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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

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(b) the individual makes a claim.

(2) The relief is given by deducting the relievable amount in calculating the individual's net income for the tax year in which the disposal is made (see Step 2 of the calculation in section 23).

(3) For the calculation of the relievable amount, see section 434.

(4) If the qualifying investment is a qualifying interest in land (see section 433), this section is subject to—

section 441 (certificates),

section 442 (qualifying interests in land held jointly),

section 443 (calculation of relievable amount where joint disposal), and

section 444 (disqualifying events).

(5) See section 446 for bodies that are treated as charities for the purposes of this Chapter.

(6) See subsection (7) of section 535 of ITTOIA 2005 (top slicing relief) for provision about how relief under this Chapter is to be ignored for the purpose of calculating relief under that section.

(7) This Chapter is subject to section 809ZM (removal of income tax relief in respect of tainted charity donations etc).

Meaning of “qualifying investment”

432

(1) In this Chapter “qualifying investment” means—

(a) shares or securities which are listed on a recognised stock exchange or dealt in on any designated market in the United Kingdom,

(b) units in an authorised unit trust,

(d) an interest in an offshore fund, and

(e) a qualifying interest in land.

(2) In this section—

“designated” means designated by an order made by the Commissioners for Her Majesty's Revenue and Customs for the purposes of subsection (1)(a),

“offshore fund” has the same meaning as in Chapter 5 of Part 17 of ICTA (see sections 756A to 756C of that Act), and

“open-ended investment company” is to be read in accordance with sections 613 and 615 of CTA 2010.

(3) An order under subsection (2) may—

(a) designate a market by name or by reference to any class or description of market, and

(b) vary or revoke a previous order under that subsection.

Meaning of “qualifying interest in land”

433

(1) In this Chapter “qualifying interest in land” means—

(a) a freehold interest in land in the United Kingdom, or

(b) a leasehold interest in land in the United Kingdom which is a term of years absolute.

This is subject to subsections (2) to (5).

(2) Subsection (3) applies if an individual with a beneficial interest in a freehold or leasehold interest mentioned in subsection (1)(a) or (b) makes a disposal to a charity of—

(a) the whole of the beneficial interest, and

(b) an easement, servitude, right or privilege so far as benefiting the land in question.

(3) The disposal mentioned in subsection (2)(b) is regarded for the purposes of this Chapter as a disposal by the individual of the whole of the individual's beneficial interest in a qualifying interest in land separate from the disposal mentioned in subsection (2)(a).

(4) If an individual who has a freehold or leasehold interest in land in the United Kingdom grants a lease for a term of years absolute to a charity of the whole or part of that land, the grant of the lease is regarded for the purposes of this Chapter as a disposal by the individual of the whole of the beneficial interest in the leasehold interest so granted.

(5) Neither an agreement to acquire a freehold interest nor an agreement for a lease is a qualifying interest in land.

(6) In the application of this section to Scotland—

(a) references to a freehold interest in land are to the interest of the owner,

(b) references to a leasehold interest in land which is a term of years absolute are to a tenant's right over or interest in a property subject to a lease,

(d) in subsection (4) the reference to granting a lease for a term of years absolute is to granting a lease.

Amount of relief

The relievable amount

434

(1) If the disposal is a gift, the relievable amount is given by the formula—

$$V+IC-B$where—V is the value of the net benefit to the charity at, or immediately after, the time when the disposal is made, whichever is less,IC is the amount of the incidental costs of making the disposal to the individual making it, andB is the total value of any benefits received in consequence of making the disposal by the individual making the disposal or a person connected with the individual.$

(2) If the disposal is at an undervalue, the relievable amount is given by the formula—

$$E+C-B$where—E is the amount (if any) by which V (as defined in subsection (1)) exceeds the amount or value of the consideration for the disposal,C is given by subsection (4), andB is as defined in subsection (1).$

(3) But if the amount given by the formula in subsection (1) or (2) is a negative amount, the relievable amount is nil.

(4) C is found by taking the following steps.

Step 1

Calculate the consideration for which the disposal is treated as made for the purposes of TCGA 1992 as a result of section 257(2)(a) of that Act (in case of disposal to charity etc, consideration to be such that no gain or loss accrues).

Step 2

Find the excess (if any) of the amount calculated at Step 1 over the amount or value of the consideration for the disposal.

If there is such an excess, C is the amount of that excess or, if less, the amount of the incidental costs of making the disposal to the individual making it.

If there is no such excess, C is nil.

(5) This section needs to be read with—

(a) section 435 (incidental costs of making disposal),

(b) section 436 (consideration), and

Incidental costs of making disposal

435

References in section 434 to the incidental costs of making the disposal to the individual making it are to—

(a) fees, commission or remuneration paid for the professional services of a surveyor, valuer, auctioneer, accountant, agent or legal adviser which are wholly and exclusively incurred by the individual for the purposes of the disposal,

(b) costs of transfer or conveyance wholly and exclusively incurred by the individual for the purposes of the disposal,

(d) costs reasonably incurred in making any valuation or apportionment required for the purposes of this Chapter.

Consideration

436

(1) For the purposes of the formula in section 434(2) consideration for the disposal is brought into account—

(a) without any discount for postponement of the right to receive any part of it,

(b) in the first instance, without regard to a risk of any part of it being irrecoverable, and

(2) If—

(a) any part of the consideration so brought into account subsequently proves to be irrecoverable, and

(b) a claim is made,

such adjustment as is required in consequence must be made.

(3) An adjustment under subsection (2) may be made by way of discharge or repayment of tax or otherwise.

Value of net benefit to charity

437

(1) For the purposes of this Chapter the value of the net benefit to a charity is—

(a) the relevant value of the qualifying investment, or

(b) if the charity is, or becomes, subject to a disposal-related obligation, the relevant value of the qualifying investment reduced by the total amount of the disposal-related liabilities of the charity.

(1A) In subsection (1) “relevant value” means—

(a) where subsection (1B) applies, the lower of the market value and the acquisition value, and

(b) otherwise, the market value.

(1B) This subsection applies where—

(a) the qualifying investment, or anything from which it derives or which it represents (whether in whole or in part and whether directly or indirectly), was acquired by the individual making the disposal within the period of 4 years ending with the day on which the disposal is made,

(b) the acquisition was made as part of a scheme, and

(c) the main purpose, or one of the main purposes, of the individual in entering into the scheme was to obtain relief, or an increased amount of relief, under this Chapter.

(1C) In subsection (1B) “scheme” includes any scheme, arrangement or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions.

(2) This section is supplemented by—

section 438 (market value of qualifying investments),

section 438A (acquisition value of qualifying investments),

section 439 (meaning of “disposal-related obligation”), and

section 440 (meaning and amount of “disposal-related liability”).

Market value of qualifying investments

438

(1) The market value of a qualifying investment for the purposes of this Chapter is determined in accordance with sections 272 to 274 of TCGA 1992 (subject to Part 1 of Schedule 11 to that Act).

(2) But, in the case of an interest in an offshore fund for which separate buying and selling prices are published regularly by the managers of the fund, the market value for the purposes of this Chapter is equal to the buying price (that is the lower price) published on—

(a) the day of the disposal, or

(b) if none were published on that day, on the latest day on which the prices were published before that day.

439

(1) In this Chapter an obligation is a “disposal-related obligation”, in relation to a qualifying investment, if condition A or condition B is met in relation to it.

(2) The obligation may be to any person (whether or not the individual making the disposal or a person connected with the individual).

(3) Condition A is that it is reasonable to suppose that the disposal of the qualifying investment to the charity would not have been made in the absence of the obligation.

(4) Condition B is that the obligation (whether in whole or in part) relates to, is framed by reference to, or is conditional on the charity receiving, the qualifying investment or a disposal-related investment.

(5) In applying condition A, all the circumstances must be taken into account (including, in particular, the difference in the value of the net benefit to the charity calculated under section 437(1)(a) and that value calculated under section 437(1)(b)).

(6) In subsection (4) “disposal-related investment” means any of the following—

(a) an asset of the same class or description as the qualifying investment (irrespective of size, quantity or amount),

(b) an asset derived from, or representing, the qualifying investment, whether in whole or in part and whether directly or indirectly, and

(c) an asset from which the qualifying investment is derived, or which the qualifying investment represents, whether in whole or in part and whether directly or indirectly.

(7) In this Chapter “obligation” includes a reference to each of the following—

(a) a scheme, arrangement or understanding of any kind, whether or not legally enforceable, and

(b) a series of obligations (whether or not between the same parties).

440

(1) In this Chapter a liability is a “disposal-related liability” in the case of a qualifying investment if it is a liability of the charity under a disposal-related obligation in relation to the qualifying investment.

(2) If the disposal-related obligation is contingent, the amount to be brought into account for the purposes of section 437 at any time in respect of the disposal-related liability, so far as contingent, is—

(a) if the contingency occurs, the amount or value of the liability actually incurred in consequence of the occurrence of the contingency, or

(b) if the contingency does not occur, nil.

Special provisions about qualifying interests in land

Certificate required from charity

441

(1) This section applies if the qualifying investment is a qualifying interest in land.

(2) No individual may make a claim for relief under this Chapter unless the individual has received a certificate given by or on behalf of the charity.

(3) The certificate must—

(a) describe the qualifying interest in land,

(b) specify the date of the disposal, and

Qualifying interests in land held jointly

442

(1) This section applies if the qualifying investment is a qualifying interest in land.

(2) It applies if two or more persons (“the owners”)—

(a) are jointly beneficially entitled to the qualifying interest in land, or

(b) are, taken together, beneficially entitled in common to the qualifying interest in land.

(3) Relief under this Chapter is available if—

(a) at least one of the owners is an individual, and

(b) all the owners dispose of the whole of their beneficial interests in the qualifying interest in land to the charity.

(4) Relief under this Chapter is available to each of the owners who is an individual.

(5) The amount of relief under this Chapter to be given to an individual is such share of the relievable amount as is allocated to the individual by an agreement made between those owners who are—

(a) individuals, or

(b) qualifying companies.

(6) A company is a qualifying company if—

(a) it is not itself a charity, and

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

(7) If one or more of the owners is not an individual—

(a) for the purpose of determining whether the owners' beneficial interests are disposed of as mentioned in subsection (3)(b) of this section, subsections (2) to (4) of section 433 apply as if references to an individual included a reference to a person who is not an individual, and

(b) the total amount of relief given, because of the disposal of the qualifying interest in land, under this Chapter and as a result of Chapter 3 of Part 6 of CTA 2010 is not to exceed the relievable amount.

Calculation of relievable amount where joint disposal of interest in land

443

(1) This section applies for the purpose of calculating the relievable amount in a case where relief under this Chapter is available as a result of section 442(3).

(2) Calculate the relievable amount as if—

(a) the owners were a single individual, and

(b) the disposals of the owners' beneficial interests were a single disposal by that single individual of the whole of the beneficial interest in the qualifying interest in land.

(3) In particular, calculate the consideration mentioned at Step 1 in section 434(4) by—

(a) calculating, for each owner, the consideration for which the disposal of the owner's beneficial interest is treated as made for the purposes of TCGA 1992 as a result of section 257(2)(a) of that Act, and

(b) adding together all the consideration calculated under paragraph (a).

(4) Subsection (5) applies if one or more of the owners is neither—

(a) an individual, nor

(b) a qualifying company (see section 442(6)).

(5) In calculating the relievable amount make just and reasonable adjustments to reduce the relievable amount to reflect the fact that relief under this Chapter or as a result of Chapter 3 of Part 6 of CTA 2010 is not available to that owner or to those owners.

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

Disqualifying events

444

(1) This section applies if the qualifying investment is a qualifying interest in land.

(2) If a disqualifying event occurs at any time in the provisional period, the following are treated as never having been entitled to relief under this Chapter in respect of the disposal of the qualifying interest in land—

(a) in a case to which section 442 does not apply, the individual who made the disposal, or

(b) in a case to which section 442 applies, each individual who is an owner.

(3) All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (2).

(4) A disqualifying event occurs if a person mentioned in subsection (5) becomes, otherwise than for full consideration in money or money's worth—

(a) entitled to an interest or right in relation to all or part of the land to which the disposal relates, or

(b) party to an arrangement under which the person enjoys some right in relation to all or part of that land.

(5) The persons are—

(a) in a case to which section 442 does not apply—

(i) the individual who made the disposal, or

(ii) a person connected with that individual, and

(b) in a case to which section 442 applies—

(i) a person who is an owner, or

(ii) a person connected with such a person.

(6) A disqualifying event does not occur if a person becomes entitled to an interest or right as mentioned in subsection (4)(a) as a result of a disposition of property on death (whether the disposition is effected by will, under the law relating to intestacy or otherwise).

(7) “The provisional period” is the period beginning with the date of the disposal of the qualifying interest in land and ending with the fifth anniversary of the normal self-assessment filing date for the tax year in which the disposal was made.

Supplementary

Prohibition against double relief

445

(1) If a claim is made for relief under this Chapter in respect of a disposal—

(a) section 108 of ITTOIA 2005 (gifts of trading stock to charities etc) does not apply in relation to the disposal, and

(b) no relief in respect of the disposal is allowable under any other provision of the Income Tax Acts.

(2) For the effect on capital gains tax or corporation tax on chargeable gains where an individual is entitled to relief under this Chapter, see section 257(2A) to (2C) of TCGA 1992 (gifts to charities etc).

“Charity” to include exempt bodies

446

In this Chapter “charity” includes—

(a) the Trustees of the National Heritage Memorial Fund, and

(b) the Historic Buildings and Monuments Commission for England, ...

Chapter 4 — Annual payments ...

Overview of Chapter

447

(1) This Chapter gives relief for some of the payments from which sums representing income tax must be deducted under Chapter 6 of Part 15 (deduction from annual payments and patent royalties).

(2) For the payments which attract relief, see sections 448 and 449.

Relief for individuals

448

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

(a) the person who makes it is an individual,

(b) a sum representing income tax is required by section 900(2) ... (deduction from annual payments ...) to be deducted from it, and

(2) The individual is entitled to relief for the tax year equal to the gross amount of the payment.

(3) But this is subject to the restrictions in subsection (4) ....

(4) The total amount of relief given under this section to an individual for a tax year cannot be greater than the amount of the individual's modified net income for the tax year (see section 1025).

(5) The relief is given by deducting the amount of the relief in calculating the individual's net income for the tax year (see Step 2 of the calculation in section 23).

Relief for other persons

449

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

(a) the person who makes it is not an individual,

(b) a sum representing income tax is required by section 901(3) ... (deduction from annual payments ...) to be deducted from it, and

(2) The person who makes the payment is entitled to relief for the tax year equal to the gross amount of the payment.

(3) But this is subject to the restrictions in subsections (4) and (5)....

(4) Relief is not given for the payment so far as it is ineligible for relief (see section 450).

(5) The total amount of relief given under this section to a person for a tax year cannot be greater than the amount of the person's modified net income for the tax year (see section 1025).

(6) The relief is given by deducting the amount of the relief in calculating the person's net income for the tax year (see Step 2 of the calculation in section 23).

Other persons: payments ineligible for relief

450

(1) This section sets out the circumstances in which a payment to which section 449 applies, or part of it, is ineligible for relief.

(2) The payment is ineligible for relief if, or so far as, it can lawfully be made only out of—

(a) capital, or

(b) income that is exempt from income tax.

(3) If the payment or any part of it is charged to capital, the payment or that part is ineligible for relief.

(4) If—

(a) the person who makes the payment treats it or any part of it as made out of income that is exempt from income tax, and

(b) the rights or obligations of any person are or may in the future be different from what they would have been if the payment or part had not been so treated,

the payment, or the part concerned, is ineligible for relief.

(5) If the payment or a part of it is not ultimately borne by the person who makes it, the payment or the part concerned is ineligible for relief.

(6) But subsection (5) does not apply to a payment or part of a payment if—

(a) the person who makes the payment is liable to income tax on an amount, and

(b) it is because the person receives that amount or benefits from it in some other way that the payment or the part concerned is not ultimately borne by that person.

Special rule for persons affected by section 733 of ICTA

451

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

The gross amount of a payment

452

References in this Chapter to the gross amount of a payment are to the amount of the payment before deduction of the sum representing income tax deductible from it under Chapter 6 of Part 15 (deduction from annual payments and patent royalties).

Chapter 5 — Qualifying maintenance payments

Tax reduction for qualifying maintenance payments

453

(1) An individual who makes a claim is entitled to a tax reduction for a tax year in which any qualifying maintenance payments made by the individual fall due.

(2) The amount of the tax reduction is 10% of—

(a) the total amount of qualifying maintenance payments made by the individual which fall due in the tax year, or

(b) if less, the amount specified in section 43 (tax reductions for married couples and civil partners: meaning of “the minimum amount”).

(3) The tax reduction is given effect at Step 6 of the calculation in section 23.

Meaning of “qualifying maintenance payment”

454

(1) For the purposes of section 453 a payment is a “qualifying maintenance payment” if conditions A to E are met.

(2) Condition A is that the payment is a periodical payment made by—

(a) one of the parties to a marriage or civil partnership (including a marriage or civil partnership which has been dissolved or annulled) to or for the benefit of the other party and for the maintenance of the other party, or

(b) one parent of a child to the child's other parent for the maintenance of the child by the other parent or by one person to another for the maintenance by the other of a relevant child of theirs.

(3) Condition B is that—

(a) in a case falling within subsection (2)(a), either of the parties to the marriage or civil partnership was born before 6 April 1935, and

(b) in a case falling within subsection (2)(b), either the person who made the payment, or the person to whom it is made, was born before that date.

(4) Condition C is that the payment is made—

(a) under an order made by a court in the United Kingdom or a member State, or

(b) under a written agreement the law applicable to which is the law of the United Kingdom or of a part of the United Kingdom or of a member State or of a part of a member State.

(5) Condition D is that the payment is due at a time when—

(a) in a case falling within subsection (2)(a)—

(i) the two parties are not a married couple, or civil partners of each other, living together (see section 1011), and

(ii) the party to whom or for whose benefit the payment is made has not entered into a new marriage or a new civil partnership, and

(b) in a case falling within subsection (2)(b), the person making the payment and the person to whom the payment is made are not living together.

(6) Condition E is that relief from tax in respect of the payment is not available to the person making it under any provision of the Income Tax Acts other than section 453.

(7) In subsection (4) the reference to an order made by a court in the United Kingdom includes a reference to a maintenance calculation.

(8) “Maintenance calculation” means—

(a) a maintenance calculation made under the Child Support Act 1991 (c. 48), or

(b) a maintenance assessment made under the Child Support (Northern Ireland) Order 1991 (S.I. 1991/2628 (N.I. 23)).

(9) In this section—

“child” means a person under 21 years of age,

“periodical payment” does not include an instalment of a lump sum, and

“relevant child”, in relation to any two persons, means a child who (not being a child who has been boarded out with them by a public authority or voluntary organisation) has been treated by both of them as a child of their family.

Child support maintenance payments

455

(1) Condition A in section 454(2) is treated as met in relation to a payment if—

(a) it is a periodical payment made under a maintenance calculation by any person,

(b) another person is, for the purposes of the Child Support Act 1991 or (as the case may be) the Child Support (Northern Ireland) Order 1991 (S.I. 1991/2628 (N.I. 23)), a parent of the child or children with respect to whom the calculation has effect,

(c) the calculation was not made under section 7 of the Child Support Act 1991 (right of child in Scotland to apply for maintenance calculation), and

(d) any of the conditions mentioned in subsection (2) is met.

(2) The conditions are that—

(a) the payment is made to the Secretary of State in accordance with regulations made under section 29 of the Child Support Act 1991 by virtue of subsection (3)(a)(ii) of that section (collection of child support maintenance: payment to or through Secretary of State),

(b) the payment is retained by the Secretary of State in accordance with regulations made under section 41 of that Act (arrears of child support maintenance),

(c) the payment is made to the Department of Health, Social Services and Public Safety for Northern Ireland in accordance with regulations made under Article 29 of the Child Support (Northern Ireland) Order 1991 (S.I. 1991/2628 (N.I. 23)), by virtue of paragraph (3)(a)(ii) of that Article (collection of child support maintenance: payment to or through Department), or

(d) the payment is retained by the Department of Health, Social Services and Public Safety for Northern Ireland in accordance with regulations made under Article 38 of that Order (arrears of child support maintenance).

(3) “Maintenance calculation” and “periodical payment” have the meanings given in section 454(8) and (9).

Payments under orders for recovery of benefit etc

456

(1) Condition A in section 454(2) is treated as met in relation to a payment made by any person if—

(a) it is a periodical payment made to the Secretary of State or to the Department of Health, Social Services and Public Safety for Northern Ireland, and

(b) it is made under a recovery of benefit order.

(2) A “recovery of benefit order” is—

(a) one made under section 106 of the Social Security Administration Act 1992 (c. 5) or section 101 of the Social Security Administration (Northern Ireland) Act 1992 (c. 8) (recovery of expenditure on benefit from person liable for maintenance) in respect of income support claimed by any other person, or

(b) one made by virtue of section 23 of the Jobseekers Act 1995 (c. 18) or Article 25 of the Jobseekers (Northern Ireland) Order 1995 (S.I. 1995/2705 (N.I. 15)) (recovery of sums in respect of maintenance), in respect of an income-based jobseeker's allowance claimed by any other person.

(3) In subsection (2) “income-based jobseeker's allowance” has the same meaning as in—

(a) the Jobseekers Act 1995, or

(b) for Northern Ireland, the Jobseekers (Northern Ireland) Order 1995 (S.I. 1995/2705 (N.I. 15)).

(4) “Periodical payment” has the meaning given in section 454(9).

Chapter 6 — Miscellaneous other reliefs

Payments for life insurance etc

Payments to trade unions

457

(1) An individual who makes a payment to a trade union in a tax year is entitled to relief for the tax year if—

(a) part of the payment (the “qualifying amount”) is attributable to the provision of superannuation, life insurance or funeral benefits,

(b) the individual meets the requirements of section 460 (residence etc), and

(2) The amount of the relief is equal to half the qualifying amount.

(3) But the maximum amount of relief under this section to which an individual is entitled for a tax year is £100.

(4) The relief is given by deducting the amount of the relief in calculating the individual's net income for the tax year (see Step 2 of the calculation in section 23).

(5) “Trade union” has the meaning given by section 1 of the Trade Union and Labour Relations (Consolidation) Act 1992 (c. 52).

Payments to police organisations

458

(1) An individual who makes a payment to a police organisation in a tax year is entitled to relief for the tax year if—

(a) part of the payment (the “qualifying amount”) is attributable to the provision of superannuation, life insurance or funeral benefits,

(b) the sum of the qualifying amounts for all the payments which the individual makes in the tax year is at least £20,

(d) the individual makes a claim.

(2) The amount of the relief is equal to half the qualifying amount.

(3) But the maximum amount of relief under this section to which an individual is entitled for a tax year is £100.

(4) The relief is given by deducting the amount of the relief in calculating the individual's net income for the tax year (see Step 2 of the calculation in section 23).

(5) “Police organisation” means an organisation of persons in police service.

Payments for benefit of family members

459

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

Residence etc of claimants

460

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

(a) relief under section 457 or 458 (payments to trade unions and police organisations) for a tax year, ...

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

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

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

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

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

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

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

(i) the individual, or

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

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

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

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

(4) See also—

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

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

Those sections provide that where an individual makes such a claim or election for a tax year, the individual is not entitled to any relief under section 457 or 458 for that tax year.

Patent royalty receipts

Spreading of patent royalty receipts

461

(1) A person who makes a claim is entitled to a tax reduction for a tax year in which the person receives a payment of a royalty or other sum if—

(a) the payment is in respect of the use of a patent,

(b) the use of the patent has extended over a period of two years or more, and

(2) The amount of the tax reduction is the difference between—

(a) the amount of income tax payable by the person in respect of the payment, and

(b) the total amount of income tax which would have been payable by the person in respect of the payment on the assumptions in subsection (3).

(3) Those assumptions are that—

(a) the payment was made in a number of equal instalments at yearly intervals,

(b) the last instalment was paid on the date on which the payment was in fact made, and

(c) the number of instalments was the same as the number of complete years in the period over which the use of the patent extended, but subject to a maximum of 6.

(4) The tax reduction is given effect at Step 6 of the calculation in section 23.

Part 9 — Special rules about settlements and trustees

Chapter 1 — Introduction

Overview of Part

462

(1) This Part sets out special rules about settlements and trustees.

(2) Chapter 2 contains general provision about settlements and trustees, for example, definitions of expressions relating to settlements.

(3) Chapter 3 provides for income tax to be charged at the dividend trust rate or at the trust rate on certain amounts included in the net income of the trustees of a settlement.

(4) Chapter 4 provides—

(a) for expenses of the trustees of a settlement to be set against the trustees' trust rate income (see section 463(2)), and

(b) consequentially, for the amount of the trust rate income to be reduced.

(5) Chapter 5 qualifies section 479 (which is in Chapter 3) in the case of the trustees of a Schedule 2 share incentive plan.

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

(7) Chapter 7 deals with the treatment of payments made by the trustees of a settlement in the exercise of a discretion.

This affects the way the trustees and the recipients of such payments are taxed.

(8) Chapter 8 deals with the treatment of expenses of the trustees of a settlement where income arising to the trustees is, before being distributed, the income of a person other than the trustees themselves.

This affects the way that other person is taxed on that income.

(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(10) Chapter 10 deals with heritage maintenance settlements.

(11) See also Part 10 for special rules about charitable trusts and section 838A for special provision about asbestos compensation settlements .

(12) See also Chapter 4 of Part 2 of FA 2005 for provision about trusts with vulnerable beneficiaries.

Interpretation of Part

463

(1) In this Part—

“other income” means income which is neither dividend income nor savings income, and

“the trustees of a settlement” does not include personal representatives.

(2) References in this Part to the trust rate income for a tax year of the trustees of a settlement are references to the trustees' net income for the tax year so far as it includes amounts on which income tax is charged at the dividend trust rate or at the trust rate (ignoring Chapters 4 and 6).

Scottish trusts

464

(1) This section applies if—

(a) income arises to trustees under a trust having effect under the law of Scotland,

(b) the trustees are UK resident, and

(c) a beneficiary under the trust (“B”) would have an equitable right in possession to the income if the trust had effect under the law of England and Wales.

(2) B is treated for income tax purposes as having an equitable right in possession to the income (even though B has no such right under the law of Scotland).

Chapter 2 — General provision about settlements and trustees

Overview

Overview of Chapter and interpretation

465

(1) This Chapter contains general provision about settlements and trustees.

(2) Section 466 explains what is meant by references to settled property.

(3) Sections 467 to 473 explain what is meant by references to a settlor in relation to a settlement.

(4) Sections 474 to 476 treat the trustees of a settlement as a single and distinct person and set out rules in relation to the residence ... of that person.

(5) Section 477 relates to sub-fund elections under paragraph 1 of Schedule 4ZA to TCGA 1992.

(6) Section 478 is about references to settled property etc in regulations.

(7) For the purposes of this Chapter property is derived from other property if—

(a) it derives (directly or indirectly and wholly or partly) from that other property or any part of that other property, and

(b) in particular, if it derives (directly or indirectly and wholly or partly) from income from that other property or any part of that other property.

(8) In this Chapter “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.

Settled property

Meaning of “settled property” etc

466

(1) This section applies for the purposes of the Income Tax Acts, except so far as, in those Acts, the context otherwise requires.

(2) “Settled property” means any property held in trust other than property excluded by subsection (3).

(3) Property is excluded for the purposes of subsection (2) if—

(a) it is held by a person as nominee for another person,

(b) it is held by a person as trustee for another person who is absolutely entitled to the property as against the trustee, or

(c) it is held by a person as trustee for another person who would be absolutely entitled to the property as against the trustee if that other person were not an infant or otherwise lacking legal capacity.

(4) References, however expressed, to property comprised in a settlement are references to settled property.

(5) A person is absolutely entitled to property as against a trustee if the person has the exclusive right to direct how the property is to be dealt with (subject to the trustees' right to use the property for the payment of duty, taxes, costs or other outgoings).

(6) References to a person who is or would be so entitled include references to two or more persons who are or would be jointly absolutely entitled as against the trustee.

Settlors

Meaning of “settlor” etc

467

(1) In the Income Tax Acts (except where the context otherwise requires) “settlor”, in relation to a settlement, means the person, or any of the persons, who has made the settlement.

(2) In the Income Tax Acts (except where the context otherwise requires) a person is a settlor of property if—

(a) the property is settled property because of—

(i) the person's having made the settlement, or

(ii) an event which leads to the person being treated by this Chapter as having made the settlement, or

(b) the property derives from settled property within paragraph (a).

(3) A person (“S”) is treated for the purposes of the Income Tax Acts as having made a settlement if—

(a) S has made or entered into the settlement (directly or indirectly), or

(b) the settled property, or property from which the settled property derives, is or includes property within subsection (4).

(4) Property is within this subsection if—

(a) the settlement arose on S's death (whether by S's will, on S's intestacy or in any other way), and

(b) immediately before S's death, the property was property of S—

(i) which was disposable property (see section 468), or

(ii) which represented S's severable share in any property to which S was beneficially entitled as joint tenant.

(5) In particular, S is treated for the purposes of the Income Tax Acts as having made a settlement if—

(a) S has provided property for the purposes of the settlement (directly or indirectly), or

(b) S has undertaken to do that.

(6) If a person (“A”) makes or enters into a settlement in accordance with reciprocal arrangements with another person (“B”)—

(a) B is treated for the purposes of the Income Tax Acts as having made the settlement, and

(b) A is not to be treated for the purposes of the Income Tax Acts as having made the settlement just because of the reciprocal arrangements.

(7) This section needs to be read with sections 469 to 473.

(8) This section and sections 469 to 473 do not apply for the purposes of Chapter 5 of Part 5 of ITTOIA 2005 (amounts treated as income of settlors).

Meaning of “disposable property”

468

(1) This section applies for the purposes of section 467(4)(b)(i).

(2) Property is disposable if S could have disposed of it by S's will.

(3) In working out whether any property could have been so disposed of—

(a) make the assumptions mentioned in subsection (4), and

(b) ignore the powers mentioned in subsection (5).

(4) Assume that—

(a) S is of full age and capacity,

(b) the property is situated in England and Wales, and

(5) The powers to be ignored are—

(a) any power of appointment giving S the right to dispose of the property, and

(b) any testamentary power conferred by statute to dispose of entailed interests.

Person ceasing to be a settlor

469

(1) A person (“S”) who is a settlor in relation to a settlement ceases to be so when the following condition is met.

(2) The condition is that—

(a) no property of which S is the settlor is comprised in the settlement,

(b) S has not undertaken to provide property (directly or indirectly) for the purposes of the settlement in the future, and

(c) S has not made reciprocal arrangements with another person for that other person to enter into the settlement in the future.

Transfers between settlements

470

(1) Section 471 applies in relation to a transfer of property from the trustees of one settlement (“settlement 1”) to the trustees of another settlement (“settlement 2”) if the transfer—

(a) is not for full consideration,

(b) is not by way of a bargain made at arm's length, and

(2) A transfer of property is excluded for the purposes of subsection (1) if—

(a) it occurs only because of the assignment by a beneficiary under settlement 1 of an interest in that settlement to the trustees of settlement 2,

(b) it occurs only because of the exercise of a general power of appointment, or

(3) In this section “transfer of property” means—

(a) a disposal of property by the trustees of settlement 1, and

(b) the acquisition by the trustees of settlement 2 of—

(i) property disposed of by the trustees of settlement 1, or

(ii) property created by the disposal.

(4) For the purposes of subsection (3) there is an acquisition or disposal of property if there would be an acquisition or disposal of property for the purposes of TCGA 1992.

Identification of settlor following transfer covered by section 470

471

(1) If there is a transfer of property in relation to which this section applies, then the following subsections apply for the purposes of the Income Tax Acts, except so far as, in those Acts, the context otherwise requires.

(2) The settlor (or each settlor) of the property disposed of by the trustees of settlement 1 (“the disposed property”) is treated from the time of the disposal as having made settlement 2.

(3) If there is more than one settlor of the disposed property, each of them is treated in relation to settlement 2 as the settlor of a proportionate part of the property acquired by the trustees of settlement 2 on the disposal.

(4) So far as the disposed property—

(a) was provided for the purposes of settlement 1, or

(b) was derived from property so provided,

the property acquired by the trustees of settlement 2 on the disposal is treated from the time of the disposal as having been provided for the purposes of settlement 2.

(5) If as a result of subsection (4), property (“the transferred property”) is treated as having been provided for the purposes of settlement 2—

(a) the person who provided the disposed property, or the property from which it was derived, for the purposes of settlement 1 is treated as having provided the transferred property for the purposes of settlement 2, and

(b) if more than one person provided the disposed property, or the property from which it was derived, for the purposes of settlement 1, each of them is treated as having provided a proportionate part of the transferred property for the purposes of settlement 2.

Settlor where property becomes settled because of variation of will etc

472

(1) This section applies if—

(a) a disposition of property following a person's death is varied, and

(b) section 62(6) of TCGA 1992 applies in relation to the variation.

(2) If property becomes settled property because of the variation (and would not, but for the variation, have become settled property), a person within subsection (3) is treated for the purposes of the Income Tax Acts (except where the context otherwise requires)—

(a) as having made the settlement, and

(b) as having provided the property for the purposes of the settlement.

(3) The persons within this subsection are—

(a) a person who immediately before the variation was entitled to the property, or to property from which it derived, absolutely as legatee,

(b) a person who immediately before the variation would have been so entitled if that person had not been an infant or otherwise lacking legal capacity,

(d) a person who, but for the variation, would have become so entitled if that person had not been an infant or otherwise lacking legal capacity.

(4) For the purposes of subsection (3)—

(a) “legatee” includes a person taking property—

(i) under a testamentary disposition or on an intestacy or partial intestacy, whether beneficially or as trustee, or

(ii) under a donatio mortis causa, and

(b) a person who is a legatee as a result of paragraph (a)(ii) is treated as acquiring the property when the donor dies.

(5) For the purposes of subsection (4)(a) property taken under a testamentary disposition or on an intestacy or partial intestacy includes any property appropriated by the personal representatives in or towards satisfaction of—

(a) a pecuniary legacy, or

(b) any other interest or share in the property devolving under the disposition or intestacy.

Deceased person as settlor where variation of will etc

473

(1) This section applies if—

(a) a disposition of property following the death of a person (“D”) is varied, and

(b) section 62(6) of TCGA 1992 applies in relation to the variation.

(2) If—

(a) property would have become comprised in a settlement within subsection (3), but

(b) as a result of the variation, the property, or property derived from it, becomes comprised in another settlement,

D is treated for the purposes of the Income Tax Acts (except where the context otherwise requires) as having made the other settlement.

(3) A settlement is within this subsection if—

(a) it arose on D's death (whether by D's will or on D's intestacy or in any other way), or

(b) it was in existence immediately before D's death (whether or not D was a settlor in relation to it).

(4) If—

(a) immediately before the variation property is comprised in a settlement and is property of which D is a settlor, and

(b) immediately after the variation the property, or property derived from it, becomes comprised in another settlement,

D is treated for the purposes of the Income Tax Acts (except where the context otherwise requires) as having made the other settlement.

(5) A settlement treated as made by D as a result of this section is treated for the purposes of the Income Tax Acts as made by D immediately before D's death.

(6) But subsection (5) does not apply in relation to a settlement which arose on D's death.

Trustees

Trustees of settlement to be treated as a single and distinct person

474

(1) For the purposes of the Income Tax Acts (except where the context otherwise requires), the trustees of a settlement are together treated as if they were a single person (distinct from the persons who are the trustees of the settlement from time to time).

(2) If different parts of the settled property in relation to a settlement are vested in different bodies of trustees, subsection (1) and sections 475 and 476 apply in relation to the different bodies as if they were all one body.

(3) The cases covered by subsection (2) include cases where settled land (within the meaning of the Settled Land Act 1925 (c. 18)) is vested in the tenant for life and investments representing capital money are vested in the trustees of the settlement.

Residence of trustees

475

(1) This section applies for income tax purposes and explains how to work out, in relation to the trustees of a settlement, whether or not the single person mentioned in section 474(1) is UK resident.

(2) If at a time either condition A or condition B is met, then at that time the single person is UK resident.

(3) If at a time neither condition A nor condition B is met, then at that time the single person is non-UK resident.

(4) Condition A is met at a time if, at that time, all the persons who are trustees of the settlement are UK resident.

(5) Condition B is met at a time if at that time—

(a) at least one person who is a trustee of the settlement is UK resident and at least one such person is non-UK resident, and

(b) a settlor in relation to the settlement meets condition C (see section 476).

(6) If at a time a person (“T”) who is a trustee of the settlement acts as trustee in the course of a business which T carries on in the United Kingdom through a branch, agency or permanent establishment there, then for the purposes of subsections (4) and (5) assume that T is UK resident at that time.

(7) Subsection (8) applies if—

(a) an individual becomes or ceases to be a trustee of the settlement during a tax year,

(b) that year is a split year as respects the individual, and

(c) the only period in that year when the individual is a trustee of the settlement falls wholly within the overseas part of the year.

(8) The individual is to be treated for the purposes of subsections (4) and (5) as if he or she had been non-UK resident for the year (and hence for the period in that year when he or she was a trustee of the settlement).

(9) But subsection (8) is subject to subsection (6) and, accordingly, an individual who is treated under subsection (8) as having been non-UK resident is, in spite of that, to be treated as UK resident whenever the individual acts as mentioned in subsection (6).

How to work out whether settlor meets condition C

476

(1) This section applies for the purpose of working out whether a settlor (“S”) in relation to a settlement meets condition C at a time.

(2) If—

(a) the settlement arose on S's death (whether by S's will, on S's intestacy or in any other way), and

(b) immediately before S's death, S was UK resident ... ...,

then S meets condition C from the time of S's death until S ceases to be a settlor in relation to the settlement.

(3) If—

(a) the settlement is not within subsection (2)(a), and

(b) at a time when S made the settlement (or is treated for the purposes of the Income Tax Acts as making the settlement), S was UK resident ... ...,

then S meets condition C from that time until S ceases to be a settlor in relation to the settlement.

(3ZA) In relation to a settlement—

(a) that arose before 6 April 2025 on S’s death, or

(b) that S made (or is treated for the purposes of the Income Tax Acts as having made) before 6 April 2025,

subsections (2)(b) and (3)(b) have effect as if after “UK resident” there were inserted “or domiciled in the United Kingdom”.

(3A) Section 835BA (deemed domicile) applies for the purposes of subsection (3ZA).

(4) Further, if—

(a) there is a transfer of property in relation to which section 471 applies,

(b) S is a settlor in relation to settlement 2 as a result of that section, and

(c) immediately before the disposal by the trustees of settlement 1, S meets condition C as a settlor in relation to settlement 1 as a result of this section,

then S meets condition C as a settlor in relation to settlement 2 from the time S becomes such a settlor until S ceases to be such a settlor.

(5) “Settlement 1” and “settlement 2” are to be read in accordance with section 470(1).

Sub-funds

Sub-fund elections under Schedule 4ZA to TCGA 1992

477

(1) This section applies for the purposes of the Income Tax Acts (except so far as, in those Acts, the context otherwise requires) if the trustees of a settlement have made a sub-fund election under paragraph 1 of Schedule 4ZA to TCGA 1992.

(2) The sub-fund settlement is treated as a settlement that is created at the relevant time.

(3) Each trustee of the trusts on which property comprised in the sub-fund settlement is held is treated as a trustee of the sub-fund settlement.

(4) A person (“T”) who is a trustee of the sub-fund settlement is treated, from the relevant time, as having ceased to be a trustee of the principal settlement unless T is also a trustee of trusts on which property comprised in the principal settlement is held.

(5) A person (“T”) who is a trustee of the principal settlement is not to be treated as a trustee of the sub-fund settlement unless T is also a trustee of trusts on which property comprised in the sub-fund settlement is held.

(6) The trustees of the sub-fund settlement are treated as having become, at the relevant time, absolutely entitled to the property comprised in that settlement as against the trustees of the principal settlement.

(7) In this section—

“principal settlement” has the meaning given by paragraph 1 of Schedule 4ZA to TCGA 1992,

“the relevant time” means the time when the sub-fund election is treated as having taken effect under paragraph 2 of that Schedule,

“sub-fund election” has the meaning given by paragraph 2 of that Schedule, and

“sub-fund settlement” has the meaning given by paragraph 1 of that Schedule.

Regulations

References to settled property etc in regulations

478

For the purposes of regulations (whenever made) made under a provision of the Income Tax Acts—

(a) references to settled property, a settlor or trustees are to be read in accordance with this Chapter, and

(b) references to the trustees of a trust are to be read as references to the trustees of a settlement.

Chapter 3 — Special rates for trustees' income

Trustees' accumulated or discretionary income to be charged at special rates

479

(1) This section applies if—

(a) accumulated or discretionary income arises to the trustees of a settlement, and

(b) the income does not arise under a charitable trust.

(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).

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Income Tax Act 2007

Meaning of “qualifying investment”

432

Meaning of “qualifying interest in land”

433

Amount of relief

The relievable amount

434

Incidental costs of making disposal

435

Consideration

436

Value of net benefit to charity

Value of net benefit to charity

437

Market value of qualifying investments

438

Meaning of “disposal-related obligation”

439

Meaning and amount of “disposal-related liability”

440

Special provisions about qualifying interests in land

Certificate required from charity

441

Qualifying interests in land held jointly

442

Calculation of relievable amount where joint disposal of interest in land

443

Disqualifying events

444

Supplementary

Prohibition against double relief

445

“Charity” to include exempt bodies

446

Chapter 4 — Annual payments ...

Overview of Chapter

447

Relief for individuals

448

Relief for other persons

449

Other persons: payments ineligible for relief

450

Special rule for persons affected by section 733 of ICTA

451

The gross amount of a payment

452

Chapter 5 — Qualifying maintenance payments

Tax reduction for qualifying maintenance payments

453

Meaning of “qualifying maintenance payment”

454

Child support maintenance payments

455

Payments under orders for recovery of benefit etc

456

Chapter 6 — Miscellaneous other reliefs

Payments for life insurance etc

Payments to trade unions

457

Payments to police organisations

458

Payments for benefit of family members

459

Residence etc of claimants

460

Patent royalty receipts

Spreading of patent royalty receipts

461

Part 9 — Special rules about settlements and trustees

Chapter 1 — Introduction

Overview of Part

462

Interpretation of Part

463

Scottish trusts

464

Chapter 2 — General provision about settlements and trustees

Overview