(1)Income tax is charged if—
(a)a company is or has been assessed or is liable to be assessed under section 419 of ICTA (loans to participators in close companies etc.) in respect of a loan or advance, and
(b)the company releases or writes off the whole or part of the debt in respect of the loan or advance.
(2)Subsection (1) is subject to section 418 (relief where borrowers liable as settlors).
(3)Subsection (4) applies if section 419 of ICTA has effect under section 422 of that Act (extension of section 419 to loans by companies controlled by close companies) as if a loan or advance had been made by a company (“A”), rather than the company (“B”) which—
(a)actually made it,
(b)is regarded as having made it under section 419(2) of that Act (deemed loans where debt incurred or assigned to close company), or
(c)would be so regarded if it were a close company.
(4)If the whole or part of the debt is released or written off by B, for the purposes of subsection (1), A rather than B is treated as releasing it or writing it off.
(5)Expressions used in this Chapter have the same meanings as if they were in section 419 of ICTA.
(1)Tax is charged under this Chapter on the gross amount of the debt released or written off in the tax year.
(2)The “gross amount” is the amount released or written off, grossed up by reference to the dividend ordinary rate for that year.
(3)For the purposes of calculating the total income of the person liable for the tax, the amount charged is treated as income.
(4)This section is subject to section 418 (relief where borrowers liable as settlors).
(1)The person liable for any tax charged under this Chapter is the person to whom the loan or advance was made.
(2)This is subject to—
section 419 (loans and advances to persons who die), and
section 420 (loans and advances to trustees of trusts that have ended).
(1)Relief is given under this section if the person to whom the loan or advance was made—
(a)is liable for the tax year for income tax on a sum in respect of it under Chapter 5 of Part 5 as a result of section 633 (capital sums paid to settlor by trustees of settlement), or
(b)has been so liable for any previous tax year.
(2)If the total amount previously charged (see subsection (4)) equals or exceeds the total amount released (see subsection (6)), tax is not charged under this Chapter.
(3)If the total amount released exceeds the total amount previously charged, tax is charged under this Chapter on the excess, grossed up by reference to the dividend ordinary rate.
(4)In this section “the total amount previously charged” means the total of—
(a)the sums included in the person's income under section 633 in respect of the loan or advance for the tax year or for previous tax years, and
(b)the amounts charged under this Chapter in respect of the loan or advance for previous tax years.
(5)For the purposes of subsection (4)(a), section 640(1) (which requires the grossing up of the sums treated as paid to the settlor by reference to the [F1trust rate]) is ignored.
(6)In this section “the total amount released” means the total amount released or written off in respect of the loan or advance in the tax year and previous tax years.
Textual Amendments
F1Words in s. 418(5) substituted (6.4.2007 with effect as stated in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), ss. 1027, 1034, Sch. 1 para. 521 (with transitional provisions and savings in Sch. 2)
(1)This section applies if—
(a)a loan or advance is made to a person who dies,
(b)a company is or has been assessed or is liable to be assessed under section 419 of ICTA (loans to participators in close companies etc.) in respect of the loan or advance, and
(c)after the death the company releases or writes off the whole or part of the debt in respect of the loan or advance.
(2)Tax is not charged under this Chapter if at the time of the release or writing off the debt is due from the person's personal representatives in that capacity, but see—
(a)section 664 (under which the amount that would be so charged is treated as part of the aggregate income of the estate for the purposes of Chapter 6 of Part 5), and
(b)section 701(8) of ICTA (under which similar provision is made for the purposes of Part 16 of ICTA).
(3)If subsection (2) does not apply, tax is charged under this Chapter on the person from whom the debt is due at the time of release or writing off.
(1)This section applies if—
(a)a loan or advance is made to trustees of a trust,
(b)a company is or has been assessed or is liable to be assessed under section 419 of ICTA (loans to participators in close companies etc.) in respect of the loan or advance, and
(c)after the trust has ended the company releases or writes off the whole or part of the debt in respect of the loan or advance.
(2)Tax is charged under this Chapter on the person from whom the debt is due at the time of release or writing off.
(1)A person liable to income tax under this Chapter is treated as having paid income tax at the dividend ordinary rate on the amount charged under this Chapter.
(2)The income tax treated as paid under subsection (1) is not repayable.
(3)The amount on which an individual is treated under subsection (1) as having paid income tax is reduced if subsection (4) applies.
(4)This subsection applies if the individual's total income is reduced by any deductions which fall to be made [F2at Step 2 or 3 of the calculation in section 23 of ITA 2007 (calculation of income tax liability)] from the part of the income charged under this Chapter.
(5)The reduction is equal to the total amount of those deductions.
Textual Amendments
F2Words in s. 421(4) inserted (6.4.2007 with effect as stated in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), ss. 1027, 1034, Sch. 1 para. 522 (with transitional provisions and savings in Sch. 2)