Income Tax (Trading and Other Income) Act 2005

Chapter 6 U.K. Release of loan to participator in close company

415 Charge to tax under Chapter 6 U.K.

(1) Income tax is charged if—

(a) a company [F1 is or was chargeable to tax under section 455 of CTA 2010] (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[F2 , as a result of section 460 of CTA 2010, sections 455 to 459 of that Act have effect] 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 [F3 section 455(4) 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 [F4 as they have for the purposes of section 455 of CTA 2010] .

Textual Amendments

F1 Words in s. 415(1)(a) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 462(2) (with Sch. 2)

F2 Words in s. 415(3) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 462(3)(a) (with Sch. 2)

F3 Words in s. 415(3) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 462(3)(b) (with Sch. 2)

F4 Words in s. 415(5) substituted (with effect in accordance with art. 1(3) of the amending S.I.) by The Tax Law Rewrite Acts (Amendment) Order 2013 (S.I. 2013/463), arts. 1(2), 8

416 Income charged U.K.

(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).

417 Person liable U.K.

[F5 (1) The person liable for any tax charged under this Chapter is—

(a) in the case of a loan or advance made to a partnership, any partner who is an individual, and

(b) in any other case, the person to whom the loan or advance was made.

(1A) If more than one person is liable in a case within subsection (1)(a), the liability is to be apportioned between them in a just and reasonable manner.]

(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).

Textual Amendments

F5 S. 417(1)(1A) substituted for s. 417(1) (with effect in accordance with Sch. 30 para. 14(2) of the amending Act) by Finance Act 2013 (c. 29), Sch. 30 para. 14(1)

418 Relief where borrowers liable as settlors U.K.

(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 [F6 trust 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

F6 Words 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)

419 Loans and advances to persons who die U.K.

(1) This section applies if—

(a) a loan or advance is made to a person who dies,

(b) a company [F7 is or was chargeable to tax under section 455 of CTA 2010 (charge to tax in case of loan to participator)] 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

[F8 (b) section 947 of CTA 2009 (under which similar provision is made for the purposes of Chapter 3 of Part 10 of that Act)].

(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.

Textual Amendments

F7 Words in s. 419(1)(b) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 463 (with Sch. 2)

F8 S. 419(2)(b) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 631 (with Sch. 2 Pts. 1, 2)

420 Loans and advances to trustees of trusts that have ended U.K.

(1) This section applies if—

(a) a loan or advance is made to trustees of a trust,

(b) a company [F9 is or was chargeable to tax under section 455 of CTA 2010 (charge to tax in case of loan to participator)] 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.

Textual Amendments

F9 Words in s. 420(1)(b) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 464 (with Sch. 2)

[F10 420A Temporary non-residents U.K.

(1) This section applies if an individual is temporarily non-resident.

(2) Debts within subsection (3) are to be treated for the purposes of this Chapter as if they had been released or written off in the period of return.

(3) A debt is within this subsection if—

(a) it is the debt, or a part of the debt, in respect of a loan or advance made by a company to the individual,

(b) it is released or written off in the temporary period of non-residence, and

(c) ignoring this section, the individual—

(i) is not liable for tax under this Chapter in respect of the release or write-off, but

(ii) would have been so liable, had the release or write-off taken place in the period of return.

(4) Subsection (3)(c)(i) includes a case where the individual could be relieved of liability on the making of a claim under section 6 of TIOPA 2010 (double taxation relief), even if no claim is in fact made.]

Textual Amendments

F10 S. 420A inserted (with effect in accordance with Sch. 45 para. 153(3) of the amending Act) by Finance Act 2013 (c. 29), Sch. 45 para. 136

421 Income tax treated as paid U.K.

(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 [F11 at 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

F11 Words 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)

[F12 421A Power to obtain information U.K.

(1) An officer of Revenue and Customs may, for the purposes of this Chapter, by notice require any person in whose name any shares or loan capital are registered—

(a) to state whether or not that person is the beneficial owner of the shares or loan capital, and

(b) if that person is not the beneficial owner of the shares or loan capital, to provide the name and address of the person on whose behalf the shares or loan capital are registered in that person's name.

(2) Subsections (3) and (4) apply if a company (“the issuing company”) appears to an officer of Revenue and Customs to be a close company.

(3) The officer may, for the purposes of this Chapter, by notice require the issuing company to provide the officer with—

(a) particulars of any bearer securities issued by the company,

(b) the names and addresses of the persons to whom the securities were issued, and

(c) details of the amounts issued to each person.

(4) The officer may, for the purposes of this Chapter, by notice require—

(a) any person to whom bearer securities were issued by the company, or

(b) any person to or through whom bearer securities issued by the company were subsequently sold or transferred,

to provide any further information that the officer reasonably requires with a view to enabling the officer to find out the names and addresses of the persons beneficially interested in the securities.

(5) In this section—

• “loan creditor” has the meaning given by section 453 of CTA 2010, and

• “securities” includes—

  (a)

  shares, stocks, bonds, debentures and debenture stock, and

  (b)

  any promissory note or other instrument evidencing indebtedness to a loan creditor of the company.]

Textual Amendments

F12 S. 421A inserted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 465 (with Sch. 2)