Source: http://www.legislation.gov.uk/ukpga/2007/3/notes/division/2/13/1
Timestamp: 2013-05-21 18:13:16
Document Index: 603006911

Matched Legal Cases: ['art 13', 'art 17', 'art 17', 'art 17', 'art 12', 'art 17', 'art 15', 'art 14', 'art 15', 'art 3', 'art 2', 'art 5', 'art 4', 'art 4', 'art 4', 'art 4', 'art 4', 'art 4', 'art 4', 'arts 5', 'art 4', 'art 4']

Skip to main contentSkip to navigationlegislation.gov.ukThe National ArchivesHelpSite MapAccessibilityContact UsHomeAbout UsBrowse LegislationNew LegislationChanges to LegislationSearch LegislationSearch LegislationTitle: (or keywords in the title)Year:Number:Type:All Legislation (excluding draft)All Primary Legislation UK Public General Acts UK Local Acts Acts of the Scottish Parliament Acts of the National Assembly for Wales Measures of the National Assembly for Wales Church Measures Acts of the Northern Ireland Assembly Acts of the Old Scottish Parliament Acts of the English Parliament Acts of the Old Irish Parliament Acts of the Parliament of Great Britain Northern Ireland Orders in Council Measures of the Northern Ireland Assembly Acts of the Northern Ireland ParliamentAll Secondary Legislation UK Statutory Instruments Wales Statutory Instruments Scottish Statutory Instruments Northern Ireland Statutory Rules Church Instruments UK Ministerial Orders UK Statutory Rules and OrdersAll Draft Legislation UK Draft Statutory Instruments Scottish Draft Statutory Instruments Northern Ireland Draft Statutory RulesAll Impact Assessments UK Impact AssessmentsSearchAdvanced SearchIncome Tax Act 2007You are here:2007 c. 3Explanatory NotesCommentary on SectionsPart 13OverviewTable of ContentsContentExplanatory NotesMore ResourcesOpen full notesPreviousExplanatory Notes Table of contentsNext
Overview2022.This Part contains provisions relating to various types of tax avoidance. The Chapters are arranged as follows:Transactions in securities (Chapter 1);Transfer of assets abroad (Chapter 2);Transactions in land (Chapter 3);Sales of occupation income (Chapter 4);Avoidance involving trading losses (Chapter 5).Chapter 1: Transactions in securitiesOverview2023.This Chapter rewrites, for the purposes of income tax, sections 703 to 709 of ICTA.2024.Sections 703 to 709 of ICTA were enacted as a wide-ranging anti-avoidance rule which would enable the Crown to counter all manner of devices to avoid income tax involving transactions in shares or other securities or the manipulation of a company’s assets or both, and to forestall the creation of such devices in future.2025.The sections of this Chapter are arranged in the following order:Sections 682 and 683 – introduction (section 683 defines the central concept of “income tax advantage”);Sections 684 and 685 – definition of the person liable to counteraction of income tax advantages;Sections 686 to 694 – circumstances in which, if income tax advantages are obtained or obtainable, the Chapter may apply;Sections 695 to 700 – procedure for counteraction of income tax advantages;Sections 701 to 703 – clearance procedure and information powers;Section 704 – how the special tribunal for the purposes of this Chapter is to be constituted;Sections 705 to 711 – appeals;Sections 712 and 713 – supplementary.Section 682: Overview of Chapter2026.This section provides an overview of the Chapter. It is based on section 703(1) of ICTA.2027.Subsection (2) provides a signpost to section 698, which is concerned with the issue of notices counteracting income tax advantages.Section 683: Meaning of “income tax advantage”2028.This section defines “income tax advantage” for the purposes of this Chapter. It is based on section 709(1) and (2A) of ICTA.2029.This Act consequentially amends sections 703 to 709 of ICTA to apply solely for corporation tax purposes. In particular, sections 703 to 709 of ICTA will use the term “corporation tax advantage”.2030.But the definition of “tax advantage” in section 709(1) of ICTA is used in a large number of other anti-avoidance provisions (such as paragraph 13 of Schedule 9 to FA 1996 (loan relationships: unallowable purposes test)). To ensure that these provisions are not disturbed, this Act inserts a new section 840ZA of ICTA (meaning of “tax advantage”), and consequentially amends those provisions outside Chapter 1 of Part 17 of ICTA which use the section 709(1) definition of “tax advantage”.Section 684: Person liable to counteraction of income tax advantage2031.This section defines the person liable to counteraction. It is based on section 703(1) and (2) of ICTA.2032.Subsection (1) sets three positive conditions for this section to apply to a person in respect of a transaction in securities or two or more such transactions.2033.The first condition, in the opening words of subsection (1), is that the person is in a position to obtain or has obtained an income tax advantage.2034.The second condition, in subsection (1)(a), is that the person is in a position to obtain or has obtained the income tax advantage in circumstances where any of the specified provisions applies in relation to the person.2035.The third condition, in subsection (1)(b), is that the person is in a position to obtain or has obtained the income tax advantage in consequence of either the transaction or the combined effect of the transactions.2036.Subsection (3) covers the situation when an income tax advantage is obtained or obtainable by a person in consequence of the combined effect of the transaction or transactions and the liquidation of a company.Section 685: Exception where no tax avoidance object shown2037.This section provides an exception to section 684 in certain circumstances. It is based on the escape clause in section 703(1) of ICTA.2038.Subsection (1) provides that a person is taken out of section 684 if that person shows that both conditions A and B are met. These conditions are defined in subsections (2) and (3).2039.Section 703(1) contains a reference to “the transaction or transactions being carried out”. In Greenberg v CIR (1971), 47 TC 240 HL (at pages 279 and 283) Lord Guest and Lord Simon of Glaisdale said that “carried out” in section 703(1) of ICTA meant “effected” as in section 707 of ICTA rather than “implemented”. Sections 685(2) and 701 (which is based on section 707 of ICTA) therefore both refer to transactions being “effected”. This is a verbal change to provide consistency. It does not change the law.Section 686: Abnormal dividends used for exemptions or reliefs (circumstance A)2040.This section is the first in a sequence of sections in which the sets of circumstances in section 704 of ICTA are laid out and expanded in five separate sections. It is based on sections 704 A and 709(3) of ICTA.2041.The sequence also includes four interpretative sections based on sections 704 D and 709 of ICTA. The approach here takes account of the comments of Slade J in CIR v Garvin (1981), 55 TC 24(1) at page 50:The five circumstances set out in [what is now section 704 of ICTA] are set out in minute detail, not for the assistance of the Crown but for the protection of the subject, in the context of a preceding section of a penal nature.”2042.Subsection (1) requires that three conditions set out in subsections (2) to (4) must be satisfied if section 686 is to apply to a person.2043.Subsection (3) lays down what the receipt must be in connection with. The approach taken here differs from that in the source legislation. First, the subsection brings together provisions that were previously drafted in separate subsections. Second, in line with judicial comment on these provisions, it does not treat section 709(3)(a) and (b) as non-exhaustive definitions. The approach taken here is consistent with the case law on these provisions: CIR v Parker (1966) 43 TC 396 HL, CIR v Cleary (1967) 44 TC 399 HL, Hague v CIR (1968) 44 TC 619 CA, CIR v Horrocks (1968) 44 TC 645 Ch D and CIR v Wiggins (1978) 53 TC 639 Ch D(2).2044.Subsection (4) prescribes the tax purposes for which the amount received must be taken into account.2045.Section 704 A(f) of ICTA is redundant and, accordingly, is repealed without replacement.Section 687: Deductions from profits obtained following distribution or dealings (circumstance B)2046.This section is based on sections 704 B(1) and 709(3)of ICTA.2047.Subsection (1) requires that three conditions set out in subsections (2) to (4) must be satisfied if section 687 is to apply to a person.2048.Subsection (2) provides that the person must become entitled to a deduction in calculating profits or gains in respect of securities.2049.Subsection (3) prescribes what the person’s entitlement must arise in connection with. See also the commentary on section 686(3).2050.This section does not rewrite section 704 B(2), which is corporation tax specific.Section 688: Receipt of consideration representing company’s assets, future receipts or trading stock (circumstance C)2051.This section is based on sections 704 B, 704 C and 709 of ICTA.2052.Subsection (1) requires that three conditions set out in subsections (2), (3) and (6) must be satisfied if section 688 is to apply to a person (A).2053.Subsection (2) is about the receipt of consideration. It prescribes what the consideration must be if section 688 is to apply to A.2054.Subsection (3) requires that, if section 688 is to apply to a receipt, it must be in consequence of a transaction whereby another person (B) – to summarise – either receives an abnormal amount by way of dividend or becomes entitled to a deduction in calculating profits or gains in respect of B’s securities. Subsection (3) retains the source legislation’s connective “whereby”, which has been the subject of judicial comment.2055.Subsection (4) prescribes what B’s entitlement (in subsection (3)) must arise in connection with. On the rewrite of section 709(3)(a) and (b) in this context, see the comment on section 686(3).2056.Section 709(3)(c) of ICTA (meaning of “consideration”) is rewritten for the purposes of section 688 in subsection (8). Subsection (8) extends “consideration” to include non-contractual receipts of money or money’s worth.Section 689: Receipt of consideration in connection with relevant company distribution (circumstance D)2057.This section is based on sections 704 C, 704 D and 709 of ICTA.2058.Subsection (1) requires that three conditions set out in subsections (2) to (4) must be satisfied if section 689 is to apply to a person.2059.Subsection (2) is concerned with the receipt of consideration. It prescribes what the receipt must be in connection with if section 689 is to apply to the person in question. It is based on sections 704 D(1) and 709(3)(a) and (b) of ICTA.2060.On the rewrite of section 709(3)(a) and (b) in this context, see the comment on section 686(3).2061.Subsection (6) is concerned with “consideration”. It is based on section 709(3)(c) of ICTA. It extends “consideration” to include non-contractual receipts of money or money’s worth.Section 690: Receipt of assets of relevant company (circumstance E)2062.This section is based on section 704 E and 709(3) of ICTA.2063.Subsection (1) requires that four conditions set out in subsections (2) to (4) and (7) must be satisfied if section 690 is to apply to a person.2064.Subsection (8) defines “security” and (non-exhaustively) “consideration” and “share” in section 690. It extends “consideration” to include non-contractual receipts of money or money’s worth.Section 691: Meaning of “relevant company” in sections 689 and 6902065.This section defines the term “relevant company”, which is used in sections 689 and 690. It is based on section 704 D of ICTA.Section 692: Abnormal dividends: general2066.This section is the first of three interpretative sections about abnormal dividends. It is based on section 709(4) of ICTA.2067.Subsection (1) provides that a dividend is abnormal if “the appropriate authority” is satisfied either that “the excessive return condition” is met or that “the excessive accrual condition” is met. Signposts are provided to sections 693 and 694, where these conditions are defined.2068.Subsection (2) defines “the appropriate authority”. It replaces the reference to “the Board” with a reference to “an officer of Revenue and Customs” (namely, the officer dealing with the case). See Change 5 in Annex 1.2069.HMRC’s internal procedures restrict the exercise of the Commissioners for Revenue and Customs’ functions under Chapter 1 of Part 17 of ICTA to a small group of specialist officers. Change 5 will have no effect on this practice.Section 693: Abnormal dividends: the excessive return condition2070.This section defines the excessive return condition. It is based on section 709(4) and (6) of ICTA.Section 694: Abnormal dividends: the excessive accrual condition2071.This section defines the excessive accrual condition. It is based on section 709(4) and (5) of ICTA.Section 695: Preliminary notification that section 684 may apply2072.This section is concerned with preliminary notification that section 684 (person liable to counteraction of income tax advantages) may apply. It is based on section 703(3) and (9) of ICTA.2073.The section is the first of a group of sections (sections 695 to 700) which lay down the procedure for counteraction of income tax advantages.2074.As explained in the note on section 692, section 695 similarly replaces a reference to “the Board” with a reference to “an officer of Revenue and Customs” (namely, the officer dealing with the case). See Change 5 in Annex 1.Section 696: Opposed notifications: statutory declarations2075.This section applies if the person on whom the preliminary notification is served considers that section 684 does not apply. It is based on section 703(9) and (10) of ICTA.2076.As explained in the note on section 692, this section similarly replaces references to “the Board” with references to “an officer of Revenue and Customs” (namely, the officer dealing with the case). See Change 5 in Annex 1.2077.Subsections (1) and (2) are about the person’s right to make a statutory declaration that section 684 does not apply and the time limit for doing so.2078.Subsection (3) lays down the legal consequences if the person makes a statutory declaration, sends it to the officer and the officer sees no reason to take further action.Section 697: Opposed notifications: determinations by tribunal2079.This section applies if the officer receiving a statutory declaration sees reason to take further action. It is based on section 703(10) of ICTA.2080.As explained in the note on section 692, section 697 similarly replaces references to “the Board” with references to “an officer of Revenue and Customs” (namely, the officer dealing with the case). See Change 5 in Annex 1.2081.Subsections (2) and (3) are about what the officer must and may do.2082.If the taxpayer gives a statutory declaration that section 684 does not apply and the officer sees reason to take further action, subsection (2) requires the officer to send the tribunal a certificate to that effect, together with the statutory declaration.2083.Subsection (4) is about what the tribunal must do.2084.Subsection (5) lays down the legal consequences if the tribunal determines that there is no case for the officer to take further action.2085.Subsection (6) limits those consequences to cases where the transaction or transactions under review are the only ones involved.Section 698: Counteraction notices2086.This section is concerned with notices for the counteraction of income tax advantages. It is based on section 703(3), (9), (10) and (12) of ICTA.2087.As explained in the note on section 692, section 698 similarly replaces references to “the Board” with references to “an officer of Revenue and Customs” (namely, the officer dealing with the case). See Change 5 in Annex 1.2088.Subsection (1) lays down that the officer can serve a counteraction notice in two circumstances, namely if:the person on whom a preliminary notification has been served has not exercised the right to make a statutory declaration in the time allowed; orthe person has exercised this right, but the tribunal has determined that there is a prima facie case for counteraction.2089.Subsection (1), unlike the source legislation, makes it explicit that counteraction can proceed once the tribunal has determined that there appears to be a case for counteraction. This follows a dictum to that effect from Oliver J in Balen v CIR (1978) 52 TC 406(3) at page 408.2090.Subsection (4) specifies the kinds of adjustment which a notice may require to be made, including an assessment.Section 699: Limit on amount assessed in section 689 and 690 cases2091.This section sets a limit on the amount assessed in cases within sections 689 and 690. It is based on section 703(3A) of ICTA.Section 700: Timing of assessments in section 690 cases2092.This section is a special rule for the timing of assessments in section 690 cases. It is based on section 704 E(2) and (3) of ICTA.Section 701: Application for clearance of transactions2093.This section is concerned with applications for clearance of transactions. It is based on section 707(1) of ICTA.2094.This section will apply solely for income tax purposes, and section 707 of ICTA will apply solely for corporation tax purposes. HMRC’s operational guidance will tell officers what action they should take if a clearance application is made which appears to refer to the wrong provision.Section 702: Effect of clearance notification under section 7012095.This section lays down the legal consequences of HMRC giving a clearance notification under section 701. It is based on section 707 of ICTA.2096.This section will apply solely for income tax purposes, and section 707 of ICTA will apply solely for corporation tax purposes. If HMRC issue a section 702 or section 707 clearance which refers by mistake to the wrong provision, HMRC will treat it as if it referred to the correct provision.Section 703: Power to obtain information2097.This section gives HMRC power to obtain information relevant to this Chapter. It is based on section 708 of ICTA.2098.Section 703 changes the 28-day information gathering time limit to 30 days. See Change 108 in Annex 1.2099.As explained in the note on section 692, section 703 replaces references to “the Board” with references to “an officer of Revenue and Customs” (namely, the officer dealing with the case). See Change 5 in Annex 1.2100.This section will apply solely for income tax purposes, and section 708 of ICTA will apply solely for corporation tax purposes.Section 704: The tribunal2101.This section prescribes how the special tribunal for the purposes of this Chapter is to be constituted. It is based on section 706 of ICTA.Section 705: Appeals against counteraction notices2102.This section is concerned with appeals against counteraction notices. It is based on section 705(1) and(5) of ICTA.2103.Section 705(5) of ICTA gives the Special Commissioners the power not only to vary or quash an assessment but also, implicitly, to affirm it: see Browne-Wilkinson J in Anysz v CIR (1977), 53 TC 601 ChD at page 630(4). Subsection (3) makes this implication explicit, and similarly makes it explicit that the Special Commissioners have the power to affirm a counteraction notice.Section 706: Rehearing by tribunal of appeal against counteraction notice2104.This section is concerned with the tribunal rehearing appeals against counteraction notices. It is based on section 705(2), (3) and (5) of ICTA.2105.As explained in the note on section 692, this section similarly replaces references to “the Board” with a reference to “an officer of Revenue and Customs” (namely, the officer dealing with the case) See Change 5 in Annex 1.2106.Section 705(3) of ICTA provides that the tribunal shall “have and exercise” the same “powers and authorities” as the Special Commissioners. In the present context, exercising a power is implicit in having it and it is unnecessary to refer to both “powers” and “authorities”. Subsection (4), which is based on this part of section 705(3), therefore merely says that the tribunal have the same powers in relation to the appeal as the Special Commissioners.Section 707: Statement of case by tribunal for opinion of High Court or Court of Session2107.This section is concerned with appeals from the tribunal to the High Court (in England and Wales) or the Court of Session (in Scotland). It is based on sections 705(5) and 705A of ICTA.2108.As explained in the note on section 692, this section similarly replaces a reference to “the Board” with a reference to “an officer of Revenue and Customs” (namely, the officer dealing with the case). See Change 5 in Annex 1.2109.This section removes the requirement in section 705A of ICTA for the dissatisfied party to declare “his or their dissatisfaction” before requiring the tribunal to state a case for the opinion of the court. This is a minor administrative change in the law. See Change 109 in Annex 1.Section 708: Cases before High Court or Court of Session2110.This section is concerned with cases before the High Court or the Court of Session. It is based on section 705A of ICTA.Section 709: Effect of appeals against tribunal’s determination under section 7062111.This section sets out the legal consequences if the tribunal have made a determination under section 706 about an assessment and a case has been required to be stated about it under section 707 or is pending before the High Court or the Court of Session. It is based on section 705A(10) to (12) of ICTA.Section 710: Appeals from High Court or Court of Session2112.This section is concerned with appeals from the High Court and the Court of Session. It is based on section 705A(8), (9) and (12) of ICTA.2113.This section refers to “the Supreme Court” rather than “the House of Lords”. This anticipates the substitutions to be made by paragraph 47 of Schedule 9 to the Constitutional Reform Act 2005. This Act includes a transitional amendment substituting “the House of Lords” for “the Supreme Court” for the period before the paragraph 47 amendments come into force.Section 711: Proceedings in Northern Ireland2114.This section deals with proceedings in Northern Ireland. It is based on section 705B of ICTA.2115.Section 705B of ICTA (transactions in securities: proceedings in Northern Ireland) applies the procedures of section 705A of ICTA to Northern Irish appeals. In particular, it provides that “the Taxes Acts (as defined in section 118(1) of [TMA])” shall have effect as if section 705A of ICTA applied with modifications to reflect the court system in Northern Ireland.2116.Section 118(1) of TMA defines “the Taxes Acts” as “this Act [ie TMA] and (a) the Tax Acts and (b) the Taxation of Chargeable Gains Act 1992 and all other enactments relating to capital gains tax.”2117.The implicit reference to the enactments relating to capital gains tax is redundant. This section therefore omits it.2118.This section refers to “the Supreme Court” rather than “the House of Lords”. In this connection see the commentary on section 710.Section 712: Application of Chapter where individual within section 684 dies2119.This section is concerned with the application of this Chapter where an individual within section 684 has died. It is based on section 703(11) of ICTA.2120.Subsection (3) expressly refers not only to the making of a statutory declaration, rights of appeal and the giving of information (like the source legislation) but also to notices and notifications such as are mentioned in subsection (2). This reference is implicit in section 703(11) of ICTA.Section 713: Interpretation of Chapter2121.This section is interpretative. It is based on section 709(2) of ICTA.2122.In CIR v Joiner (1975), 50 TC 449 HL(5) Lord Diplock said (at page 487):In the instant case the explanation in [what is now section 709(2) of ICTA] of the expression “transaction in securities”, though introduced by the word “includes”, speaks of “transactions, of whatever description, relating to securities” as well as referring to particular examples of such transactions. This is so extensive as to leave no possibility of there being any transaction which could sensibly be described as a “transaction in securities” without also falling within the longer description in the interpretation clause. So it is no more than a direction to the reader: “Whenever you see the words “transaction in securities” in this Chapter of the Statute you must treat them as being shorthand for the whole of the words in [what is now section 709(2)] that are preceded by the verb “includes” [in the fourth place in which it occurs].””2123.Buckley J and Lord Simon of Glaisdale had made the same point in Greenberg v CIR (1971), 47 TC 240 at pages 260 and 282.2124.This section therefore expressly rewrites the definition of “transaction in securities” as exhaustive.Chapter 2: Transfer of assets abroadOverview2125.This Chapter contains provisions directed against tax avoidance by means of transfers of assets.2126.The sections of this Chapter are arranged in the following order:Sections 714 to 719 – introduction;Sections 720 to 726 – charge where power to enjoy income;Sections 727 to 730 – charge where capital sums received;Sections 731 to 735 – charge where benefit received;Sections 736 to 742 – exemptions: no tax avoidance purpose or genuine commercial transaction;Sections 743 to 747 – general;Sections 748 to 751 – supplementary.Section 714: Overview of Chapter2127.This section provides an overview of the Chapter.2128.Subsection (1) introduces the three charges that are imposed by the Chapter. It is new.2129.Subsection (4) extends references to individuals to include their spouses and their civil partners. It is based on section 742(9) of ICTA.Section 715: Meaning of “relevant transaction”2130.This section defines the expression “relevant transaction”. It is based on section 741B(2) of ICTA.2131.Either a “relevant transfer” or an “associated operation” may be a “relevant transaction”, and the convenient new label “relevant transaction” is used extensively in this Chapter.2132.The expressions “relevant transfer” and “associated operation” are defined in sections 716 and 719, to which subsection (2) provides signposts.Section 716: Meaning of “relevant transfer” and “transfer”2133.This section defines “relevant transfer” and “transfer” for the purposes of this Chapter. It is based on sections 739(1), 740(1) and 742(1A) and (9) of ICTA.Section 717: Meaning of “assets” etc2134.This section non-exhaustively defines the term “assets” and makes provision about the interpretation of references to assets representing assets, income or accumulations of income. It is based on section 742(9) of ICTA.Section 718: Meaning of “person abroad” etc2135.This section introduces the term “person abroad”, meaning a person who is resident or domiciled outside the United Kingdom. It is based on sections 739(1) to (3), 740(1) and (3), 742(2), (4), (8) and (9A) and 745(3) of ICTA and section 111(1) of FA 1989.2136.Subsection (2) provides that a UK resident body corporate that is incorporated outside the United Kingdom is treated as if it were resident outside the United Kingdom. It forestalls arguments that a non-UK incorporated but UK resident body corporate is somehow domiciled in a part of the United Kingdom and therefore not a person abroad.2137.Subsection (2) also provides that a person treated as neither UK resident nor ordinarily UK resident under section 475(3) (trustees of settlements) and persons treated as non-UK resident under section 834(4) (personal representatives) are treated as resident outside the United Kingdom (and thus persons abroad).Section 719: Meaning of “associated operation”2138.This section defines the term “associated operation”. It is based on section 742(1) of ICTA.2139.This section includes a minor change in the law relating to the references to “assets” in section 742(1) of ICTA. See Change 110 in Annex 1.Section 720: Charge to tax on income treated as arising under section 7212140.This section imposes the charge to income tax on individuals with power to enjoy income as a result of relevant transactions and indicates the measure of income and the person liable. It is based on sections 739(1), (2) and 743(1) of ICTA. It is the first of a sequence of sections (sections 720 to 726) which deal with this charge.2141.Subsection (5) provides that the individual to whom income is treated as arising is the person liable. This person is defined in section 721.2142.This section also provides signposts to other sections detailing how the income charged is calculated and when exemption is due.Section 721: Individuals with power to enjoy income as a result of relevant transactions2143.This section describes the individual to whom income is treated as arising and the circumstances in which it is treated as arising. It is based on sections 739(1) to (2) and 742(1B) of ICTA.2144.Sections 739(2) and (3) of ICTA indicate the person liable by using the expression “such an individual” – but do not make it clear how much of section 739(1) is implied by that expression. This section and section 728, which are based on section 739(2) and (3), reproduce the expression “such an individual”, which has been the subject of case law: see, in particular, Vestey v CIR (1979), 54 TC 503 HL(6).Section 722: When an individual has power to enjoy income of person abroad2145.This section defines in general terms when an individual has power to enjoy income of a person abroad. It is based on section 742(2) and (3) of ICTA. One of the conditions for liability under section 720 is that the individual has “power to enjoy” income of a person abroad: section 721(2).2146.Subsection (1) introduces the concept of the enjoyment conditions. Subsection (2) provides a link to section 723, which sets out those conditions.Section 723: The enjoyment conditions2147.This section continues the definition of when an individual has power to enjoy income of a person abroad, by detailing “the enjoyment conditions”. It is based on section 742(2) of ICTA.Section 724: Special rules where benefit provided out of income of person abroad2148.This section deals with the quantum of charge where:the enjoyment condition is the receipt of a benefit provided out of the income of the person abroad or related money; andthe individual has not been charged previously to income tax on that income.It is based on section 743(5) of ICTA.Section 725: Reduction in amount charged where controlled foreign company involved2149.This section gives apportionment under the controlled foreign company (CFC) rules in Chapter 4 of Part 17 of ICTA priority over the income treated as arising under section 721. It is based on section 747(4) of ICTA.2150.The CFC rules address a similar mischief to the transfer of assets abroad legislation (avoidance by companies rather than individuals), but in a different way. This section prevents double taxation and determines which branch of anti-avoidance legislation takes priority.Section 726: Non-domiciled individuals2151.This section provides that an individual is not chargeable to tax under section 720 in respect of income treated as arising to the individual under section 721 if two conditions are met. It is based on section 743(3) of ICTA.2152.This section is similar to sections 831 and 832 of ITTOIA 2005 (claims by non-domiciled individuals for relevant foreign income to be charged on the remittance basis).Section 727: Charge to tax on income treated as arising under section 7282153.This section imposes the charge to income tax, on individuals receiving capital sums as a result of relevant transactions, which was previously imposed by section 739(3) of ICTA. It indicates the measure of income and the person liable. It is based on sections 739 and 743 of ICTA. It is one of a sequence of sections (sections 727 to 730) which are based on the former charge under section 739(3).2154.Sections 727 to 730 defeat schemes designed to avoid liability under sections 720 to 726.Section 728: Individuals receiving capital sums as a result of relevant transactions2155.This section largely replicates section 721. It is based on sections 739(1), (1A) and (3), 742(1A) and 747(4) of ICTA.Section 729: The capital receipt conditions2156.This section is concerned with the expression “receives or is entitled to receive any capital sum”. It is based on section 739(3) to (6) of ICTA.2157.This section also makes it clear that where liability arises because an individual has only an entitlement to receive a capital sum, rather than actual receipt, then liability under section 727 continues only for as long as the entitlement to receive a capital sum exists. See Change 111 in Annex 1.2158.If the entitlement to the capital sum ceases because the capital sum is actually paid to the transferor (either in whole or in part), then the receipt of the capital sum does result in continuing liability under this section; subsection (1) reflects this.2159.Subsection (2) makes an exception to this rule. If a sum is received by way of loan, this does not give rise to liability if the loan is wholly repaid before the tax year begins. Subsection (2) is based on section 739(6) of ICTA.2160.Subsection (4) comments on the expression “receives or is entitled to receive” in subsection (1).Section 730: Non-domiciled individuals2161.This section is the equivalent, for this sequence of sections, of section 726. It is based on section 743(3) of ICTA.Section 731: Charge to tax on income treated as arising under section 7322162.This section imposes the charge, on non-transferors receiving a benefit as a result of relevant transactions, previously imposed by section 740 of ICTA. It indicates the measure of income and the person liable. It is based on section 740(2). It is one of a sequence of sections (sections 731 to 735) which are based on the former charge under section 740 of ICTA.2163.Sections 731 to 735 deem individuals to receive taxable income if (broadly speaking) they receive benefits as a result of transfers of the kind envisaged in sections 720 to 730 but are not liable under those sections.Section 732: Non-transferors receiving a benefit as a result of relevant transactions2164.This section sets out the circumstances under which income is treated as arising. It is based on sections 740(1) and (2) and 742(1A) of ICTA.2165.Subsection (1)(d) also makes it clear that persons who are liable to income tax under section 720 or section 727 are not subject to the charge under section 731. See Change 112 in Annex 1.Section 733: Income charged under section 7312166.This section sets out in a method statement the rules for determining the amount (if any) of income treated as arising under section 731. It is based on sections 740(2) and (3) and 741C(7) of ICTA.2167.It also spells out some implications which involve minor changes to the law. See Change 113 in Annex 1.2168.In broad terms, the effect of this section and section 734 is:to tax non-transferors on benefits which they receive (but only on the amount or value of those benefits);to ensure that tax will only be charged on a benefit to an individual if income has arisen by the use of which such benefits could be provided; andto ensure nevertheless that tax will not be avoided merely by conferring the benefit before the “relevant income” is actually available.2169.The method statement in this section will make no practical difference to taxpayers’ record-keeping obligations.2170.The method statement makes it clear that “relevant income” in relation to an individual is not actually taxable income of the individual, but is an element in the calculation of taxable income. “Relevant income” is actual income arising to a person abroad; the income charged under section 731 is income treated as arising to the individual in question. This deemed income may be more or less than “the relevant income of the tax year” in relation to the individual and the tax year identified at Step 3.2171.The Act will have effect for income tax purposes for 2007-08 and later tax years. But the calculation of income charged under section 731 in (for example) 2007‑08 will take account of “relevant income” in relation to the individual, not only of 2007-08 but (if the statutory conditions were satisfied) of earlier tax years – whether or not the individual had any liability under section 740 of ICTA for those tax years.Section 734: Reduction in amount charged: previous capital gains tax charge2172.This section supplements section 733; it is directed against the same amount being charged to both income tax and capital gains tax. It is based on section 740(6) of ICTA.Section 735: Non-domiciled individuals2173.This section gives a measure of relief to non-domiciled individuals. It is based on section 740(5) of ICTA.2174.Subsection (1) lays down the conditions for this section to apply. If an individual receives a benefit which would otherwise be chargeable to income tax under section 731, this section applies if conditions A to C are met. These conditions are set out in subsections (2), (3) and (4).2175.If this section applies, subsection (5) provides that the benefit does not give rise to an income tax charge on the individual, to the extent that the chargeable amount of this benefit is determined by reference to the relevant income to which condition C applies.2176.This section is similar to sections 831 and 832 of ITTOIA 2005 (claims by non-domiciled individuals for relevant foreign income to be charged on the remittance basis).Section 736: Exemptions: introduction2177.This section introduces sections 737 to 742, a sequence of sections giving exemption from liability under this Chapter. It is based on section 741B(2) to (5) of ICTA.2178.Subsection (3) defines the expressions “post-4 December 2005 transaction” and “pre-5 December 2005 transaction”, which are used extensively in this sequence of sections.Section 737: Exemption: all relevant transactions post-4 December 2005 transactions2179.This section sets the purpose test which applies if all the relevant transactions are post-4 December 2005 transactions. It is based on section 741A(1) to (4), (7) and (8) and section 741B(4) of ICTA.Section 738: Meaning of “commercial transaction”2180.This section defines the expression “commercial transaction”, which is used in Condition B in section 737(4). It is based on section 741A(5) to (7) of ICTA.Section 739: Exemption: all relevant transactions pre-5 December 2005 transactions2181.This section sets the purpose test which applies if all the relevant transactions are pre-5 December 2005 transactions. It is based on sections 741(1) and 741B(3) of ICTA.2182.This section replaces references to “the Board” with references to “an officer of Revenue and Customs” (namely, the officer dealing with the case). See Change 5 in Annex 1.2183.HMRC’s internal procedures restrict the exercise of the Commissioners for Her Majesty’s Revenue and Customs’ functions under section 741 of ICTA to a small group of specialist officers. Change 5 will have no effect on this practice.2184.This section continues to use the source legislation’s word “taxation”, which has been the subject of case law. For example, Sassoon v CIR (1943), 25 TC 154 CA indicates that “taxation” in this context is not restricted to income tax.Section 740: Exemption: relevant transactions include both pre-5 December 2005 and post-4 December 2005 transactions2185.This section lays down how the purpose tests are to be applied if the relevant transactions include both pre-5 December transactions and post-4 December transactions. It is based on sections 741B(5) and 741C(1) to (6) and (8) of ICTA..Section 741: Application of section 742 (partial exemption)2186.This section lays down the conditions for section 742 (partial exemption where later associated operations fail conditions) to apply. It is based on section 741D(1) to (5) and (9) of ICTA.2187.In summary, this section applies if an arrangement originally satisfies the purpose tests but is tainted by later associated operations.Section 742: Partial exemption where later associated operations fail conditions2188.This section restricts the income in respect of which the individual is liable to tax under this Chapter. It is based on section 741D(6) and (7) of ICTA.Section 743: No duplication of charges2189.This section is directed against multiple taxation. It is based on sections 743(4) and 744(1) of ICTA.2190.This section replaces references to “the Board” with references to “an officer of Revenue and Customs” (namely, the officer dealing with the case). See Change 5 in Annex 1.2191.HMRC’s internal procedures restrict the exercise of the Commissioners for Her Majesty’s Revenue and Customs’ functions under section 744 of ICTA to a small group of specialist officers. Change 5 will have no effect on this practice.Section 744: Meaning of taking income into account in charging income tax for section 7432192.This section relates to the interpretation of section 743. It is based on section 744(2) of ICTA.Section 745: Rates of tax applicable to income charged under sections 720 and 727 etc2193.This section deals with rates of tax applicable to income charged under sections 720 and 727. It is based on section 743(1) to (1B) and (5) of ICTA.2194.Subsection (1) retains the expression “by deduction or otherwise”, as it has been the subject of judicial comment: see paragraph 53 of the judgment of Lord Scott in R v Dimsey & Allen (2001), 74 TC 263 HL(7) at page 312.Section 746: Deductions and reliefs where individual charged under section 720 or 7272195.This section applies for the purposes of calculating an individual’s liability to income tax, and is concerned with the availability of deductions and reliefs. It is based on section 743(2) of ICTA.Section 747: Amounts corresponding to accrued income scheme profits and related interest2196.This section ensures that any charge made on an individual under this Chapter takes proper account of accrued income when the assets of the person abroad include securities for the purposes of Chapter 2 of Part 12 (accrued income profits). It is based on section 742(4) to (7) of ICTA.2197.Although section 742(5) of ICTA says “Sections 739 to 741 shall have effect …”, this section works on the basis that the operation of the other sections in Chapter 3 of Part 17 of ICTA is not excluded.2198.Subsections (1), (6) and (7) include by implication a minor change in the law on accrued income profits; see Change 101 in Annex 1.Section 748: Power to obtain information2199.This section enables HMRC to obtain information which is relevant to the operation of this Chapter. It is based on section 745(1) to (3) of ICTA.2200.Subsection (1) includes two minor changes.2201.First, it refers to “an officer of Revenue and Customs” (namely, the officer dealing with the case) instead of “the Board”. See Change 5 in Annex 1. HMRC’s internal procedures restrict the exercise of the Commissioners for Her Majesty’s Revenue and Customs’ functions under section 745 of ICTA to a small group of specialist officers. Change 5 will have no effect on this practice.2202.Second, it expressly restricts the particulars to be provided to those which an officer of Revenue and Customs may reasonably require. See Change 114 in Annex 1.2203.Subsection (2) also includes a minor change in the law. It sets the minimum time which HMRC may allow for the particulars to be provided at 30 days rather than 28 days. See Change 108 in Annex 1.Section 749: Restrictions on particulars to be provided by solicitors2204.This section restricts HMRC’s power to require solicitors to provide information under section 748. It is based on section 745(3), (4) and (6) of ICTA.Section 750: Restrictions on particulars to be provided by banks2205.This section restricts HMRC’s power to require banks to provide information under section 748. It is based on section 745(5) to (6) of ICTA.Section 751: Special Commissioners’ jurisdiction on appeals2206.This section gives the Special Commissioners, on appeal, jurisdiction to affirm or replace officers’ decisions in exercise of certain functions under this Chapter. It is based on sections 741(1), 741A(9), 741D(8) and 744(1) of ICTA.2207.This section replaces references to “the Board” with references to “an officer of Revenue and Customs” (namely, the officer dealing with the case). See Change 5 in Annex 1.Chapter 3: Transactions in landOverview2208.This Chapter contains a wide-ranging anti-avoidance rule specifically aimed at transactions in land. It is based on sections 776 to 778 of ICTA.2209.The sections of this Chapter are arranged in the following order:Sections 752 to 754 – introduction;Sections 755 to 760 – charge on gains from transactions in land;Sections 761 to 764 – further provisions relevant to the charge;Sections 765 to 767 – exemptions;Sections 768 and 769 – recovery of tax;Sections 770 and 771 – clearances and power to obtain information;Section 772 – interpretation.Section 752: Overview of Chapter2210.This section provides an overview of the Chapter. It is based on section 776(1) and (2) of ICTA.Section 753: Meaning of disposing of land2211.This section explains the expression “disposing of land”. It is based on section 776(4) of ICTA.Section 754: Priority of other income tax provisions2212.This section provides for other tax provisions to apply in priority to Chapter 3. It is based on section 777(10) of ICTA.Section 755: Charge to tax on gains from transactions in land2213.This section imposes the charge to income tax on gains from transactions in land. It is based on section 776(3A) of ICTA. It is the first of a group of sections (sections 755 to 760) which form the core of the Chapter.2214.Subsection (2) signposts exemptions from the charge.Section 756: Income treated as arising where gains obtained from some land disposals2215.This section sets out the circumstances in which income is treated as arising. It is based on section 776(2), (3), (5), (13) and (14) of ICTA.2216.Subsection (1) specifies the requirements which must all be met if this section is to apply. One of the requirements is that all or any part of the land is situated in the United Kingdom.2217.HMRC’s interpretation of the territorial scope of section 776 of ICTA is summarised in the table below.Residence of taxpayerWhere land is locatedApplication of section 776United KingdomWholly in the United KingdomSection 776 applies (assuming all the other conditions are met).United KingdomWholly outside the United KingdomSection 776 does not apply.United KingdomPartly in the United Kingdom, partly outside the United KingdomSection 776 applies to the whole of the gain (assuming all the other conditions are met).Non-UKWholly in the United KingdomSection 776 applies (assuming all the other conditions are met).Non-UKWholly outside the United KingdomSection 776 does not apply.Non-UKPartly in the United Kingdom, partly outside the United KingdomSection 776 applies (assuming all the other conditions are met), but only to the gain attributable to the UK land.2218.This section and section 759 reflect this interpretation, and make a minor change in the law (although not in practice). See Change 115 in Annex 1.2219.The expression “all or part of the land” in subsection (1)(c) is based on section 776(14) of ICTA; it will (for example) cover a case in which several areas of land, some within the UK and some outside the United Kingdom, pass under a single bargain. In such a case, if the person liable is non-UK resident, the total consideration will be apportioned, and the provisions will be applied to the separate gain for each area of land in the United Kingdom to arrive at the non-UK resident’s deemed income.2220.If this section applies, subsection (2) treats the gain as income and deems it to arise when the gain is realised.2221.For the sake of consistency with the rest of the section, subsection (5) refers to the opportunity of “realising” a gain, rather than (as in the source legislation) the opportunity of “making” it. This difference is verbal not substantive.Section 757: Person obtaining gain2222.This section specifies the person obtaining the gain. It is based on section 776(2)(c)(i) and (ii) and 776(5)(b) of ICTA.2223.Subsection (3) indicates when a number of transactions may be regarded as constituting a single arrangement or scheme. Subsection (3) differs from the source legislation in that it is not drafted to apply for the purposes of section 753(1). There is no need for subsection (3) to bring a plurality of transactions within section 753(1)(b), since a plurality of transactions will already be within section 753(1)(a).Section 758: Income charged2224.This section defines the measure of income and gives a signpost to section 760 (method of calculating gain). It is based on section 776(3B) of ICTA.Section 759: Person liable2225.This section defines the person liable, bringing together a number of previously separate provisions. It is based on section 776(3)(b), (3B) and (8) of ICTA.2226.Subsection (1) states that the person liable for any tax charged under this Chapter on income is the person whose income it is.2227.Subsection (2) then lays down the general rule: that person is the person who realises the gain.2228.Subsection (3) states that the general rule is subject to two exceptions, set out in subsections (4) and (6).2229.Subsection (4) deals with the case where there is a person providing value. If all or any part of the gain accruing to a person (“A”) is derived from value provided directly or indirectly by another person (“B”), the income is B’s.2230.Subsection (5) makes it clear that it does not matter for the purpose of subsection (4) whether or not the value is put at the disposal of A.2231.Subsection (6) deals with the case where there is a person providing an opportunity to realise a gain. If all or any part of the gain accruing to a person is derived from an opportunity of realising a gain provided directly or indirectly by another person, the income is the other person’s.2232.There is no equivalent of subsection (5) to back up subsection (6), because none is needed. This is a change in the law but not in practice. See Change 116 in Annex 1.2233.Subsection (8) makes a minor change in the law, although not in practice. See the commentary on section 756 and Change 115 in Annex 1.Section 760: Method of calculating gain2234.This section lays down how a gain is to be calculated for the purposes of this Chapter. It is based on section 776(6) of ICTA.Section 761: Transactions, arrangements, sales and realisations relevant for Chapter2235.Section 761 concerns transactions, arrangements, sales and realisations relevant for this Chapter. It is based on section 777(2) and (3) of ICTA.2236.This section is the first of a group of supplementary sections (sections 761 to 764). These sections apply for the purposes of the Chapter as a whole; because of their importance, they have been placed immediately after sections 755 to 760, the core sections.Section 762: Tracing value2237.This section is about tracing value. It is based on section 777(5) of ICTA.Section 763: Meaning of “another person”2238.This section explains the meaning of “another person” in this Chapter. It is based on section 777(7) of ICTA.Section 764: Valuations and apportionments2239.This section is about valuations and apportionments. It is based on section 777(6) of ICTA.Section 765: Exemption: gain attributable to period before intention to develop formed2240.This section exempts that part of a gain which is fairly attributable to a period before the intention to develop the land was formed. It is based on section 776(7) of ICTA.2241.It is the first of a group of three exemptions, which are set out in sections 765 to 767.Section 766: Exemption: disposals of shares in companies holding land as trading stock2242.This section limits the scope of the charge by providing an exemption for disposals of shares in companies holding land as trading stock. It is based on section 776(10) of ICTA.Section 767: Exemption: private residences2243.This section gives exemption in respect of private residences, if certain conditions are met. It is based on section 776(9) of ICTA.Section 768: Recovery of tax where consideration receivable by person not assessed2244.This section deals with recovery of tax where consideration is receivable by a person (B) other than the person assessed (A). It is based on section 777(8) and (13) of ICTA.2245.Under subsection (3) A is entitled to recover from B any part of the tax which A has paid. To assist with this, A may obtain a certificate of tax paid: see the commentary on section 769.2246.This section also includes a tie-breaker provision. This is a minor change in the law. See Change 117 in Annex 1.Section 769: Recovery of tax: certificates of tax paid etc2247.This section deals with certificates of tax paid for the purposes of section 768(3). It is based on section 777(8) of ICTA.2248.Section 777(8) of ICTA provides that the certificate is to be furnished by “the Board or an inspector”. In 1969, when this legislation was introduced, section 5 of the Income Tax Management Act 1964 provided that all assessments to income tax at the standard rate were to be made by an inspector and all assessments to surtax were to be made by the Board. The reference to “the Board” in section 777(8) appears to be a missed consequential on the abolition of surtax. This section therefore omits “the Board” as redundant and, following section 7 of CRCA, refers to “an officer of Revenue and Customs” rather than “an inspector”.2249.Subsection (3) gives a signpost to section 944 in Part 15 (Deduction of tax at source) which rewrites section 777(9) of ICTA.Section 770: Clearance procedure2250.This section deals with clearances. It is based on section 776(11) and (12) of ICTA.2251.Section 770 includes a minor change in the law. Section 776(11) of ICTA gives the clearance function to “the inspector to whom [the taxpayer] makes his return of income”. In practice, HMRC do not interpret this restrictively. Section 770 gives the clearance function to the Commissioners for Her Majesty’s Revenue and Customs. This will be consistent with section 707 of ICTA (transactions in securities: clearance procedure), which is rewritten in sections 701 and 702. See Change 118 in Annex 1.2252.Section 770 will apply solely for income tax purposes and section 776(11) and (12) of ICTA will apply solely for corporation tax purposes. HMRC’s operational guidance will tell officers what action they should take if a clearance application is made which appears to refer to the wrong provision. If HMRC issue a clearance under section 770 of this Act or under section 776 of ICTA which refers by mistake to the wrong provision, HMRC will treat it as if it referred to the correct provision.Section 771: Power to obtain information2253.This section enables HMRC to obtain information which is relevant to this Chapter. It is based on section 778 of ICTA.2254.Section 778 of ICTA refers to “the Board or an inspector” and “the Board or the inspector”. For the reason given in the commentary on section 769, the references to “the Board” in section 778 appear be a missed consequential on the abolition of surtax. Section 771 therefore now omits “the Board” as redundant and, following section 7 of CRCA, refers to “an officer of Revenue and Customs” rather than “an inspector”.2255.Subsection (1) includes a minor change in the law: it expressly restricts the particulars to be provided to those which an officer of Revenue and Customs may reasonably require. See Change 114 in Annex 1.Section 772: Interpretation of Chapter2256.This section is interpretative. It is based on sections 776(13) and 777(13) of ICTA.2257.Section 777(13) defines “capital amount” to mean any amount, in money or money’s worth, which, apart from the sections 775 and 776, does not fall to be included in any computation of income for purposes of the Tax Acts. It provides that other expressions including the word “capital” are to be construed accordingly. The drafting of subsection (1) reflects the fact that a gain is the result of an arithmetical calculation, arrived at very broadly by deducting receipts from expenses, and cannot itself be said to be in money or money’s worth.2258.Subsection (2) (meaning of “property deriving its value from land”) is based on section 776(13)(b) of ICTA.Section 776(13)(a) of ICTA: “land”2259.This section does not rewrite the second limb of the definition of “land” in section 776(13)(a) of ICTA.2260.In Schedule 1 to the Interpretation Act 1978 land is defined as including “buildings and other structures, land covered with water, and any estate, interest, easement, servitude or right in or over land.” Although the Interpretation Act 1978 was largely a consolidation, the definition of land was new and only applies from the commencement of that Act.2261.The origin of section 776(13)(a) of ICTA is section 32(12)(a) of FA 1969. This definition therefore predates the definition of land in Schedule 1 to the Interpretation Act 1978.2262.The definition of “land” in force in 1969 was that contained in the Interpretation Act 1889. In section 3 of that Act land was defined as including “messuages, tenements, and hereditaments, houses and buildings of any tenure”. This section was derived from section 4 of Lord Brougham’s Act of 1850. The definition was never appropriate for Scotland where messuages and hereditaments were unknown to the law.2263.There is nothing in the definition of “land” in the Interpretation Act 1978 which is not also within the definition of “land” in section 776(13)(a) of ICTA.2264.The Interpretation Act 1978 refers to “buildings and other structures”. Section 776(13)(a) of ICTA merely refers to “buildings”. But this cannot be read as excluding “structures”, because what is a building is a question of degree and circumstance and case law makes it clear that virtually any kind of structure is capable of being a building.2265.Adopting the Interpretation Act definition of “land” for the purposes of this Chapter would only be a change in the law if a “structure” (a) was not, as a matter of normal English usage, “land”, (b) was not a “building” (and was therefore not brought within “land” by the second limb of section 776(13)(a) of ICTA), and (c) was nevertheless brought within “land” by the provision in the Interpretation Act that “land” includes buildings and other structures. There is no reason to believe that there are such “structures”.2266.The Interpretation Act 1978 refers to “land covered with water”; section 776(13)(a) of ICTA does not. But there is no doubt that for legal purposes land includes every species of ground as well as waters and marshes. The term “land covered with water” has been used in legislation to distinguish, for rating purposes, land covered by artificial bodies of water such as reservoirs, filter beds belonging to water companies, canals, dry docks etc; no such distinction would be appropriate in the context of section 776 of ICTA, and therefore none was made.2267.Finally, section 776(13)(a) of ICTA refers to “any estate or interest in land or buildings”, whereas the Interpretation Act 1978 is more specific, referring to “any estate, interest, easement, servitude or right in or over land” (emphasis added). Nonetheless, the section 776(13)(a) definition of land includes the rights italicised above. It is couched in generic terms and does not need to mention specific interests in land, including those particular to Scots law.2268.It is therefore a matter of historical accident that section 776 of ICTA includes its own non-exhaustive definition of “land”, rather than using the standard non-exhaustive definition in the Interpretation Act 1978. The Act therefore omits the second limb of section 776(13)(a) of ICTA as redundant.2269.The Act does not rewrite the first limb of section 776(13)(a) of ICTA as a Chapter-wide definition. Instead, references to “the land” are expanded to “all or part of the land” where appropriate.Section 777(13) of ICTA: “receivable”2270.Section 777(13) of ICTA provides:For the purposes of the relevant provisions … any amount in money or money’s worth shall not be regarded as having become receivable by some person until that person can effectively enjoy or dispose of it.”2271.Section 777(1) of ICTA defines “the relevant provisions” as sections 775 to 777 of ICTA. On the face of it, therefore, the qualification of “receivable” in section 777(13) of ICTA applies to section 776 of ICTA. But the word “receivable” is not actually used in section 776.2272.In Yuill v Wilson (1980), 52 TC 674 HL(8) and Yuill v Fletcher (1984), 58 TC 145 CA(9) the courts interpreted “realised” in section 776(3) of ICTA consistently with the explanation of “receivable” in section 777(13) of ICTA. In the House of Lords in Yuill v Wilson, Viscount Dilhorne said (52 TC 674 at page 714):“I have based my conclusions on the meaning which I think should be given to the expression “the gain is realised”. Section [777] of the Act is as I have said intended to supplement sections [775] and [776]. Subsection (13) of section [777] is a definition subsection and, inter alia, states that for the purposes of sections [775] and [776] “any amount in money or money’s worth shall not be regarded as having become receivable by some person until that person can effectively enjoy or dispose of it.” The operation of [section 776] does not depend on whether money or money’s worth is receivable. One does not find in it any reference to money or money’s worth being receivable. It depends on whether a gain is obtained or realised. So the operation of this definition is, to say the least, obscure in relation to section [776]. It, however, accords with the meaning which I think should be given to the word “realised”, that is to say, that a gain is not realised until it can be effectively enjoyed or disposed of.””2273.Lord Salmon agreed with Viscount Dilhorne. Other judges interpreted “realised” in the same way as Viscount Dilhorne, but relied on what is now section 777(13) of ICTA to do so(10).2274.Following Viscount Dilhorne and Lord Salmon, this Act does not rewrite the explanation of “receivable” for the purposes of this Chapter. This omission does not change the law.Chapter 4: Sales of occupation incomeOverview2275.This Chapter contains an anti-avoidance provision directed against schemes which turn income from an occupation into capital. It is based on sections 775, 777 and 778 of ICTA.2276.The sections of this Chapter are arranged in the following order:Sections 773 to 775 – introduction;Sections 776 to 779 – charge on sale of occupation income;Sections 780 to 783 – further provisions relevant to the charge;Sections 784 and 785 – exemption for sales of going concerns;Sections 786 and 787 – recovery of tax;Section 788 – power to obtain information;Section 789 – interpretation.Section 773: Overview of Chapter2277.This section provides an overview of the Chapter, outlining its purpose and the charge it imposes. It is based on section 775(1) of ICTA.2278.Although section 775(1)(a) and (b) of ICTA refer to “transactions or arrangements”, section 775(1)(c) only refers to “transactions”. The original source legislation, section 31(1)(c) of FA 1969, refers to “transactions or arrangements” and subsection (2) restores this phrase.Section 774: Meaning of “occupation”2279.This section explains the expression “occupation”. It is based on section 775(3) of ICTA.Section 775: Priority of other tax provisions2280.This section provides for other tax provisions to apply in priority to Chapter 4. It is based on section 777(10) of ICTA.Section 776: Charge to tax on sale of occupation income2281.This section sets out the scope of the charge. It is based on section 775(2A) of ICTA.2282.Sections 776 to 779 form the core of the Chapter.Section 777: Conditions for sections 778 and 779 to apply2283.This section sets out the circumstances in which income is treated as arising. It is based on sections 775(1), (3), and (7) to (9) and 777(13) of ICTA.2284.Subsection (1) specifies three conditions (labelled A to C) which must all be met if section 778 or, as the case may be, section 779 is to apply.2285.Subsection (2) sets out condition A, which is about location of the occupation carried on by the individual.2286.Subsection (3) sets out condition B, which is about the ways in which transactions are effected or arrangements made to exploit the individual’s earning capacity in the occupation.2287.Subsection (4) is based on the explanation of the meaning of “income or receipts derived from the individual’s activities” in section 775(3) of ICTA.2288.Subsection (5)sets out condition C, which is about the receipt of a capital amount by the individual, either for the individual or for another person.2289.Subsection (6) provides further details about what the previous subsection includes.2290.Subsection (7) defines “capital amount”. It is based on section 777(13) of ICTA. Section 777(13) of ICTA refers to “any amount … which, apart from the sections 775 and 776, does not fall to be included in any computation of income for purposes of the Tax Acts”. It is not possible for an amount to be treated as income both by section 775 and by section 776 of ICTA, and so subsection (7) does not rewrite the reference to section 776.Section 778: Income arising where capital amount other than derivative property or right obtained2291.This section applies if the capital amount mentioned in section 777(5) does not consist of either property which derives substantially the whole of its value from the individual’s activities or a right which does so. It is based on sections 775(1), (2) and (7) and 777(13) of ICTA.2292.If section 778 applies, subsection (2) treats the capital amount as income.2293.Subsection (2) omits the reference in section 775(2) to the capital amount being treated as “earned income”. The only place in the Income Tax Acts where the expression “earned income” is used, following the reform of the pensions legislation in FA 2004, is section 282A of ICTA (jointly held property). As explained in the commentary on Chapter 3 of Part 14, section 282A has been rewritten in direct terms without reference to earned income. Accordingly, this section does not refer to earned income either.2294.HMRC’s interpretation of the territorial scope of section 775 of ICTA is summarised in the table below.Taxpayer’s residenceWhere occupation is carried onApplication of section 775UKWholly in the United KingdomSection 775 applies (assuming all the other conditions are met).UKWholly outside the United KingdomSection 775 does not apply.UKPartly in the United Kingdom, partly outside the United KingdomSection 775 applies to the whole of the gain (assuming all the other conditions are met).Non-UKWholly in the United KingdomSection 775 applies (assuming all the other conditions are met).Non-UKWholly outside the United KingdomSection 775 does not apply.Non-UKPartly in the United Kingdom, partly outside the United KingdomSection 775 applies (assuming all the other conditions are met), but only to the capital amount attributable to that part of the occupation carried on in the United Kingdom.2295.The sections reflect this interpretation, and make a minor change in the law (although not in practice) to clarify the territorial scope of section 775. See Change 115 in Annex 1.2296.At first sight, section 775(9) of ICTA (“This section shall apply to all persons …”) seems to apply to the “other person” mentioned in section 775(1)(a) of ICTA. But, to the extent that section 775(9) of ICTA applies to the “other person”, it is redundant. To that extent, therefore, it is repealed without replacement.Section 779: Income arising where derivative property or right obtained2297.This section applies if the capital amount mentioned in section 777(5) does consist of either property which derives substantially the whole of its value from the individual’s activities or a right which does so. It is based on section 775(2) and (7) of ICTA.2298.The effect of this section replicates that of section 775(7) of ICTA, which imposes a separate charge from section 775(1) to (2A) of ICTA. It may apply in (for example) cases where individuals acquire stock options and subsequently exercise them.Section 780: Transactions, arrangements, sales and realisations relevant for Chapter2299.This section concerns transactions, arrangements, sales and realisations relevant for this Chapter; it greatly extends the circumstances in which a charge to tax may arise. It is based on section 777(2) and (3) of ICTA.Section 781: Tracing value2300.This section is about tracing the value of any property or right. It is based on section 777(5) of ICTA.Section 782: Meaning of “other person”2301.This section explains the meaning of “other person” in this Chapter. It is based on section 777(7) of ICTA.Section 783: Valuations and apportionments2302.This section is about valuations and apportionments. It is based on section 777(6) of ICTA.Section 784: Exemption for sales of going concerns2303.This section limits the scope of the charge by providing an exemption (itself limited by section 785) for transfers of businesses and companies as going concerns. It is based on section 775(4) and (6) of ICTA.Section 785: Restriction on exemption: sales of future earnings2304.This section is directed against abuse of the exemption given by section 784. It is based on section 775(5) of ICTA.2305.The taxpayer might attempt to avoid the charge under this Chapter by exploiting section 784, namely by transferring a future income stream into a business or company carrying on a going concern and obtaining a capital amount for the disposal of the entire package. In such a case, this section would require an apportionment and restrict the exemption.2306.Section 785 also includes a minor change in the law, although not in practice. See Change 119 in Annex 1.Section 786: Recovery of tax where consideration receivable by person not assessed2307.This section deals with recovery of tax where consideration is receivable by a person (B) other than the person assessed (A). It is based on section 777(8) and (13) of ICTA.2308.Under subsection (3) A is entitled to recover from B any part of the tax which A has paid. To assist with this, A may obtain a certificate of tax paid. See the commentary on section 787.2309.Section 786 also includes a tie-breaker provision. This is a minor change in the law. See Change 117 in Annex 1.Section 787: Recovery of tax: certificates of tax paid etc2310.This section deals with certificates of tax paid for the purposes of section 786(3). It is based on section 777(8) of ICTA.2311.Section 777(8) of ICTA provides that the certificate is to be furnished by “the Board or an inspector”. In 1969, when this legislation was introduced, section 5 of the Income Tax Management Act 1964 provided that all assessments to income tax at the standard rate were to be made by an inspector and all assessments to surtax were to be made by the Board. A consequential amendment to the reference to “the Board” in section 777(8) appears to have been missed on the abolition of surtax. This section therefore now omits the reference to “the Board” as redundant and, following section 7 of CRCA, refers to “an officer of Revenue and Customs” rather than “an inspector”.2312.Subsection (3) gives a signpost to section 944 in Part 15 (Deduction of tax at source) which rewrites section 777(9) of ICTA.Section 788: Power to obtain information2313.This section enables HMRC to obtain information which is relevant to this Chapter. It is based on section 778 of ICTA.2314.Section 778 of ICTA refers to “the Board or an inspector” and “the Board or the inspector”. For the reason given in the note on section 787, consequential amendments to the references to “the Board” in section 778 appear to have been missed on the abolition of surtax. This section therefore now omits the references to “the Board” as redundant and, following section 7 of CRCA, refers to “an officer of Revenue and Customs” rather than “an inspector”.2315.Subsection (1) includes a minor change in the law: it expressly restricts the particulars to be provided to those which an officer of Revenue and Customs may reasonably require. See Change 114 in Annex 1.Section 789: Minor definitions2316.This section non-exhaustively defines “company” and “share”. It is based on section 777(13) of ICTA.Chapter 5: Avoidance involving trading lossesOverview2317.The Chapter provides for the recovery of certain loss reliefs if regulations apply to reduce an individual’s contribution to the firm so that the contribution becomes lower, or even lower, than relief already given to the individual.2318.This Chapter also sets out provisions about avoidance involving trade losses made by individuals in a trade exploiting a film or licence. The provisions tackle schemes used by individuals to try to convert a tax deferral into a permanent tax gain.2319.The Chapter is based on Chapter 9 of Part 3 of FA 2004 and Chapter 7 of Part 2 of FA 2005.Section 790: Overview of Chapter2320.This section provides an overview of the Chapter. It is new.2321.Subsection (1) signposts the sections dealing with the three sets of circumstances addressed by the Chapter.2322.The definition of “capital gains relief” refers to section 261B of TCGA, which is inserted by Schedule 1 to this Act.Section 791: Charge to tax on income treated as received under section 7922323.This section imposes a charge to tax on income treated as received under section 792. It is based on section 74(4) of FA 2005.2324.The section follows the approach to charging provisions adopted in ITTOIA.Section 792: Partners claiming excess sideways or capital gains relief2325.This section treats an individual as receiving income in certain cases where regulations made under section 114 of this Act result in the individual having claimed excessive sideways relief or capital gains relief for post-1 December 2004 trade losses made by the individual as a limited partner, a member of a limited liability partnership or a non-active partner. It is based on section 74 of FA 2005.2326.The section specifies that income is treated as arising when a “chargeable event” occurs, and that such an event occurs at any time when the regulations result in the individual having claimed excessive relief. Such excesses (of losses so claimed over the individual’s contribution to the firm) arise because the individual’s contribution to the firm is treated by the regulations as reduced on the occurrence of certain events. Such an event might be, for example, the release of a loan taken out to finance the individual’s contribution to the firm (see Condition 3 of Regulation 4(1) of SI 2005/2017, as consequentially amended by Schedule 2 Part 5 (application of existing regulations under sections 114 and 802)).2327.Subsection (2)(b) refers to “capital gains relief” as part of making explicit the interaction between section 72 of FA 1991 and the provisions in ICTA, FA 2004 and FA 2005 which restrict the giving of sideways relief. See Change 13 in Annex 1.2328.There is a change from “contribution to the trade” in the source legislation to “contribution to the firm”. See the overview commentary on Chapter 3 of Part 4 (restrictions on relief for certain partners) and Change 16 in Annex 1.Section 793: Calculating the amount of income treated as received2329.This section specifies how the amount of income treated as received by the previous section is to be calculated. It is based on section 75 of FA 2005.2330.The basic proposition is that the amount is the reduction in the individual’s contribution to the firm resulting from the application of the regulations. Nevertheless, the amount of income treated as received cannot exceed the amount of post‑1 December 2004 trade losses claimed (and not reclaimed). Neither can it exceed the excess of the trade losses claimed (and not reclaimed) over the contribution to the firm.2331.There is a change from “contribution to the trade” in the source legislation to “contribution to the firm”. See the overview commentary on Chapter 3 of Part 4 (restrictions on relief for certain partners) and Change 16 in Annex 1.Section 794: Meaning of “the total amount of trade losses claimed” etc2332.This section defines “the total amount of the trade losses claimed”, “the individual’s contribution to the firm” and other terms. It is based on section 74 of FA 2005.2333.There is a change from “contribution to the trade” in the source legislation to “contribution to the firm”. See the overview commentary on Chapter 3 of Part 4 (restrictions on relief for certain partners) and Change 16 in Annex 1.Section 795: Meaning of “post-1 December 2004 loss”2334.This section defines “post-1 December 2004 loss”. It is based on section 76 of FA 2005.Section 796: Charge to tax on income treated as received under section 7972335.This section imposes a charge to tax on income treated as received under section 797. It is based on section 119(4) of FA 2004.2336.The section follows the approach to charging provisions adopted in ITTOIA.Section 797: Individuals claiming sideways or capital gains relief for film-related losses2337.This section sets out circumstances in which an individual, who has claimed sideways or capital gains relief for film-related losses, is treated as receiving income. It is based on section 119 of FA 2004.2338.The section specifies that income is treated as arising when a “chargeable event” occurs, and that such an event occurs at the time that the last of three conditions (relevant claim, relevant disposal and exit event) become satisfied.2339.Subsection (2) specifies that an exit event will occur every time an individual receives non-taxable consideration for a relevant disposal, as well as certain times when the individual makes a further claim for sideways relief or capital gains relief or the individual’s contribution to the firm is reduced. So a number of exit events may occur for any particular relevant disposal. And a number of chargeable events may occur for a particular tax year.2340.There is a change from “contribution to the trade” in the source legislation to “contribution to the firm”. See the overview commentary on Chapter 3 of Part 4 (restrictions on relief for certain partners) and Change 16 in Annex 1.Section 798: Meaning of “non-taxable consideration” etc2341.This section defines “non-taxable consideration”. It is based on sections 122(3) and 123(2) of FA 2004.2342.In particular, the section makes it clear that, if the consideration is received after deduction of costs or any other payment relating to the relevant disposal or exit event, it is the gross amount that is treated as the non-taxable consideration.Section 799: Meaning of “disposal of a right of the individual to profits” etc2343.This section specifies a number of things that are to count as a disposal of a right of an individual to profits arising from a trade. It is based on section 120 of FA 2004.Section 800: Meaning of “film-related losses” etc2344.This section defines various terms. It is based on sections 121(1) and (1A) and section 123(1) of FA 2004.2345.There is a change from “contribution to the trade” in the source legislation to “contribution to the firm”. See the overview commentary on Chapter 3 of Part 4 (restrictions on relief for certain partners) and Change 16 in Annex 1.Section 801: Meaning of “capital contribution”2346.This section defines “capital contribution”. It is based on sections 121 and 122(1) of FA 2004.2347.There is a change from “contribution to the trade” in the source legislation to “contribution to the firm”. See the overview commentary on Chapter 3 of Part 4 (restrictions on relief for certain partners) and Change 16 in Annex 1.Section 802: Exclusion of amounts in calculating capital contribution by a partner2348.This section enables regulations to be made, which can apply on a retrospective basis, to exclude certain amounts from the calculation of an individual’s capital contribution. It is based on section 122A of FA 2004.2349.Regulations under this provision are subject to the affirmative resolution procedure.2350.There is a change from “contribution to the trade” in the source legislation to “contribution to the firm”. See the overview commentary on Chapter 3 of Part 4 (restrictions on relief for certain partners) and Change 16 in Annex 1.2351.Some regulations have been made under section 122A of FA 2004. See the Partnerships (Restrictions on Contributions to a Trade) Regulations 2005 (SI 2005/2017) and the Partnerships (Restrictions on Contributions to a Trade) Regulations 2006 (SI 2006/1639). See also the commentary on Parts 5 and 13 of Schedule 2 about consequential amendments made to these regulations by this Act.2352.In subsection (5), the reference to Act includes references to Acts of the Scottish Parliament and Northern Ireland legislation. See Change 152 in Annex 1, section 1018 and the commentary on that section.Section 803: Prohibition against double counting2353.This section ensures that consideration is only brought into account once. It is based on section 122(2) of FA 2004.2354.There is a change from “contribution to the trade” in the source legislation to “contribution to the firm”. See the overview commentary on Chapter 3 of Part 4 (restrictions on relief for certain partners) and Change 16 in Annex 1.Section 804: Charge to tax on income treated as received under section 8052355.This section imposes a charge to tax on income treated as received under section 805. It is based on section 127(2) of FA 2004.2356.The section follows the approach to charging provisions adopted in ITTOIA.Section 805: Partners claiming relief for licence-related trading losses2357.This section sets out circumstances in which an individual, who was a non-active partner in an early year, and who has claimed sideways relief or capital gains relief for a loss deriving from expenditure related to a licence, is treated as receiving income. It is based on sections 126 and 127 of FA 2004.2358.The meaning of non-active partner is explained in section 809, by reference to provisions in Chapter 3 of Part 4.2359.There must be a relevant disposal of the licence which requires that the individual receives non-taxable consideration (defined in subsection (5)).2360.Income is treated as arising when a “chargeable event” occurs which could be at any time when an individual receives non-taxable consideration for a disposal or the individual makes a further claim for sideways relief or capital gains relief. So a number of chargeable events may occur for a particular tax year.Section 806: Calculation of amount of income treated as received by the individual2361.This section sets out a step calculation for finding the income which the individual is treated as receiving. It is based on section 127(4) to (6) of FA 2004.Section 807: Supplementary provision relating to calculation in section 8062362.This section supplements section 806. It is based on section 128 of FA 2004.Section 808: Meaning of “disposal of the licence” etc2363.This section specifies a number of things that are to count as a disposal of a licence. It is based on section 129 of FA 2004.Section 809: Other definitions2364.This section includes various definitions used in relation to the restrictions for losses related to a licence. It is based on sections 126, 127(7) and 130 of FA 2004.1[1981] STC 344.2[1979] STC 244.3[1978] STC 420.4[1978] STC 296 at page 321.5[1975] STC 657.6[1980] STC 10.7[2001] STC 1520.8[1980] STC 460.9[1984] STC 401.10In the Court of Appeal, Buckley LJ and Goff LJ had used the explanation of “receivable” to interpret “realised” and in the House of Lords so too did Lord Russell of Killowen and Lord Keith of Kinkel. Lord Edmund-Davies did not express an opinion on this point. In Yuill v Fletcher, the Special Commissioners noted this difference of approach, and inferred that the application of what is now section 777(13) of ICTA to what is now section 776 of ICTA could “be legitimately regarded as an open question, or at least as containing open questions”: (paragraph 9.9 of the Decision: 58 TC 145 at page 163). Neither the High Court nor the Court of Appeal expressed any view on this point; the Court of Appeal held that the House of Lords’ decision in Yuill v Wilson should be followed as either a binding precedent or of the highest persuasive authority.PreviousExplanatory Notes Table of contentsNextBack to topOptions/HelpPrint OptionsPrint The Full Notes	PDFThe Full Notes	Web pageThe Full NotesPrint The Whole Division	PDFThe Whole Division	Web pageThe Whole DivisionPrint The Whole Part	PDFThe Whole Part	Web pageThe Whole PartExplanatory Notes