Chapter 4: General
Overview
216.This Chapter contains the residence requirement for personal reliefs, provides for the indexation of allowances and income thresholds and makes provision about the determination of an individual’s income in connection with the age-related allowances.
Section 56: Residence etc of claimants
217.This section provides details of residence conditions which have to be satisfied for personal reliefs to be available. It is based on section 278 of ICTA.
218.Subsection (1) provides that the section applies in relation to personal allowances, blind person’s allowance and tax reductions for married couples and civil partners. Section 460 provides corresponding rules for certain other reliefs given in Chapter 6 of Part 8.
219.Subsection (2) provides that the requirements of this section are met if the individual is UK resident or meets one of the alternative tests in subsection (3).
220.Residence is a concept that applies to a tax year so that an individual is either resident in or not resident in the United Kingdom for a complete tax year. But ESC A11 allows tax years to be split, and will continue to do so. Personal reliefs are given in full for any tax year in which a qualifying individual is resident in the United Kingdom whether or not the tax year is split under ESC A11.
221.Subsection (3) is based on section 278(2) of ICTA. If the individual is not UK resident then one of conditions (a) to (f) must be satisfied. The drafting makes it explicit that a test only has to be met at some time in the tax year. In rewriting section 278(2)(e) of ICTA it has been assumed that the word “employed” is implicit before the word “service”.
222.Individuals who, under the source legislation, were able to claim the reliefs only by virtue of meeting the condition in section 278(2)(a) are catered for by provisions remaining in ICTA, as amended by this Act. See the overview commentary on this Part.
Section 57: Indexation of allowances
223.This section provides for the annual indexation of allowances. It is based on sections 257C and 265(1A) of ICTA.
224.Subsection (1) lists all the amounts within Chapters 2 and 3 of this Part that are subject to indexation.
225.Subsections (2) to (4) set out how the increases due to indexation are to be calculated. The words “unless Parliament otherwise determines” in section 257C(1) have been omitted as it is always open to a Finance Act to disapply this provision, so no express provision to this effect is needed.
226.Subsection (5) is an administrative provision to reflect the fact that it is usually only known at the time of the Chancellor’s Budget speech whether statutory indexation will apply. This leaves insufficient time before the start of the tax year for employers to update their payroll systems. This rule gives employers until the first pay-day after 17 May to make the necessary changes.
227.Subsection (6) obliges the Treasury to specify the indexed amounts in a statutory instrument which must be made in the tax year before the tax year to which they are to apply.
Section 58: Meaning of “adjusted net income”
228.This section brings together the rules from several source provisions about calculating income for the purposes of the age-related personal allowances. It is based on section 835(5) of ICTA, section 25(9A) of FA 1990 and section 192(5) of FA 2004.
229.The starting point is the measure of an individual’s net income as set out in Step 2 in section 23. An individual’s net income is determined before allowances under Chapter 2 of this Part are deducted. Section 835(5) of ICTA makes it clear that such allowances are not deducted in determining the income threshold for the purpose of sections 257(5) and 257A(5) of ICTA. Due to an oversight in the amendments made by the Tax and Civil Partnership Regulations 2005 (SI 2005/3229), the rule was not applied to the calculation of the income threshold in section 257AB(4) of ICTA. That oversight is corrected here. See Change 8 in Annex 1.
230.Subsection (1) makes a number of adjustments to the amount of net income.
231.Before FA 2000, covenanted donations to charities were charges on income. But section 41 of FA 2000 amended that rule so that charitable donations are no longer charges on income. In order that the measure of income used in the calculation of age-related personal allowances was not affected by this change, section 25(9A) of FA 1990 was inserted to ensure that charitable donations continued to reduce income for this purpose. Step 2 gives effect to this rule.
232.Under the gift aid rules the donor gives an amount (the net amount) which is grossed up at the basic rate of tax to provide a “grossed up amount”. Step 2, together with subsection (2), make it clear that, as has always been understood, it is the gross amount that is to be deducted.
233.Step 3 together with subsection (3) provide for a deduction to be made from income for the gross amount of certain pension contributions paid under deduction of tax. This rule is based on section 192(5) of FA 2004.
234.Step 4 ensures that any relief given under section 457 or 458 that has been deducted in arriving at net income is added back. That reflects section 835(5) of ICTA in relation to the income threshold in the age-related personal allowances and in married couple’s allowance for marriages taking place before 5 December 2005. This provision applies the rule also to the calculation of the income threshold for marriages and civil partnerships entered into to on or after that date. See Change 8 in Annex 1.
