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Income Tax (Earnings and Pensions) Act 2003

Chapter 6: Taxable foreign benefits

2688.This Chapter sets out the rules for taxing foreign social security benefits.

2689.There is no explicit charge on foreign social security benefits in ICTA. But the benefits arise from rights under foreign social security law and those rights are “possessions out of the United Kingdom” (section 18(3) of ICTA). So the income is assessable under Schedule D Case V.

2690.This Act includes an explicit charge to tax on foreign social security benefits. See Change 145 in Annex 1.

Section 678: Taxable benefits: foreign benefits

2691.This section identifies the foreign benefits that are taxable. The section is new. The taxable foreign benefits are part of “taxable benefits” (section 657(3)).

2692.Subsection (1)(a) uses words similar to those used in section 318(2)(c) of ICTA (war pensions) to identify the foreign benefits that are taxable. Subsection (1)(b) reproduces the territorial restriction in paragraph (a)(i) of Schedule D (section 18(1) of ICTA). A foreign social security benefit is charged to tax only if it is payable to a United Kingdom resident.

2693.Subsection (2) is a boundary rule. It provides that a foreign social security benefit that is also a pension is taxed only once, in the pension income Part. United Kingdom benefits that are pensions are identified in the pension income Part and do not appear in Table A. So there is no overlap. But it is theoretically possible for a foreign benefit within this section to take the form of a pension. In that case, the boundary rule ensures that the benefit is charged as a pension and qualifies for the one-tenth deduction in section 65(2) of ICTA.

Section 679: Taxable social security income

2694.This section deals with the basis of assessment. It identifies the amount of taxable social security income, which feeds into the computation of net taxable social security income in section 658. The section invokes sections 65, 68, 584 and 585 of ICTA.

2695.In ICTA the basis of assessment for a foreign social security benefit is given by the rules of Schedule D Case V. The social security income Part does not repeat those rules but cross-refers the reader to them. The rules are in section 65 of ICTA and include the remittance basis. Section 65 is modified by the rules for Irish income in section 68 of ICTA. Sections 584 and 585 of ICTA are also relevant. Section 584 gives relief for income taxed on an arising basis if that income cannot be remitted to the United Kingdom. Section 585 gives relief for income taxed on a remittance basis if the remittances are delayed.

Section 680: Person liable for tax

2696.This section provides that the person chargeable is the person receiving or entitled to the income. It derives from section 59(1) of ICTA.

2697.Paragraph 2689 explains that the charge on foreign social security benefits in ICTA is under Schedule D. So section 59(1) of ICTA applies to charge the person receiving or entitled to the income.

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