds the amount mentioned in subsection (1), that amount is treated as reduced to nil.

New securities issued with extra return: special rules about payments

662

(1) In the case of a transfer treated as made under section 649 (new securities issued with extra return), the amount of the payment treated as made under section 632(1) (payment on transfer with accrued interest) is not determined under section 632(2) to (5).

(2) Instead, that amount depends on whether under the issue arrangements the person to whom the new securities are issued accounts to the issuer separately—

(a) for the extra return, and

(b) for the rest of the issue price.

(3) If the person does account for them separately, the amount of the payment is the amount of the extra return separately accounted for.

(4) If the person does not account for them separately, the amount of the payment is an amount equal to—

$$I×AB$where—I is the interest payable on the new securities on the first interest payment day after the new issue day (“the payment day”),A is the number of days in the relevant period, andB is the number of days in the period beginning with the first day of the relevant period and ending with the payment day.$

(5) Subsection (4) is subject to section 659 (transfers with or without accrued interest: interest in default).

(6) In this section “the extra return”, “the new issue day”, “new securities” and “the relevant period” have the same meaning as in section 649.

Transfers without accrued interest to makers of manufactured payments

663

(1) This section applies if—

(a) the manufactured payments conditions are met (see section 647(2)), and

(b) the nominal value of the securities subject to the seller's contract is less than that of the securities transferred to the seller.

(2) The amount of the payment treated as made to the seller under section 633 on the transfer of the securities to the seller is reduced.

(3) The reduction is by so much of that amount as is attributable to securities (“the matched securities”) of a nominal value equal to that of the securities subject to the seller's contract.

(4) If there is more than one transfer of securities to the seller, those transferred to the seller earlier are treated as the matched securities before those transferred later.

(5) In this section “the seller” and “the seller's contract” have the same meaning as in section 647.

(6) For cases where subsection (1)(b) does not apply, see section 647(3) (under which the seller is treated as an excluded transferee).

Foreign currency securities: sterling equivalent of payments on transfers

664

(1) The sterling equivalent of the amount of the payment treated as made on a transfer of securities is determined in accordance with this section if interest on the securities is payable in a currency other than sterling (“a foreign currency”).

(2) If the payment is determined under section 632(3), 633(3) or 662(3) (transfers under an arrangement by which interest is accounted for separately), the amount of the payment depends on whether the sterling equivalent of the interest separately accounted for is shown in an agreement for transfer.

(3) If the sterling equivalent is so shown, the amount of the payment is taken to be that sterling equivalent.

(4) If the sterling equivalent is not so shown, the amount is taken to be the sterling equivalent on the settlement day of the interest separately accounted for.

(5) If the amount of the payment treated as made is determined under any other provision (except section 660 (transfers with unrealised interest: interest in default)), the amount is taken to be its sterling equivalent on the settlement day.

(6) For the purposes of this section, the sterling equivalent of an amount or value in a foreign currency is to be calculated by reference to the London closing rate of exchange for the day concerned.

Foreign currency securities: unrealised interest payable in foreign currency

665

(1) This section applies if unrealised interest is payable in a currency other than sterling (“a foreign currency”).

(2) For the purposes of section 631(1) (amount of accrued income profits where settlement day outside interest period) the amount of the unrealised interest is taken to be its sterling equivalent on the settlement day.

(3) For the purposes of sections 660 (transfers with unrealised interest: interest in default) and 661 (successive transfers with unrealised interest in default), the value on any day of the right to receive unrealised interest is the sterling equivalent on that day of that value in the foreign currency.

(4) For the purposes of those sections unrealised interest received in a foreign currency is taken to be the sterling equivalent on the day of receipt of the amount received.

(5) For the purposes of this section, the sterling equivalent of an amount or value in a foreign currency is to be calculated by reference to the London closing rate of exchange for the day concerned.

Nominees and trustees

Certain transfers by or to nominees or trustees treated as made by or to others

666

(1) Transfers of securities by or to a person as nominee for another person (“A”) are treated for the purposes of this Chapter as transfers by or to A.

(2) Transfers of securities by or to a person (“T”) as trustee for another person (“B”) are treated for the purposes of this Chapter as transfers by or to B if B is absolutely entitled as against T.

(3) For the purposes of subsection (2) where T is the transferor, B is absolutely entitled as against T if immediately before the transfer B has the exclusive right to direct how the securities are to be dealt with.

(4) For the purposes of subsection (2) where T is the transferee, B is absolutely entitled as against T if immediately after the transfer B has that exclusive right.

(5) For the purposes of subsections (3) and (4), a right to direct how securities are to be dealt with is treated as an exclusive right despite being subject to satisfying any outstanding charge, lien or other right of the trustee to resort to the securities for payment of duty, taxes, costs or other outgoings.

(6) Subsection (1) applies to a transfer of securities by or to a person as nominee for two or more persons as it applies to a transfer of securities by or to a person as nominee for one person, taking the references to A as references to the two or more persons.

(7) This section applies to a transfer of securities by or to a person as trustee for two or more persons as it applies to a transfer of securities as trustee for one person, taking—

(a) the references to B as references to the two or more persons, and

(b) the references to B being absolutely entitled as references to the two or more persons being jointly absolutely entitled.

(8) The fact that a person is an infant or otherwise lacks legal capacity is to be disregarded in determining for the purposes of this section whether the person is absolutely entitled as against T.

Trustees' accrued income profits treated as settlement income

667

(1) If the trustees of a settlement are treated as making qualifying accrued income profits, those profits are to be taken to be income arising under the settlement for the purposes of Chapter 5 of Part 5 of ITTOIA 2005 (settlements: amounts treated as income of settlor).

(2) Subsection (3) applies if the trustees of a settlement—

(a) are non-UK resident ... throughout a tax year in which an interest period or part of an interest period falls, and

(b) would have been treated as making an amount or an additional amount of qualifying accrued income profits in the interest period if the trustees had been UK resident ... during a part of each such tax year.

(3) The amount or additional amount of qualifying accrued income profits that the trustees would have been treated as making is to be taken to be income arising under the settlement for the purposes of Chapter 5 of Part 5 of ITTOIA 2005.

(4) In this section—

(a) “qualifying accrued income profits” means accrued income profits which are treated as made—

(i) under section 628(5), or

(ii) under section 630(2) in respect of a transfer of variable rate securities, and

(b) in any case where there are no trustees of a settlement, references to such trustees are to any persons entitled to securities comprised in the settlement.

(5) In the case of qualifying accrued income profits within subsection (4)(a)(ii)—

(a) the reference in subsection (2)(a) to an interest period is to the period—

(i) beginning with the day after the last day of the only or last interest period of the securities, and

(ii) ending with the settlement day, and

(b) the reference in subsection (2)(b) to making qualifying accrued income profits in the interest period is to be read as making them in the tax year in which settlement day falls.

Relief where transfer proceeds unremittable

Relief for unremittable transfer proceeds: general

668

(1) This section applies if—

(a) a person is liable for income tax on accrued income profits,

(b) the profits are calculated by reference to payments treated as made to the person in an interest period,

(c) the payments are so treated as a result of the person making transfers of foreign securities of a particular kind, and

(d) the proceeds of the transfers are unremittable in the tax year.

(2) If the person makes a claim for relief under this section—

(a) the profits are reduced by the amount of the payments treated as made to the person, or

(b) if that amount exceeds the profits, the profits are reduced to nil.

(3) But see section 670 (withdrawal of relief).

(4) In this section and section 669 “foreign securities” means securities which are situated outside the United Kingdom.

(5) For the purposes of this section and sections 669 and 670, proceeds of transfers of foreign securities are unremittable in relation to a person if the person is prevented from transferring them to the United Kingdom because of—

(a) the laws of the territory where the securities are situated,

(b) executive action of its government, or

(6) For the purposes of this section the place where securities are situated is to be determined in accordance with sections 275(1) and (2)(b) and 275C of TCGA 1992.

(7) Any claim under this section must be made not more than 4 years after the end of the tax year for which the profits would be chargeable to tax if no claim were made.

(8) A person's personal representatives may make any claim under this section which the person might have made.

Relief for unremittable transfer proceeds: section 630 profits

669

(1) This section applies if—

(a) a person is liable for income tax on accrued income profits within section 630(2) (making accrued income profits: settlement day outside interest period),

(b) the person is so liable as a result of making transfers of foreign securities of a particular kind, and

(2) If the person makes a claim for relief under this section the profits are reduced to nil.

(3) But see section 670 (withdrawal of relief).

(4) Any claim under this section must be made not more than 4 years after the end of the tax year for which the profits would be chargeable to tax if no claim were made.

(5) A person's personal representatives may make any claim under this section which the person might have made.

Withdrawal of relief

670

(1) This section applies if—

(a) a claim under section 668(2) or 669(2) has been made in relation to profits, and

(b) the proceeds of the transfers cease to be unremittable.

(2) The claimant is treated as making accrued income profits of an amount equal to the reduction under that section.

(3) If the claimant has died, the claimant's personal representatives are so treated.

Interpretation

Meaning of “interest”

671

(1) In this Chapter “interest” includes dividends and any other return (however described).

(2) But it does not include a return consisting of the difference between the amount payable on a security's redemption and its issue price.

Meaning of “interest payment day”

672

(1) In this Chapter “interest payment day”, in relation to securities of any kind, means a day on which interest on those securities is payable.

(2) If a particular payment of interest may be made on one of a number of days, the first of them is the interest payment day.

Meaning of “interest period”

673

(1) The general rule is that for the purposes of this Chapter—

(a) the first interest period of securities of any kind begins with the day after that on which those securities are first issued and ends with the first interest payment day or, if it is earlier, the expiry of 12 months, and

(b) any other interest period of those securities begins with the day after the last day of their previous interest period and ends with the next interest payment day or, if it is earlier, the expiry of 12 months.

(2) Subsection (1) is subject to subsections (3) and (4).

(3) The last interest period of securities of any kind ends with the last interest payment day for those securities, unless subsection (4) applies.

(4) An interest period of securities of any kind in which either of the events specified in subsection (5) occurs is treated as ending on the day on which it would have ended apart from that event.

(5) The events are—

(a) a conversion of those securities, and

(b) if those securities are gilt-edged securities, the exchange of those securities for strips of those securities.

(6) In this section “strip” has the meaning given by section 444 of ITTOIA 2005.

(7) See also section 667(5) (construction of reference to “interest period” in section 667(2)).

Meaning of “the settlement day”

674

(1) For the purposes of this Chapter the settlement day for a transfer of securities in accordance with the rules of a recognised market is—

(a) the day on which the transferee agrees to settle, or

(b) if the transferee may settle on one of a number of days, the day on which settlement actually occurs.

(2) The settlement day for a transfer of securities which is not in accordance with such rules is determined in accordance with subsection (3), (4) or (6) (and see also section 649(6): settlement day where new securities issued with extra return).

(3) If—

(a) the consideration for the transfer is money alone, and

(b) the transferee agrees to pay the whole of it on or before the first interest payment day after an agreement for the transfer is made,

the settlement day is the day on which the transferee agrees to make the payment or, if payment may be made on one of a number of days, or on a number of different days, the latest of them.

(4) If—

(a) there is no consideration for the transfer, or

(b) the transfer is a transfer because of a provision specified in subsection (5),

the settlement day is the day on which the securities are transferred.

(5) The provisions are—

section 620(1)(b) or (c) (conversion, or redemption of variable rate securities),

section 648(1) or (3) (exchanges relating to strips of gilt-edged securities),

section 650 (trading stock appropriations etc),

section 651 (owner becoming entitled to securities as trustee), and

section 652 (securities ceasing to be held on charitable trusts).

(6) If neither subsection (3) nor (4) applies, the settlement day is such day as an officer of Revenue and Customs decides.

(7) On any appeal that is notified to the tribunal, the jurisdiction of the tribunal includes jurisdiction to affirm or replace such a decision.

The holding of securities

675

(1) For the purposes of this Chapter, a person holds securities—

(a) at a particular time if the person is entitled to them at that time, and

(b) on a particular day if the person is entitled to them throughout that day or becomes and does not cease to be entitled to them on that day.

(2) A person acquires securities when the person becomes entitled to them.

(3) If a Scottish partnership carries on a trade or business—

(a) any partnership dealings are treated as dealings by the partners and not by the partnership as such, and

(b) the partners are treated as being entitled to securities held by the partnership.

Nominal value of securities: general

676

(1) If the interest on securities is expressed to be payable by reference to a given value, for the purposes of this Chapter their nominal value is that value.

(2) In any other case, the nominal value of securities for those purposes is their price when they were issued.

(3) See section 677 if the nominal value of the securities is expressed in a currency other than sterling.

Nominal value: foreign currency securities

677

(1) If the nominal value of securities is expressed in a currency other than sterling (“a foreign currency”), for the purposes of this Chapter their nominal value on any day is taken to be the sterling equivalent on that day of that value.

(2) For the purposes of this section, the sterling equivalent of a value in a foreign currency is to be calculated by reference to the London closing rate of exchange for the day concerned.

Chapter 3 — Exemptions relating to interest on securities

Exemptions relating to interest on securities: preliminary

678

(1) This Chapter confers exemptions relating to interest on securities.

(2) Expressions used in this Chapter and in Chapter 2 have the same meaning as in that Chapter.

(3) Accordingly, for the meanings of the following expressions see the sections indicated—

“interest” see section 671,

“interest payment day” see section 672,

“interest period” see section 673,

“makes accrued income losses” see section 628(6),

“securities” see section 619,

“transfer with unrealised interest” see section 625(1),

“transferee” see section 621,

“transfer” see section 620, and

“unrealised interest” see section 625(2).

(4) Section 666 (certain transfers by or to nominees or trustees treated as made by or to others) applies for the purposes of this Chapter as it applies for the purposes of Chapter 2.

Interest on securities involving accrued income losses: general

679

(1) This section applies if—

(a) a person is liable for income tax on interest on securities of any kind which is due at the end of an interest period of the securities,

(b) in that period accrued income losses are made as a result of transfers of those securities, and

(2) No liability to income tax arises in respect of the interest to the extent that it does not exceed the losses.

(3) If, apart from this subsection, a person would be entitled to the exemption under this section in more than one tax year, the person is so entitled only in the tax year in which the interest period ends.

(4) For cases where the interest period does not end with an interest payment day, see section 637 (accrued income losses treated as payments in next interest period).

Interest on securities involving accrued income losses: foreign trustees

680

(1) This section applies if—

(a) the trustees of a settlement are non-UK resident ... throughout a tax year in which an interest period or part of an interest period of securities falls,

(b) the trustees' income is or includes interest from those securities,

(d) had the trustees been UK resident ... during a part of each such tax year the interest would have been wholly or partly exempt from income tax under section 679.

(2) No liability to income tax arises as a result of Chapter 5 of Part 5 of ITTOIA 2005 (settlements: amounts treated as income of settlor) in respect of so much of the interest as would have been exempt from income tax under section 679.

(3) For cases where the interest period does not end with an interest payment day, see section 637 (accrued income losses treated as payments in next interest period).

Unrealised interest received by transferee after transfer

681

(1) This section applies if—

(a) securities are transferred with unrealised interest,

(b) the transferee is not an excluded transferee in relation to the transfer for the purposes of Chapter 2 (see sections 638 to 647),

(d) apart from this section, the transferee would be liable to income tax on the unrealised interest.

(2) No liability to income tax arises in respect of the unrealised interest received by the transferee, unless conditions A and B are met.

(3) Condition A is that section 660 (transfers with unrealised interest: interest in default) applies on the transfer.

(4) Condition B is that the unrealised interest received by the transferee exceeds the residual value of the interest.

(5) In this section “the residual value of the interest” means—

(a) the value on the day of the transfer of the right to receive the unrealised interest, less

(b) the total amount of any of that unrealised interest received previously by the transferee.

(6) If conditions A and B are met, no liability to income tax arises in respect of the unrealised interest to the extent that it does not exceed the residual value of the interest.

(7) Section 665 (foreign currency securities: unrealised interest payable in foreign currency) applies for the purposes of this section as it applies for the purposes of sections 660 and 661.

Part 13 — Tax avoidance

Chapter 1 — Transactions in securities

Introduction

Overview of Chapter

682

This Chapter makes provision for counteracting income tax advantages from transactions in securities.

Meaning of “income tax advantage”

683

(1) Sections 684 to 687 specify when a person is liable to counteraction of income tax advantages from transactions in securities.

(2) Sections 695 to 700 make provision about the procedure for counteraction of such income tax advantages.

(3) Sections 701 and 702 make provision for a clearance procedure.

(4) Section 705 makes provision for appeals against counteraction notices.

(5) Sections 712 deals with cases in which a person liable to counteraction dies.

(6) Section 713 contains interpretative provisions.

Person liable to counteraction of income tax advantages

Person liable to counteraction of income tax advantage

684

(1) This section applies to a person (“the party”) where—

(a) the person is a party to a transaction in securities or two or more transactions in securities (see subsection (2)),

(b) the circumstances are covered by section 685 and not excluded by section 686,

(c) the main purpose, or one of the main purposes, of ... the transaction in securities, or any of the transactions in securities, is to obtain an income tax advantage, and

(d) the party or any other person obtains an income tax advantage in consequence of the transaction or the combined effect of the transactions.

(2) In this Chapter “transaction in securities” means a transaction, of whatever description, relating to securities, and includes in particular—

(a) the purchase, sale or exchange of securities,

(b) issuing or securing the issue of new securities,

(d) altering or securing the alteration of the rights attached to securities.

(e) a repayment of share capital or share premium, and

(f) a distribution in respect of securities in a winding up.

(3) Section 687 defines “income tax advantage”.

(4) This section is subject to no-counteraction notices issued under section 698A.

Exception where no tax avoidance object shown

685

(1) The circumstances covered by this section are circumstances where condition A or condition B is met.

(2) Condition A is that, as a result of the transaction in securities or any one or more of the transactions in securities, a relevant person receives relevant consideration in connection with—

(a) the distribution, transfer or realisation of assets of a close company,

(b) the application of assets of a close company in discharge of liabilities, or

and the relevant person does not pay or bear income tax on the consideration (apart from this Chapter).

(3) Condition B is that—

(a) a relevant person receives relevant consideration in connection with the transaction in securities or any one or more of the transactions in securities,

(b) two or more close companies are concerned in the transaction or transactions in securities concerned, and

(3A) In subsections (2) and (3) “relevant person” means—

(a) the party, or

(b) any person other than the party in relation to whom the condition in section 684(1)(d) is met.

(4) In a case within subsection (2)(a) or (b) “relevant consideration” means consideration which—

(a) is or represents the value of—

(i) assets which are available for distribution by way of dividend by the company, or

(ii) assets which would have been so available apart from anything done by the company,

(b) is received in respect of future receipts of the company, or

(5) In a case within subsection (2)(c) or (3) “relevant consideration” means consideration which consists of any share capital or any security issued by a close company and which is or represents the value of assets which—

(a) are available for distribution by way of dividend by the company,

(b) would have been so available apart from anything done by the company, or

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

(7) So far as subsection (2)(c) or (3) relates to share capital other than redeemable share capital, it applies only so far as the share capital is repaid (on a winding up or otherwise); and for this purpose any distribution made in respect of any shares on a winding up or dissolution of the company is to be treated as a repayment of share capital.

(7A) The references in subsection (4)(a)(i) and (ii) to assets do not include assets shown to represent return of sums paid by subscribers on the issue of securities merely because the law of the country in which the company is incorporated allows assets of that description to be available for distribution by way of dividend.

(7B) The references in subsections (4)(a)(i) and (5)(a) to assets which are available for distribution by way of dividend by the company include assets which are available for distribution to the company by way of dividend by any other company it controls.

(8) References in this section to the receipt of consideration include references to the receipt of any money or money's worth.

(9) In this section—

“security” includes securities not creating or evidencing a charge on assets;

“share” includes stock and any other interest of a member in a company.

Circumstances in which income tax advantages obtained or obtainable

Abnormal dividends used for exemptions or reliefs (circumstance A)

686

(1) Circumstances are excluded by this section if—

(a) immediately before the transaction in securities (or the first of the transactions in securities) the party holds shares or an interest in shares in the close company, and

(b) there is a fundamental change of ownership of the close company.

(2) There is a fundamental change of ownership of the close company if, as a result of the transaction or transactions in securities, the condition in subsection (3) is met.

(3) The condition in this subsection is that the original shareholder or original shareholders taken together with any associate or associates—

(a) do not directly or indirectly hold more than 25% of the ordinary share capital of the close company,

(b) do not directly or indirectly hold shares in the close company carrying an entitlement to more than 25% of the distributions which may be made by the close company, and

(c) do not directly or indirectly hold shares in the close company carrying more than 25% of the total voting rights in the close company.

(4) In this section “original shareholder” means a person who, immediately before the transaction in securities (or the first of the transactions in securities), held any ordinary share capital of the close company.

(5) For the purposes of this section, shares of or share capital in the close company which are held by a person controlled by an original shareholder, or by two or more original shareholders taken together, count as shares or share capital held by that original shareholder or those original shareholders.

Deductions from profits obtained following distribution or dealings (circumstance B)

687

(1) For the purposes of this Chapter a person obtains an income tax advantage if—

(a) the amount of any income tax which would be payable by the person in respect of the relevant consideration if it constituted a ... distribution exceeds the amount of any capital gains tax payable in respect of it, or

(b) income tax would be payable by the person in respect of the relevant consideration if it constituted a ... distribution and no capital gains tax is payable in respect of it.

(2) So much of the relevant consideration as exceeds the maximum amount that could in any circumstances have been paid to the person or an associate of the person by way of a ... distribution at the time when Condition A or B in section 685 is met is to be left out of account for the purposes of subsection (1).

(3) The amount of the income tax advantage is the amount of the excess or (if no capital gains tax is payable) the amount of the income tax which would be payable.

(4) In this section—

(a) distribution” does not include a distribution which is a distribution for the purposes of the Corporation Tax Acts only because it falls within paragraph C or D in section 1000(1) of CTA 2010 (redeemable share capital or security issued as bonus in respect of shares in, or securities of, the company), and

(b) “relevant consideration” has the same meaning as in section 685.

Receipt of consideration representing company’s assets, future receipts or trading stock (circumstance C)

688

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

Receipt of consideration in connection with relevant company distribution (circumstance D)

689

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Receipt of assets of relevant company (circumstance E)

690

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Meaning of “relevant company” in sections 689 and 690

691

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Abnormal dividends: general

692

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Abnormal dividends: the excessive return condition

693

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

Abnormal dividends: the excessive accrual condition

694

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Procedure for counteraction of income tax advantages

Preliminary notification that section 684 may apply

695

(1) An officer of Revenue and Customs may enquire into a transaction or transactions if—

(a) the officer has reason to believe that section 684 (person liable to counteraction of income tax advantage) may apply to a person (“the taxpayer”) in respect of the transaction or transactions, and

(b) the officer notifies the taxpayer of his intention to do so.

(2) The notification may be given at any time not more than 6 years after the end of the tax year to which the income tax advantage in question relates.

Opposed notifications: statutory declarations

696

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

Opposed notifications: determinations by tribunal

697

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

Counteraction notices

698

(1) If on an enquiry under section 695 an officer of Revenue and Customs determines that section 684 applies to the taxpayer, the income tax advantage in question is to be counteracted by adjustments, unless the officer is of the opinion that no counteraction is required.

(2) The adjustments required to be made to counteract the income tax advantage and the basis on which they are to be made are to be specified in a notice served on the person by an officer of Revenue and Customs.

(3) In this Chapter such a notice is referred to as a “counteraction notice”.

(4) Any of the following adjustments may be specified—

(a) an assessment,

(b) the nullifying of a right to repayment,

(d) the calculation or recalculation of profits or gains or liability to income tax.

(5) An assessment may be made in accordance with a counteraction notice at any time (without regard to any time limit on making the assessment that would otherwise apply).

(6) This section is subject to—

section 700 (timing of assessments ...), and

section 702(2) (effect of clearance notification under section 701).

(7) But no other provision in the Income Tax Acts is to be read as limiting the powers conferred by this section.

Limit on amount assessed in section 689 and 690 cases

699

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

Timing of assessments in section 690 cases

700

(1) This section applies if section 684 (person liable to counteraction of income tax advantage) applies to a person because the person is in a position to obtain or has obtained an income tax advantage by falling within the circumstances mentioned in section 685(2)(c) or (3) when share capital is repaid.

(2) An assessment to income tax made in accordance with a counteraction notice must be an assessment for the tax year in which the repayment occurs.

(3) The references in this section to the repayment of share capital include references to any distribution made in respect of any shares in a winding up or dissolution of the company.

(4) In subsection (3) “shares” includes stock and any other interest of a member in a company.

Clearance procedure ...

Application for clearance of transactions

701

(1) A person may provide the Commissioners for Her Majesty's Revenue and Customs with particulars of a transaction or transactions effected or to be effected by the person in order to obtain a notification about them under this section.

(2) If the Commissioners consider that the particulars, or any further information provided under this subsection, are insufficient for the purposes of this section, they must notify the person what further information they require for those purposes within 30 days of receiving the particulars or further information.

(3) If any such further information is not provided within 30 days from the notification, or such further time as the Commissioners allow, they need not proceed further under this section.

(4) The Commissioners must notify the person whether they are satisfied that the transaction or transactions, as described in the particulars, were or will be such that no counteraction notice ought to be served about the transaction or transactions.

(5) The notification must be given within 30 days of receipt of the particulars, or, if subsection (2) applies, of all further information required.

Effect of clearance notification under section 701

702

(1) This section applies if the Commissioners for Her Majesty's Revenue and Customs notify a person under section 701 that they are satisfied that a transaction or transactions, as described in the particulars provided under that section, were or will be such that no counteraction notice ought to be served about the transaction or transactions.

(2) No such notice may be served on the person in respect of the transaction or transactions.

(3) But the notification does not prevent such a notice being served on the person in respect of transactions including not only the ones to which the notification relates but also others.

(4) The notification is void if the particulars and any further information given under section 701 about the transaction or transactions do not fully and accurately disclose all facts and considerations which are material for the purposes of that section.

Power to obtain information

703

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

...

The tribunal

704

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

Appeals

Appeals against counteraction notices

705

(1) A person on whom a counteraction notice has been served may appeal ... on the grounds that—

(a) section 684 (person liable to counteraction of income tax advantage) does not apply to the person in respect of the transaction or transactions in question, or

(b) the adjustments directed to be made are inappropriate.

(2) Such an appeal may be made only by giving notice to the Commissioners for Her Majesty's Revenue and Customs within 30 days of the service of the counteraction notice.

(3) On an appeal under this section that is notified to the tribunal, the tribunal may—

(a) affirm, vary or cancel the counteraction notice, or

(b) affirm, vary or quash an assessment made in accordance with the notice.

(4) But the bringing of an appeal under this section ... does not affect—

(a) the validity of the counteraction notice, or

(b) the validity of any other thing done under or in accordance with section 698 (counteraction notices),

pending the determination of the proceedings.

Rehearing by tribunal of appeal against counteraction notice

706

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

Statement of case by tribunal for opinion of High Court or Court of Session

707

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

Cases before High Court or Court of Session

708

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

Effect of appeals against tribunal’s determination under section 706

709

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

Appeals from High Court or Court of Session

710

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

Proceedings in Northern Ireland

711

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

Supplementary

Application of Chapter where individual within section 684 dies

712

(1) This section applies if an individual to whom section 684 (person liable to counteraction of income tax advantage) applies (or may apply) has died.

(2) Any notice or notification to the individual under this Chapter may be given to the individual's personal representatives.

(3) The provisions of this Chapter relating to any such notice or notification, to the making of a statutory declaration, to rights of appeal and to the giving of information must be read accordingly.

Interpretation of Chapter

713

(1) In this Chapter—

“associate” is to be construed in accordance with section 681DL, but as if subsection (4) of that section also included, as persons associated with each other, a person as trustee of a settlement and an individual, where one or more beneficiaries of the settlement are connected or associated with the individual;

“close company” includes a company that would be a close company if it were resident in the United Kingdom,

“company” includes any body corporate,

“dividends” includes references to other ... distributions and to interest,

“securities”—includes shares and stock, andin relation to a company not limited by shares (whether or not it has a share capital) also includes a reference to the interest of a member of the company as such, whatever the form of that interest,

“trading stock” has the meaning given by section 174 of ITTOIA 2005, and

(2) In the definition of “dividends” given by subsection (1), “other distributions” does not include a distribution which is a distribution for the purposes of the Corporation Tax Acts only because it falls within paragraph C or D in section 1000(1) (redeemable share capital or security issued as bonus in respect of shares in, or securities of, the company).

Chapter 2 — Transfer of assets abroad

Introduction

Overview of Chapter

714

(1) This Chapter imposes a charge to income tax on—

(a) individuals to whom income is treated as arising under section 721 (individuals with power to enjoy income as a result of relevant transactions),

(b) individuals to whom income is treated as arising under section 728 (individuals receiving capital sums as a result of relevant transactions), and

(c) individuals to whom income is treated as arising under section 732 (non-transferors receiving a benefit as a result of relevant transactions).

(2) The charges apply only if a relevant transfer occurs, and they operate by reference to income of a person abroad that is connected with the transfer or another relevant transaction.

(3) For the meaning of “relevant transaction”, “relevant transfer” and “person abroad”, see sections 715, 716 and 718 respectively.

(4) In this Chapter references to individuals include their spouses or civil partners.

Meaning of “relevant transaction”

715

(1) A transaction is a relevant transaction for the purposes of this Chapter if it is—

(a) a relevant transfer, or

(b) an associated operation.

(2) For the meaning of “relevant transfer” and “associated operation”, see sections 716 and 719 respectively.

Meaning of “relevant transfer” and “transfer”

716

(1) A transfer is a relevant transfer for the purposes of this Chapter if—

(a) it is a transfer of assets, and

(b) as a result of—

(i) the transfer,

(ii) one or more associated operations, or

(iii) the transfer and one or more associated operations,

income becomes payable to a person abroad.

(2) In this Chapter “transfer”, in relation to rights, includes the creation of the rights.

(3) For the meaning of “assets”, see section 717.

Meaning of “assets” etc

717

In this Chapter—

(a) “assets” includes property or rights of any kind, and

(b) references to assets representing any assets, income or accumulations of income include references to—

(i) shares in or obligations of any company to which the assets, income or accumulations are or have been transferred, or

(ii) obligations of any other person to whom the assets, income or accumulations are or have been transferred.

Meaning of “person abroad” etc

718

(1) In this Chapter “person abroad” means a person who is resident outside the United Kingdom.

(2) For the purposes of this Chapter, the following persons are treated as resident outside the United Kingdom—

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

(b) the person treated as non-UK resident under section 475(3) (trustees of settlements), and

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

Meaning of “associated operation”

719

(1) In this Chapter “associated operation”, in relation to a transfer of assets, means an operation of any kind effected by any person in relation to—

(a) any of the assets transferred,

(b) any assets directly or indirectly representing any of the assets transferred,

(d) any assets directly or indirectly representing the accumulations of income arising from any assets within paragraph (a) or (b).

(2) It does not matter whether the operation is effected before, after or at the same time as the transfer.

Charge where power to enjoy income

Charge to tax on income treated as arising under section 721

720

(1) The charge under this section applies for the purpose of preventing the avoiding of liability to income tax by individuals who are ... UK resident by means of relevant transfers.

(2) Income tax is charged on income treated as arising to such an individual under section 721 (individuals with power to enjoy income as a result of relevant transactions).

(3) Tax is charged under this section on the amount of income treated as arising in the tax year.

(4) But see section 724 (special rules where benefit provided out of income of person abroad) ....

(5) The person liable for any tax charged under this section is the individual to whom the income is treated as arising.

(6) For rules about the reduction in the amount charged in some circumstances and the availability of deductions and reliefs, see—

section 725 (reduction in amount charged where controlled foreign company involved), and

section 746 (deductions and reliefs where individual charged under this section or section 727).

(7) For exemptions from the charge under this section, see sections 736 to 742 (exemptions where no tax avoidance purpose or genuine commercial transaction etc).

Individuals with power to enjoy income as a result of relevant transactions

721

(1) Income is treated as arising to such an individual as is mentioned in section 720(1) or 720A(1) in a tax year for income tax purposes if conditions A to C are met.

(2) Condition A is that the individual has power in the tax year to enjoy income of a person abroad as a result of—

(a) a relevant transfer,

(b) one or more associated operations, or

(3) Condition B is that the income of the person abroad would be chargeable to income tax if it were the individual's and received by the individual in the United Kingdom.

(3A) Condition C is that the individual is UK resident for the tax year.

(3B) The amount of the income treated as arising under subsection (1) is equal to the amount of the income of the person abroad (subject to sections 724 and 725).

(3C) Subsection (1) does not apply if—

(a) the individual is liable for income tax charged on the income of the person abroad by virtue of a charge not contained in this Chapter, and

(b) all that income tax has been paid.

(4) For the purposes of subsection (2), it does not matter whether the income of the person abroad may be enjoyed immediately or only later.

(5) It does not matter for the purposes of this section—

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

(b) whether the individual is UK resident for the tax year in which the relevant transfer is made (if different from the tax year mentioned in subsection (1)), or

(6) For the circumstances in which an individual is treated as having the power to enjoy income for the purposes of this section, see section 722.

When an individual has power to enjoy income of person abroad

722

(1) For the purposes of section 721, an individual is treated as having power to enjoy income of a person abroad if any of the enjoyment conditions are met.

(2) In subsection (1) “the enjoyment conditions” means conditions A to E as specified in section 723.

(3) In determining whether an individual has power to enjoy income for the purposes of section 721, regard must be had to the substantial result and effect of all the relevant transactions.

(4) In making that determination all benefits which may at any time accrue to the individual as a result of the transfer and any associated operations must be taken into account, irrespective of—

(a) the nature or form of the benefits, or

(b) whether the individual has legal or equitable rights in respect of the benefits.

The enjoyment conditions

723

(1) Condition A is that the income is in fact so dealt with by any person as to be calculated at some time to enure for the benefit of the individual, whether in the form of income or not.

(2) Condition B is that the receipt or accrual of the income operates to increase the value to the individual—

(a) of any assets the individual holds, or

(b) of any assets held for the individual's benefit.

(3) Condition C is that the individual receives or is entitled to receive at any time any benefit provided or to be provided out of the income or related money.

(4) In subsection (3) “related money” means money which is or will be available for the purpose of providing the benefit as a result of the effect or successive effects—

(a) on the income, and

(b) on any assets which directly or indirectly represent the income,

of the associated operations referred to in section 721(2).

(5) Condition D is that the individual may become entitled to the beneficial enjoyment of the income if one or more powers are exercised or successively exercised.

(6) For the purposes of subsection (5) it does not matter—

(a) who may exercise the powers, or

(b) whether they are exercisable with or without the consent of another person.

(7) Condition E is that the individual is able in any manner to control directly or indirectly the application of the income.

Special rules where benefit provided out of income of person abroad

724

(1) This section applies if an individual has power to enjoy income of a person abroad for the purposes of section 721 because of receiving any such benefit as is referred to in section 723(3) (benefit provided out of income of person abroad).

(2) Despite anything in section 720, the individual is liable to income tax under that section for the tax year in which the benefit is received on an amount equal to the whole of the amount or value of that benefit.

(3) But subsection (2) does not apply so far as it is shown that the benefit derives directly or indirectly from income by reference to which the individual has already been charged to income tax for that tax year or a previous tax year under this Chapter.

Reduction in amount charged where controlled foreign company involved

725

(1) This section applies if—

(a) under Part 9A of TIOPA 2010 (controlled foreign companies), the CFC charge is charged in relation to a CFC's accounting period,

(b) an amount of income is treated as arising to an individual under section 721 for a tax year, and

(c) the income mentioned in section 721(2) is or includes a sum forming part of the CFC's chargeable profits for that accounting period.

(2) The amount of income so treated is reduced by—

$$S×CACP$where—S is the sum forming part of the CFC's chargeable profits for that accounting period,CA is the CFC's chargeable profits for that accounting period so far as apportioned to chargeable companies at step 3 in section 371BC(1) of TIOPA 2010, andCP is the CFC's chargeable profits for that accounting period.$

(2A) In a case in which section 724 applies, the reference to S in the formula in subsection (2) is to be read as a reference to X% of S.

(2B) “X%” is determined as follows—

$$100 % × A I$where—A is the amount on which the individual is liable as determined under section 724(2), andI is the amount of the income mentioned in section 721(2).$

(3) Terms used in this section which are defined in Part 9A of TIOPA 2010 have the same meaning as in that Part.

Non-domiciled individuals

726

(1) Subsection (2) applies in relation to income treated under section 721 as arising to an individual (“the deemed income”)—

(a) in the tax year 2024-25 or an earlier tax year if section 809B, 809D or 809E (remittance basis) applied to the individual for that tax year, or

(b) in the tax year 2025-26 or a later tax year if the individual is entitled to claim relief under section 845A of ITTOIA 2005 (qualifying new residents) for that tax year.

(2) For the purposes of this section the deemed income is “foreign” if (and to the corresponding extent that) the income mentioned in section 721(2) would be relevant foreign income if it were the individual's.

(2A) Subsections (3) to (5) apply where the deemed income falls within subsection (1)(a).

(3) Treat the foreign deemed income as relevant foreign income of the individual.

(4) For the purposes of Chapter A1 of Part 14 (remittance basis) treat so much of the income within section 721(2) as would be relevant foreign income if it were the individual's as deriving from the foreign deemed income.

(5) In the application of section 832 of ITTOIA 2005 to the foreign deemed income, subsection (2) of that section has effect with the omission of paragraph (b).

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

(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8) As to income falling within subsection (1)(b), see the table in section 845H of ITTOIA 2005 (under which deemed income that is foreign for the purposes of this section is “qualifying foreign income” and so may be identified in a foreign income claim).

Charge where capital sums received

Charge to tax on income treated as arising under section 728

727

(1) The charge under this section applies for the purpose of preventing the avoiding of liability to income tax by individuals who are ... UK resident by means of relevant transfers.

(2) Income tax is charged on income treated as arising to such an individual under section 728 (individuals receiving capital sums as a result of relevant transactions).

(3) Tax is charged under this section on the amount of income treated as arising in the tax year.

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

(4) The person liable for any tax charged under this section is the individual to whom the income is treated as arising.

(5) For exemptions from the charge under this section, see sections 736 to 742 (exemptions where no tax avoidance purpose or genuine commercial transaction , etc).

(6) For rules about the availability of deductions and reliefs where income is charged under this section, see section 746 (deductions and reliefs where individual charged under section 720 or this section).

Individuals receiving capital sums as a result of relevant transactions

728

(1) Income is treated as arising to such an individual as is referred to in section 727(1) or 727A(1) in a tax year for income tax purposes if—

(a) income has become the income of a person abroad as a result of—

(i) a relevant transfer,

(ii) one or more associated operations, or

(iii) a relevant transfer and one or more associated operations, ...

(b) the capital receipt conditions are met in respect of the individual in the tax year (see section 729) , and

(1A) The amount of the income treated as arising under subsection (1) is equal to the amount of the income of the person abroad (subject to subsection (2)).

(2) Section 725 (reduction in amount charged where controlled foreign company involved) applies for determining the amount of income treated as arising under subsection (1) as if—

(a) in subsection (1) of that section—

(i) the reference to section 721 were a reference to this section, and

(ii) the reference to section 721(2) were a reference to subsection (1)(a) of this section, and

(b) subsections (2A) and (2B) of that section were omitted.

(2A) Subsection (1) does not apply if—

(a) the individual is liable for income tax charged on the income of the person abroad by virtue of a charge not contained in this Chapter, and

(b) all that income tax has been paid.

(3) It does not matter for the purposes of this section—

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

(b) whether the individual is UK resident for the tax year in which the relevant transfer abroad is made (if different from the tax year mentioned in subsection (1)), or

The capital receipt conditions

729

(1) For the purposes of section 728(1), the capital receipt conditions are met in respect of the individual in a tax year (“the relevant year”) if—

(a) either—

(i) in the relevant year the individual receives or is entitled to receive any capital sum, whether before or after the relevant transfer, or

(ii) in any earlier tax year the individual has received any capital sum, whether before or after the relevant transfer, and

(b) the payment of that sum is (or, in the case of an entitlement, would be) in any way connected with any relevant transaction.

(2) But subsection (1)(a)(ii) does not apply merely because of the receipt of a sum by way of loan if the loan is wholly repaid before the relevant year begins.

(3) In subsection (1) “capital sum” means—

(a) any sum paid or payable by way of loan or repayment of a loan, and

(b) any other sum paid or payable—

(i) otherwise than as income, and

(ii) not for full consideration in money or money's worth.

(4) For the purposes of subsection (1), a sum is treated as a capital sum which the individual (“A”) receives or is entitled to receive if another person receives or is entitled to receive it—

(a) at A's direction, or

(b) as a result of the assignment by A of A's right to receive it.

Non-domiciled individuals

730

(1) Subsection (2) applies in relation to income treated under section 728 as arising to an individual (“the deemed income”)—

(a) in the tax year 2024-25 or an earlier tax year if section 809B, 809D or 809E (remittance basis) applied to the individual for that tax year, or

(b) in the tax year 2025-26 or a later tax year if the individual is entitled to claim relief under section 845A of ITTOIA 2005 (qualifying new residents) for that tax year.

(2) For the purposes of this section the deemed income is “foreign” if (and to the corresponding extent that) the income mentioned in section 728(1)(a) would be relevant foreign income if it were the individual's.

(2A) Subsections (3) to (5) apply where the deemed income falls within subsection (1)(a).

(3) Treat the foreign deemed income as relevant foreign income of the individual.

(4) For the purposes of Chapter A1 of Part 14 (remittance basis) treat so much of the income within section 728(1)(a) as would be relevant foreign income if it were the individual's as deriving from the foreign deemed income.

(5) In the application of section 832 of ITTOIA 2005 to the foreign deemed income, subsection (2) of that section has effect with the omission of paragraph (b).

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

(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8) As to income falling within subsection (1)(b), see the table in section 845H of ITTOIA 2005 (under which deemed income that is foreign for the purposes of this section is “qualifying foreign income” and so may be identified in a foreign income claim).

Charge where benefit received

Charge to tax on income treated as arising under section 732

731

(1) Income tax is charged on income treated as arising to an individual under section 732 (non-transferors receiving a benefit as a result of relevant transactions).

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

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

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

(2) Tax is charged under this section on the amount of income treated as arising for the tax year.

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

(3) The person liable for any tax charged under this section is the individual to whom the income is treated as arising ...

(4) For exemptions from the charge under this section, see sections 736 to 742 (exemptions where no tax avoidance purpose or genuine commercial transaction , etc).

Non-transferors receiving a benefit as a result of relevant transactions

732

(1) This section applies if—

(a) a relevant transfer occurs,

(b) an individual who is UK resident for a tax year receives a benefit in that tax year,

(i) the transfer, or

(ii) one or more associated operations,

(d) the individual is not liable to income tax under section 720 or 727 by reference to the transfer and would not be so liable if the effect of sections 726 and 730 were ignored, and

(e) the individual is not liable to income tax , under any provision that is none of section 731 of this Act and sections 643A, 643J and 643L of ITTOIA 2005, on the amount or value of the benefit ....

(2) Income is treated as arising to the individual for income tax purposes for any tax year for which section 733 provides that income arises.

(3) Also see that section for the amount of income treated as arising for any such tax year.

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

Income charged under section 731

733

(1) To find the amount (if any) of the income treated as arising under section 732(2) for any tax year in respect of benefits provided as mentioned in section 732(1)(c) take the following steps.

Step 1

Identify the amount or value of such benefits received by the individual in the tax year and in any earlier tax years in which section 732 has applied.

The sum of those amounts and values is “the total benefits”.

Step 2

Deduct from the total benefits the total amount of income treated as arising to the individual under section 732(2) for earlier tax years as a result of the relevant transfer or associated operations.

The result is “the total untaxed benefits” ....

Step 3

Identify the amount of any income which—

(a) arises in the tax year to a person abroad, and

(b) as a result of the relevant transfer or associated operations can be used directly or indirectly for providing a benefit for the individual.

That amount is “the relevant income of the tax year” in relation to the individual and the tax year.

Step 4

Add together the relevant income of the tax year and the relevant income of earlier tax years in relation to the individual (identified as mentioned in Step 3).

The sum of those amounts is “total relevant income”.

Step 5

Deduct from total relevant income—

(a) the amount deducted at Step 2, and

(b) any other amount which may not be taken into account because of section 743(1) and (2) (no duplication of charges).

The result is “the available relevant income”.

Step 6

Compare the total untaxed benefits and the available relevant income.

The amount of the income treated as arising under section 732(2) for any tax year is the total untaxed benefits unless the available relevant income is lower.

If the available relevant income is lower, it is the amount of income treated as so arising.

(2) Subsection (1) is subject to section 734 (reduction in amount charged: previous capital gains tax charge).

(2A) For the purposes of subsection (1), the amount deducted at Step 2 does not include the amount of any income on which tax was not charged under section 731 by virtue of—

(a) section 735AD(2) (transferor not taxable under benefits charge except where benefit matched to protected foreign-source income etc), or

(b) section 731(1A) (equivalent provision for tax years 2024-25 and earlier).

(2B) For the purposes of subsection (1), if in a tax year—

(a) income is treated as arising to an individual under section 721, 728 or 732, and

(b) the income is identified as qualifying foreign income on a foreign income claim,

the income is treated for later tax years as not having been charged to income tax ....

(2C) It follows from subsection (2B) that—

(a) in the application of subsection (1) to the individual for subsequent tax years, the amount of the income will be deducted at Step 2 and at paragraph (a) of Step 5, but

(b) in the application of subsection (1) to any other individual for subsequent tax years, the amount of the income will not be deducted at paragraph (b) of Step 5.

(2D) See paragraph 11 of Schedule 10 to FA 2025 (temporary repatriation facility) for special provision about income that is treated as arising under section 732 but that is exempt from income tax under that Schedule.

(2E) See subsections (7) and (8) of section 53 of FA 2026 (offshore income gains: savings relating to amendments made by section 52 of that Act) for special provision about income that is treated as arising under section 732 but that is not chargeable to income tax under subsection (3) of that section.

(3) See also section 740(5) to (7) (which makes provision about relevant income and benefits where relevant transactions include both transactions before 5 December 2005 and transactions after 4 December 2005 and exemptions under this Chapter cease to apply).

Reduction in amount charged: previous capital gains tax charge

734

(1) This section applies if—

(a) benefits provided as mentioned in section 732(1)(c) are received in a tax year,

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

(d) chargeable gains are treated by section 87, 87K, 87L or 89(2) of, or paragraph 8 of Schedule 4C to, TCGA 1992 as accruing to a person in that or a subsequent tax year by reference (direct or indirect) to the whole or part of any benefits so provided.

(2) For any tax year after one in which such chargeable gains are so treated, the amount of income treated as arising to the individual under section 732(2) in respect of benefits provided as mentioned in section 732(1)(c) as a result of the transfer or operations in question is calculated as follows.

(3) The amount is calculated under section 733(1) as if the total untaxed benefits were reduced by the amount of those gains.

(4) In this section “the total untaxed benefits” has the same meaning as in section 733(1) (see Step 2).

(5) References in this section to chargeable gains treated as accruing to an individual include offshore income gains treated as arising to the individual (see regulations ... 22 to 24 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001)).

Non-domiciled individuals

735

(1) Subsection (2) applies in relation to income treated under section 732 as arising to an individual (“the deemed income”)—

(a) in the tax year 2024-25 or an earlier tax year if section 809B, 809D or 809E (remittance basis) applied to the individual for that tax year, or

(b) in the tax year 2025-26 or a later tax year if the individual is entitled to claim relief under section 845A of ITTOIA 2005 (qualifying new residents) for that tax year.

(2) For the purposes of this section the deemed income is “foreign” if (and to the extent that) the relevant income to which it relates would be relevant foreign income if it were the individual's.

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