(1) For the purposes of this Chapter, an individual is a qualifying new resident for a tax year if—
(a) the individual is UK resident for that tax year,
(b) the individual is not disqualified for that tax year, ...
(c) for each of the 10 tax years before that tax year, the individual was not UK resident , and
(d) the individual is at least 10 years old at the commencement of that tax year.
(2) An individual is also a qualifying new resident for a tax year if—
(a) the individual is UK resident for that tax year,
(b) the individual is not disqualified for that tax year, and
(c) that tax year is one of the next three tax years after a qualifying tax year in relation to the individual.
(3) A tax year is a qualifying tax year in relation to an individual if—
(a) the individual was a qualifying new resident for that tax year as a result of subsection (1),
(b) the individual would have been a qualifying new resident for that tax year as a result of that subsection, but was not only as a result of the individual being disqualified for that tax year, or
(c) the tax year—
(i) is the tax year 2022-23, 2023-24 or 2024-25, and
(ii) is a tax year to which paragraph (a) or (b) would have applied in relation to the individual had this section had effect for that tax year.
(4) An individual is disqualified for a tax year if the individual would, for the purposes of section 41 of the Constitutional Reform and Governance Act 2010, be regarded as—
(a) a member of the House of Commons for any part of that tax year, or
(b) a member of the House of Lords for any part of that tax year.
845C Effect of claim, foreign employment election or foreign gain claim on losses
(1) Subsection (2) applies where—
(a) an individual who carries on a relevant business wholly outside the United Kingdom makes a foreign income claim, a foreign employment election or a foreign gain claim for a tax year,
(b) the individual has a loss for that tax year from the relevant business, and
(c) the profits (if there were any) of the business would be qualifying foreign income for that year.
(2) No relief for that loss is available in the tax year for which the claim or election is made or in any other tax year.
(3) In this section “relevant business” means—
(a) a trade, profession or vocation, or
(b) a property business.
845D Effect of claim, foreign employment election or foreign gain claim: costs of dwelling-related loan
(1) This section applies where an individual—
(a) has a relievable amount for a tax year in respect of an overseas property business for the purposes of section 274A (reduction for individuals: entitlement), and
(b) makes a foreign income claim, a foreign employment election or a foreign gain claim for the tax year.
(2) The individual is not entitled to relief under section 274A for that tax year in respect of that relievable amount.
(3) For the purposes of section 274A, the individual’s brought-forward amount for the following tax year in respect of the overseas property business is nil.
845E Effect of claim, foreign employment election or foreign gain claim on personal allowance etc
Where an individual makes a foreign income claim, a foreign employment election or a foreign gain claim for a tax year, the individual is not entitled, for that year, to—
(a) any allowance under Chapter 2 of Part 3 of ITA 2007 (personal allowance and blind person's allowance),
(b) any tax reduction under Chapter 3 of that Part (tax reductions for married couples and civil partners),
(c) any tax reduction under Chapter 3A of that Part (transferable tax allowance for married couples and civil partners), or
(d) any relief under section 457 or 458 of ITA 2007 (payments for life insurance etc).
845F Effect of claim on relief for contributions to registered pension schemes
(1) Subsection (2) applies where—
(a) an individual makes a foreign income claim for a tax year,
(b) the individual is entitled to relief under section 188 of FA 2004 (relief for contributions) for that tax year, and
(c) the maximum amount of relief to which the individual is entitled under that section for that tax year is greater than the basic amount within the meaning of section 190(4) of that Act.
(2) The maximum amount of relief to which the individual is entitled under section 188 of that Act for that tax year is to be reduced by the lesser of—
(a) the relevant amount, and
(b) the amount that would reduce the maximum amount of relief to the basic amount.
(3) The “relevant amount” is the amount of the relief to which the individual is entitled under section 845A(2) of this Act as a result of making the foreign income claim, so far as that amount reflects relevant qualifying foreign income.
(4) An amount of qualifying foreign income is “relevant qualifying foreign income” if the income is relevant UK earnings within the meaning of section 189(2) of FA 2004.
845G Foreign income relief ignored for purposes of determining adjusted net income
(1) Subsection (2) applies for the purpose of determining the adjusted net income under section 58 of ITA 2007 of an individual for a tax year for which the individual has made a foreign income claim.
(2) The adjusted net income is to be determined as if the relief allowed by the claim had not been deducted in calculating the individual's net income for the tax year.
Income is qualifying foreign income if it—
(a) falls within a description set out in the following table, and
(b) is not disqualified income (see section 845I).
No. | Description
1 | Profits of a trade carried on wholly outside the United Kingdom (see Chapter 2 of Part 2) other than profits of such a trade treated as carried on under section 23I.
1A | 72.5% of the amount of the qualifying profits (within the meaning of section 23I) of a trade treated as carried on under section 23I that do not arise from the part of a trade treated as carried on in the United Kingdom (see section 23K).
1B | The foreign pre-arrival proportion of the non-qualifying profits (within the meaning of section 23I) of a trade treated as carried on under section 23I.
The foreign pre-arrival proportion is the proportion of the applicable workdays (within the meaning of section 23K) that fall within the pre-arrival period and are not UK workdays (within the meaning of section 23K).
The pre-arrival period is the period ending immediately before the individual became a qualifying new resident that consists only of tax years for which the individual was non-UK resident.
2 | A UK resident partner’s share of the profits of a trade carried on by the firm wholly outside the United Kingdom.
3 | Profits of an overseas property business.
4 | Adjustment income (within the meaning of Chapter 17 of Part 2) in respect of a trade carried on wholly outside the United Kingdom (see that Chapter).
5 | Income chargeable under Chapter 2 of Part 4 (interest) that arises from a source outside the United Kingdom.
6 | Income chargeable under Chapter 4 of Part 4 (dividends from non-UK resident companies).
7 | Income chargeable under Chapter 7 of Part 4 (purchase life annuity payments) that arises from a source outside the United Kingdom.
8 | Income chargeable under Chapter 8 of Part 4 (profits from deeply discounted securities) that arises from a source outside the United Kingdom.
9 | Income chargeable under section 579 (royalties and other incored.me from intellectual property) that arises from a source outside the United Kingdom.
10 | Income chargeable under Chapter 3 of Part 5 (films and sound recordings: non-trading businesses) that arises from a source outside the United Kingdom.
11 | Income chargeable under Chapter 4 of Part 5 (certain telecommunication rights: non-trading income) that arises from a source outside the United Kingdom.
12 | Income that arises from a source outside the United Kingdom and that is treated as arising to an individual under section 624 or 629 (income arising under settlement attributed to settlor).
13 | So much of any amount of income treated as arising to an individual under section 633 (capital sums paid to settlor by trustees of settlement) for the tax year as falls within the foreign amount of income available up to the end of the tax year.
The foreign amount of income available up to the end of a tax year is the amount that would be determined, in accordance with sections 635 to 637 (amount of available income), as the amount of income available up to the end of the tax year if all income arising under the settlement from a source in the United Kingdom were ignored.
14 | Income treated as arising to an individual under section 643A (benefits paid out of protected income).
15 | Income chargeable under section 649 (estate income) that arises from a source outside the United Kingdom.
16 | Income chargeable under Chapter 7 of Part 5 (annual payments not otherwise charged) that arises from a source outside the United Kingdom.
17 | Income chargeable under Chapter 8 of Part 5 (income not otherwise charged) that arises from a source outside the United Kingdom.
18 | Accrued income profits (within the meaning of Part 12 of ITA 2007) made by an individual as a result of a transfer of securities if income from the securities would be qualifying foreign income.
19 | Income treated as arising under regulation 17 of the Offshore Funds (Tax) Regulations 2009 (offshore income gains).
20 | Income that is treated as arising to an individual under section 721, 728 or 732 of ITA 2007 (transfer of assets abroad: deemed income) and that is “foreign” for the purposes of (respectively) section 726, 730 or 735 of that Act.
21 | Pension income that arises from a source outside the United Kingdom (see Part 9 of ITEPA 2003).
22 | A benefit to which section 678 of ITEPA 2003 applies (foreign social security benefits).
23 | The foreign proportion (see paragraph 46(4) to (6) of Schedule 2 to FA 2022) of income arising to an individual who provided investment management services in connection with investment arrangements to which a QAHC is party as a result of the payment of interest, or the making of a distribution or qualified distribution (within the meaning of paragraph 45(5) of that Schedule), by the QAHC as a result of an interest the individual acquired during the course of the provision of those services.
“QAHC” and “investment management services” have the meanings they have in that Schedule.
Income is disqualified income if—
(a) it is income of a settlement (within the meaning of Chapter 5 of Part 5) arising in the tax year 2024-25 or an earlier tax year that is treated as arising in tax year 2025-26 or a later year as a result of section 648(3) to (5),
(b) it is income arising from a security treated as situated in the United Kingdom as a result of section 138ZB of TCGA 1992 (share exchanges involving non-UK incorporated close companies),
(c) it is income chargeable to income tax as a result of section 809AZB of ITA 2007 (transferred income streams),
(d) it is performance income (see section 845J),
(e) it is income from a pension to which section 629 of ITEPA 2003 applies (pre-1973 pensions paid under the Overseas Pensions Act 1973), or
(f) it is a payment made to or in respect of—
(i) a relieved member of a relevant non-UK scheme (within the meaning of Schedule 34 to FA 2004), or
(ii) a transfer member of such a scheme,
to which the member payment provisions (within the meaning of that Schedule) apply.
(1) Performance income is any income chargeable to income tax (however that charge arises) that results, directly or indirectly, from the performance of a relevant activity by a performer (whether performed in the United Kingdom or not).
(2) “Performer” means any individual who gives performances of entertainment or sport.
(3) For the purposes of this section “performances of entertainment or sport” includes any activity of a physical kind performed by an individual (alone or with others) which is or may be made available to the public or any section of the public, whether for payment or not.
(4) The following are “relevant activities”—
(a) the giving of a performance of entertainment or sport;
(b) the participation of the performer in any sound or video recording;
(c) any activity in connection with a commercial occasion or event (including the appearance of the performer in connection with the occasion or event).
(5) The reference to a commercial occasion or event includes any description of occasion or event—
(a) for which any person might receive or become entitled, as a result of anything done by the performer, to receive anything by way of cash or any other form of property; or
(b) which is designed to promote commercial sales or activity by advertising, the endorsement of goods or services, sponsorship, or other promotional means of any kind.
(1) In this Act persons carrying on a trade in partnership are referred to collectively as a “firm”.
(2) The provisions of this Part which are expressed to apply to trades also apply, unless otherwise indicated (whether expressly or by implication) —
(a) to professions, and
(b) in the case of this section and sections 849, 850, 857 and 858 to businesses that are not trades or professions.
(3) In those sections as applied by subsection (2)(b)—
(a) references to a trade are references to a business, and
(b) references to the profits of a trade are references to the income arising from a business.
(4) For the purposes of this Part, a person is an indirect partner in a partnership (“the underlying partnership”) if the person is a partner in—
(a) a partnership which is a partner in the underlying partnership, or
(b) any partnership which is an indirect partner in the underlying partnership by virtue of the preceding application of this subsection.
Unless otherwise indicated (whether expressly or by implication), a firm is not to be regarded for income tax purposes as an entity separate and distinct from the partners.
(1) This section applies if—
(a) a partner in a firm is partner as trustee for a beneficiary who is absolutely entitled to the partner's share of the profits of the firm, and
(b) the beneficiary is chargeable to tax on those profits.
(2) References in this Part to a partner or member of the firm include references to the beneficiary.
(1) If—
(a) a firm carries on a trade, and
(b) any partner in the firm is chargeable to income tax,
the profits or losses of the trade are calculated on the basis set out in subsection (2) or (3), as the case may require.
(2) For any period of account in which the partner is a UK resident individual, the profits or losses of the trade are calculated as if the firm were a UK resident individual.
(3) For any period of account in which the partner is non-UK resident, the profits or losses of the trade are calculated as if the firm were a non-UK resident individual.
(3A) For any tax year that is a split year as respects the partner, this section has effect as if the partner were non-UK resident in the overseas part of the year.
(4) In calculating under subsection (2) or (3) the profits of a trade for any period of account no account is taken of any losses for another period of account.
850 Allocation of firm's profits or losses between partners
(1) For any period of account a partner's share of a profit or loss of a trade carried on by a firm is determined for income tax purposes in accordance with the firm's profit-sharing arrangements during that period.
This is subject to sections 850A to 850D and section 12ABZB of TMA 1970 (partnership return is conclusive).
(2) In this section and sections 850A and 850B “profit-sharing arrangements” means the rights of the partners to share in the profits of the trade and the liabilities of the partners to share in the losses of the trade.
850A Profit-making period in which some partners have losses
(1) For any period of account, if—
(a) the calculation under section 849 in relation to a partner (“A”) produces a profit, and
(b) A's share determined under section 850 is a loss,
A's share of the profit of the trade is neither a profit nor a loss.
(2) For any period of account, if—
(a) the calculation under section 849 in relation to A produces a profit,
(b) A's share determined under section 850 is a profit, and
(c) the comparable amount for at least one other partner is a loss,
A's share of the profit of the trade is the amount produced by the formula in subsection (3).
(3) The formula is—
FP×PPPP+TCP
where—
FP is the amount of the firm's profit calculated under section 849 in relation to A,
PP is the amount determined under section 850 to be A's profit, and
TCP is the total of the comparable amounts attributed to other partners under step 3 in subsection (4) that are profits.
(4) The comparable amount for each partner other than A is determined as follows.
Step 1
Take the firm's profit calculated under section 849 in relation to A.
Step 2
Determine in accordance with the firm's profit-sharing arrangements during the relevant period of account the shares of that profit that are attributable to each of the other partners.
Step 3
Each such share is the comparable amount for the partner to whom it is attributed.
(5) In subsections (2) to (4) “partner” means any partner in the firm, whether or not chargeable to income tax.
850B Loss-making period in which some partners have profits
(1) For any period of account, if—
(a) the calculation under section 849 in relation to a partner (“A”) produces a loss, and
(b) A's share determined under section 850 is a profit,
A's share of the loss of the trade is neither a profit nor a loss.
(2) For any period of account, if—
(a) the calculation under section 849 in relation to A produces a loss,
(b) A's share determined under section 850 is a loss, and
(c) the comparable amount for at least one other partner is a profit,
A's share of the loss of the trade is the amount produced by the formula in subsection (3).
(3) The formula is—
FL×PLPL+TCL
where—
FL is the amount of the firm's loss calculated under section 849 in relation to A,
PL is the amount determined under section 850 to be A's loss, and
TCL is the total of the comparable amounts attributed to other partners under step 3 in subsection (4) that are losses.
(4) The comparable amount for each partner other than A is determined as follows.
Step 1
Take the firm's loss calculated under section 849 in relation to A.
Step 2
Determine in accordance with the firm's profit-sharing arrangements during the relevant period of account the shares of that loss that are attributable to each of the other partners.
Step 3
Each such share is the comparable amount for the partner to whom it is attributed.
(5) In subsections (2) to (4) “partner” means any partner in the firm, whether or not chargeable to income tax.
850C Excess profit allocation to non-individual partners
(1) Subsections (4) and (5) apply if—
(a) for a period of account (“the relevant period of account”)—
(i) the calculation under section 849 in relation to an individual partner (“A”) (see subsection (6)) produces a profit for the firm, and
(ii) A's share of that profit determined under section 850 or 850A (“A's profit share”) is a profit or is neither a profit nor a loss,
(b) a non-individual partner (“B”) (see subsection (6)) has a share of the profit for the firm mentioned in paragraph (a)(i) (“B's profit share”) which is a profit (see subsection (7)), and
(c) condition X or Y is met.
(2) Condition X is that it is reasonable to suppose that—
(a) amounts representing A's deferred profit (see subsection (8)) are included in B's profit share, and
(b) in consequence, both A's profit share and the relevant tax amount (see subsection (9)) are lower than they would otherwise have been.
(3) Condition Y is that—
(a) B's profit share exceeds the appropriate notional profit (see subsections (10) to (17)),
(b) A has the power to enjoy B's profit share (“A's power to enjoy”) (see subsections (18) to (21)), and
(c) it is reasonable to suppose that—
(i) the whole or any part of B's profit share is attributable to A's power to enjoy, and
(ii) both A's profit share and the relevant tax amount (see subsection (9)) are lower than they would have been in the absence of A's power to enjoy.
(4) A's profit share is increased by so much of the amount of B's profit share as, it is reasonable to suppose, is attributable to—
(a) A's deferred profit, or
(b) A's power to enjoy,
as determined on a just and reasonable basis.
But any increase by virtue of paragraph (b) is not to exceed the amount of the excess mentioned in subsection (3)(a) after deducting from that amount any increase by virtue of paragraph (a).
(5) If B is chargeable to income tax, in applying sections 850 to 850B in relation to B for the relevant period of account, such adjustments are to be made as are just and reasonable to take account of the increase in A's profit share under subsection (4).
(This subsection does not apply for the purposes of subsection (7) or section 850D(7).)
(6) A partner in a firm is an “individual partner” if the partner is an individual and “non-individual partner” is to be read accordingly; but “non-individual partner” does not include the firm itself where it is treated as a partner under section 863I (allocation of profit to AIFM firm).
(7) B's profit share is to be determined by applying section 850 and, if relevant, section 850A in relation to B for the relevant period of account (whether or not B is chargeable to income tax) on the assumption that the calculation under section 849 in relation to B produces the profit for the firm mentioned in subsection (1)(a)(i).
(8) “A's deferred profit”—
(a) is any remuneration or other benefits or returns the provision of which to A has been deferred (whether pending the meeting of any conditions (including conditions which may never be met) or otherwise), and
(b) includes A's share (as determined on a just and reasonable basis) of any remuneration or other benefits or returns the provision of which to A and one or more other persons, taken together, has been deferred (whether pending the meeting of any conditions (including conditions which may never be met) or otherwise).
(9) “The relevant tax amount” is the total amount of tax which, apart from this section, would be chargeable in respect of A and B's income as partners in the firm.
(10) “The appropriate notional profit” is the sum of the appropriate notional return on capital and the appropriate notional consideration for services.
(11) “The appropriate notional return on capital” is—
(a) the return which B would receive for the relevant period of account in respect of B's contribution to the firm were the return to be calculated on the basis mentioned in subsection (12), less
(b) any return actually received for the relevant period of account in respect of B's contribution to the firm which is not included in B's profit share.
(12) The return mentioned in subsection (11)(a) is to be calculated on the basis that it is a return which is—
(a) by reference to the time value of an amount of money equal to B's contribution to the firm, and
(b) at a rate which (in all the circumstances) is a commercial rate of interest.
(13) For the purposes of subsections (11) and (12) B's contribution to the firm is amount A determined under section 108 of ITA 2007 (meaning of “contribution to the LLP”).
(14) That section is to be applied—
(a) reading references to the individual as references to B and references to the LLP as references to the firm, and
(b) with the omission of—
(i) subsections (5)(b) and (9), and
(ii) in subsection (6) the words from “but” to the end.
(15) “The appropriate notional consideration for services” is—
(a) the amount which B would receive in consideration for any services provided to the firm by B during the relevant period of account were the consideration to be calculated on the basis mentioned in subsection (16), less
(b) any amount actually received in consideration for any such services which is not included in B's profit share.
(16) The consideration mentioned in subsection (15)(a) is to be calculated on the basis that B is not a partner in the firm and is acting at arm's length from the firm.
(17) Any services, the provision of which involves any partner in the firm in addition to B, are to be ignored for the purposes of subsection (15).
(18) A has the power to enjoy B's profit share if—
(a) A is connected with B by virtue of a provision of section 993 of ITA 2007 (meaning of “connected” persons) other than subsection (4) of that section,
(b) A is a party to arrangements the main purpose, or one of the main purposes, of which is to secure that an amount included in B's profit share—
(i) is charged to corporation tax rather than income tax, or
(ii) is otherwise subject to the provisions of the Corporation Tax Acts rather than the provisions of the Income Tax Acts, or
(c) any of the enjoyment conditions (see subsection (20)) is met in relation to B's profit share or any part of B's profit share.
(19) In subsection (18)(b) “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).
(20) The enjoyment conditions are—
(a) B's profit share, or the part, is in fact so dealt with by any person as to be calculated at some time to enure for the benefit of A, whether in the form of income or not;
(b) the receipt or accrual of B's profit share, or the part, by or to B operates to increase the value to A of any assets held by, or for the benefit of, A;
(c) A receives or is entitled to receive at any time any benefit provided or to be provided (directly or indirectly) out of B's profit share or the part;
(d) A may become entitled to the beneficial enjoyment of B's profit share, or the part, if one or more powers are exercised or successively exercised by any person;
(e) A is able in any manner to control (directly or indirectly) the application of B's profit share or the part.
(21) In subsection (20) references to A include any person connected with A apart from B.
(22) Subsection (23) applies if—
(a) the increase under subsection (4), or any part of it, is allocated by A to the firm itself under section 863I (allocation of profit to AIFM firm), and
(b) B makes a payment to the firm representing any income tax for which the firm is liable by virtue of section 863I in respect of the amount of the increase allocated to it.
(23) For income tax purposes, the payment—
(a) is not to be income of any partner in the firm, and
(b) is not to be taken into account in calculating any profits or losses of B or otherwise deducted from any income of B.
850D Excess profit allocation: cases involving individuals who are not partners
(1) Subsections (4) and (5) apply if—
(a) at a time during a period of account (“the relevant period of account”) in respect of a firm, an individual (“A”) personally performs services for the firm,
(b) if A had been a partner in the firm throughout the relevant period of account, the calculation under section 849 in relation to A for the relevant period of account would have produced a profit for the firm,
(c) a non-individual partner (“B”) in the firm (see subsection (6)) has a share of that profit (“B's profit share”) which is a profit (see subsection (7)),
(d) it is reasonable to suppose that A would have been a partner in the firm at a time during the relevant period of account or any earlier period of account but for the provision contained in section 850C (see also subsections (8) to (10)), and
(e) condition X or Y is met.
(2) Condition X is that it is reasonable to suppose that amounts representing A's deferred profit (see subsection (11)) are included in B's profit share.
(3) Condition Y is that—
(a) B's profit share exceeds the appropriate notional profit (see subsection (12)),
(b) A has the power to enjoy B's profit share (“A's power to enjoy”) (see subsection (13)), and
(c) it is reasonable to suppose that the whole or any part of B's profit share is attributable to A's power to enjoy.
(4) A is to be treated on the following basis—
(a) A is a partner in the firm throughout the relevant period of account (but not for the purposes of section 863I (allocation of profit to AIFM firm)),
(b) A's share of the firm's profit for the relevant period of account is so much of the amount of B's profit share as, it is reasonable to suppose, is attributable to—
(i) A's deferred profit, or
(ii) A's power to enjoy,
as determined on a just and reasonable basis, and
(c) A's share of the firm's profit is chargeable to income tax under the applicable provisions of the Income Tax Acts for the tax year in which the relevant period of account ends.
But A's share of the firm's profit by virtue of paragraph (b)(ii) is not to exceed the amount of the excess mentioned in subsection (3)(a) after deducting from that amount A's share of the firm's profit (if any) by virtue of paragraph (b)(i).
(5) If B is chargeable to income tax, in applying sections 850 to 850B in relation to B for the relevant period of account, such adjustments are to be made as are just and reasonable to take account of A's share of the firm's profit under subsection (4).
(This subsection does not apply for the purposes of subsection (7) or section 850C(7).)
(6) “Non-individual partner” is to be read in accordance with section 850C(6).
(7) B's profit share is to be determined by applying section 850 and, if relevant, section 850A in relation to B for the relevant period of account (whether or not B is chargeable to income tax) on the assumption that the calculation under section 849 in relation to B produces the profit for the firm mentioned in subsection (1)(b).
(8) The requirement of subsection (1)(d) is to be assumed to be met if, at a time during the relevant period of account, A is a member of a partnership which is associated with the firm.
(9) A partnership is “associated” with the firm if—
(a) it is a member of the firm, or
(b) it is a member of a partnership which is associated with the firm (whether by virtue of paragraph (a) or this paragraph).
(10) In subsections (8) and (9) “partnership” includes a limited liability partnership whether or not section 863(1) applies in relation to it.
(11) “A's deferred profit” is to be read in accordance with section 850C(8).
(12) Section 850C(10) to (17) applies for the purpose of determining “the appropriate notional profit”; and A is to be treated as a partner in the firm for the purposes of section 850C(17).
(13) Section 850C(18) to (21) applies for the purpose of determining if A has the power to enjoy B's profit share.
850E Payments by B out of the excess part of B's profit share
(1) Subsection (2) applies in a case in which section 850C(4) or section 850D(4) applies if—
(a) there is an agreement in place in relation to the excess part of B's profit share,
(b) as a result of the agreement, B makes a payment to another person out of the excess part of B's profit share, and
(c) the payment is not made under any arrangements the main purpose, or one of the main purposes, of which is the obtaining of a tax advantage for any person.
(2) For income tax purposes, the payment—
(a) is not to be income of the recipient,
(b) is not to be taken into account in calculating any profits or losses of B or otherwise deducted from any income of B, and
(c) is not to be regarded as a distribution.
(3) In this section—
“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable),
“B's profit share” has the same meaning as in section 850C or 850D (as the case may be),
“the excess part of B's profit share” means so much of the amount of B's profit share as is represented by the amount of, as the case may be—
the increase under section 850C(4), or
A's share of the firm's profit under section 850D(4), and
“tax advantage” has the meaning given by section 1139 of CTA 2010.
851 Calculations etc. where firm has other income or losses
(1) This section applies if—
(a) sections 849 and 850 apply in relation to the profits or losses of a trade carried on by a firm, and
(b) the firm has other income or losses.
(2) Those sections also apply as if references to the profits or losses of the trade were references to the other income or losses.
(1) This section applies if—
(a) a firm carries on a trade wholly or partly outside the United Kingdom,
(b) the control and management of the trade is outside the United Kingdom, and
(c) section 809B, 809D or 809E of ITA 2007 (remittance basis) applies to a partner for a tax year.
(2) The partner's share of the profits of the trade arising in the United Kingdom is determined in accordance with sections 849 to 851.
(3) The partner's share of the profits of the trade arising outside the United Kingdom is treated as relevant foreign income ....
858 Resident partners and double taxation agreements
(1) This section applies if—
(a) a UK resident (“the partner”) is a member of a firm which—
(i) resides outside the United Kingdom, or
(ii) carries on a trade the control and management of which is outside the United Kingdom, and
(b) by virtue of any arrangements having effect under section 2(1) of TIOPA 2010 (“the arrangements”) any of the income of the firm is relieved from income tax in the United Kingdom.
(2) The partner is liable to income tax on the partner's share of the income of the firm despite the arrangements.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) For the purposes of this section the members of a firm include any person entitled to a share of income of the firm.
859 Special provisions about farming and property income
(1) The rule in section 9(2) (farming trades) operates in relation to firms so that—
(a) all farming in the United Kingdom which a firm carries on, other than farming carried on as part of another trade, is treated as one trade, but
(b) the farming carried on by a firm which is treated as one trade is not included in any farming trade of any partner in the firm.
(2) Section 264 (UK property business) operates in relation to firms so that—
(a) every business and transaction mentioned in that section carried on, or entered into, by a firm constitutes the firm's UK property business, but
(b) each business or transaction included in the firm's UK property business is not included in any UK property business of any partner in the firm.
(3) Section 265 (overseas property business) operates in relation to firms so that—
(a) every business and transaction mentioned in that section carried on, or entered into, by a firm constitutes the firm's overseas property business, but
(b) each business or transaction included in the firm's overseas property business is not included in any overseas property business of any partner in the firm.
(1) A change in the persons carrying on a trade from one period of account to the next does not prevent Chapter 17 of Part 2 (adjustment income) applying in relation to the trade so long as a person carrying on the trade immediately before the change continues to carry on the trade immediately after the change.
(1A) A change in the persons carrying on a property business from one period of account to the next does not prevent Chapter 7 of Part 3 (adjustment income) applying in relation to the property business so long as a person carrying on the property business immediately before the change continues to carry on the property business immediately after the change.
(2) A change in the persons carrying on a trade does not constitute the permanent cessation of the trade for the purposes of Chapter 17 of Part 2 so long as a person carrying on the trade immediately before the change continues to carry on the trade immediately after the change.
(3) In the case of a trade or property business carried on by a firm the amount of any adjustment under Chapter 17 of Part 2 , or Chapter 7 of Part 3, is calculated as if the firm were a UK resident individual.
(4) Each partner's share of any amount of adjustment income is determined according to the firm's profit-sharing arrangements for the 12 months ending immediately before the date on which the new basis was adopted.
(5) Any election under Chapter 17 of Part 2 , or under section 239B as applied to property businesses by section 334A, must be made jointly by all the persons who have been members of the firm in that 12 month period.
(6) For the purposes of this section—
(a) “adjustment income” and “change of basis” have the same meaning as in Chapter 17 of Part 2, or Chapter 7 of Part 3 (as the case requires)
(b) “profit-sharing arrangements” means the rights of the partners to share in the profits of the trade or property business (as the case requires), and
(c) references to the date on which a new basis was adopted are to the first day of the first period of account for which the new basis was adopted.
(7) Sections 849 to 851 do not apply so far as this section applies.
861 Sale of patent rights: effect of partnership changes
(1) This section applies if each of the following conditions is met—
(a) a person (“the trader”) sells the whole or part of any patent rights in carrying on a trade,
(b) tax is chargeable under section 587 of this Act or section 912 of CTA 2009 on the proceeds of the sale or on any instalment of those proceeds,
(c) the tax is chargeable in one or more tax years or accounting periods (referred to in this section as “the tax charge periods”),
(d) there is a change in the persons carrying on the trade at any time between the beginning of the first of those tax charge periods and the end of the last of them, and
(e) the partnership condition and the continuity condition are met.
(2) The partnership condition is that—
(a) the trader is a firm at the time of the sale, or
(b) the trade is carried on in partnership at any time between the beginning of the first of the tax charge periods and the end of the last of them.
(3) The continuity condition is—
(a) in the case of an amount chargeable under section 587, that a person who carried on the trade immediately before the change continues to carry it on after the change, or
(b) in the case of an amount chargeable under section 912 of CTA 2009, that a company which carried on the trade in partnership immediately before the change continues to carry it on in partnership after the change.
(4) Any amounts chargeable in respect of the proceeds or instalment that would (apart from this section) be treated in accordance with Chapter 2 of Part 5 of this Act or Chapter 3 of Part 9 of CTA 2009 as profits of the seller of the patent rights chargeable in tax charge periods falling wholly after the change are treated for income tax purposes—
(a) as proceeds, arising at a constant daily rate during the remainder of the relevant period, of a sale of patent rights by the person or persons carrying on the trade after the change, and
(b) if the trade is carried on in partnership after the change, as arising to the partners in shares calculated in accordance with the firm's profit-sharing arrangements.
(5) If the change occurs during the course of a tax charge period—
(a) any person who would, but for this section, have been charged to income tax in that period on a sum (“S”) in respect of the proceeds or instalment is so charged on a fraction of S proportionate to the length of the part of the period before the change, and
(b) the balance of S not dealt with under paragraph (a) is treated for the purposes of this section and section 1271 of CTA 2009 (sale of patent rights: effect of partnership changes) as if it were an amount such as is described in subsection (4).
(6) In this section “the remainder of the relevant period” means—
(a) if one or more tax charge periods begins after the tax charge period in which the change occurs, the period beginning immediately after the change and ending 6 years after the beginning of the first of the tax charge periods, or
(b) otherwise, the period beginning immediately after the change and ending at the end of the tax charge period in which the change occurs.
(7) In this section “profit-sharing arrangements” means the rights of the partners to share in the profits of the trade.
862 Sale of patent rights: effect of later cessation of trade
(1) This section applies if—
(a) a person (“the trader”) sells the whole or part of any patent rights in carrying on a trade,
(b) by virtue of section 861 amounts are chargeable to income tax under section 587 as profits of one or more persons for the time being carrying on the trade in partnership,
(c) a partner permanently ceases to carry on the trade after that, and
(d) no person who carried on the trade immediately before the cessation continues to carry on the trade immediately after the cessation.
(2) Any amounts mentioned in subsection (1)(b) which would have been chargeable in any tax year later than that in which the cessation occurred are charged in the tax year in which the cessation occurred.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) If an additional amount is chargeable under subsection (2), the person liable may elect that the amount of income tax payable should be reduced to the amount that would have been payable on the assumptions mentioned in subsection (5).
(5) The assumptions are—
(a) that subsection (2) does not apply, and
(b) that the total of the amounts that would have been charged in later tax years is charged in equal instalments in each of the tax years—
(i) beginning with the year in which the trader received the proceeds of the sale or instalment of those proceeds, and
(ii) ending with the year in which the cessation occurs.
(6) The election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the cessation occurred.
(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) For income tax purposes, if a limited liability partnership carries on a trade, profession or business with a view to profit—
(a) all the activities of the limited liability partnership are treated as carried on in partnership by its members (and not by the limited liability partnership as such),
(b) anything done by, to or in relation to the limited liability partnership for the purposes of, or in connection with, any of its activities is treated as done by, to or in relation to the members as partners, and
(c) the property of the limited liability partnership is treated as held by the members as partnership property.
References in this subsection to the activities of the limited liability partnership are to anything that it does, whether or not in the course of carrying on a trade, profession or business with a view to profit.
(2) For all purposes, except as otherwise provided, in the Income Tax Acts—
(a) references to a firm or partnership include a limited liability partnership in relation to which subsection (1) applies,
(b) references to members or partners of a firm or partnership include members of such a limited liability partnership,
(c) references to a company do not include such a limited liability partnership, and
(d) references to members of a company do not include members of such a limited liability partnership.
(3) Subsection (1) continues to apply in relation to a limited liability partnership which no longer carries on any trade, profession or business with a view to profit—
(a) if the cessation is only temporary, or
(b) during a period of winding up following a permanent cessation, provided—
(i) the winding up is not for reasons connected in whole or in part with the avoidance of tax, and
(ii) the period of winding up is not unreasonably prolonged.
This is subject to subsection (4).
(4) Subsection (1) ceases to apply in relation to a limited liability partnership—
(a) on the appointment of a liquidator or (if earlier) the making of a winding-up order by the court, or
(b) on the occurrence of any event under the law of a territory outside the United Kingdom corresponding to an event specified in paragraph (a).
863A Limited liability partnerships: salaried members
(1) Subsection (2) applies at any time when conditions A to C in sections 863B to 863D are met in the case of an individual (“M”) who is a member of a limited liability partnership in relation to which section 863(1) applies.
(2) For the purposes of the Income Tax Acts—
(a) M is to be treated as being employed by the limited liability partnership under a contract of service instead of being a member of the partnership, and
(b) accordingly, M's rights and duties as a member of the limited liability partnership are to be treated as rights and duties under that contract of service.
(3) This section needs to be read with section 863G (anti-avoidance).
(1) The question of whether condition A is met is to be determined at the following times—
(a) if relevant arrangements are in place—
(i) at the beginning of the tax year 2014-15, or
(ii) if later, when M becomes a member of the limited liability partnership,
at the time mentioned in sub-paragraph (i) or (ii) (as the case may be);
(b) at any subsequent time when relevant arrangements are put in place or modified;
(c) where—
(i) the question has previously been determined, and
(ii) the relevant arrangements which were in place at the time of the previous determination do not end, and are not modified, by the end of the period which was the relevant period for the purposes of the previous determination (see step 1 in subsection (3)),
immediately after the end of that period.
(2) “Relevant arrangements” means arrangements under which amounts are to be, or may be, payable by the limited liability partnership in respect of M's performance of services for the partnership in M's capacity as a member of the partnership.
(3) Take the following steps to determine whether condition A is met at a time (“the relevant time”).
Step 1 Identify the relevant period by reference to the relevant arrangements which are in place at the relevant time.“The relevant period” means the period—
beginning with the relevant time, and
ending at the time when, as at the relevant time, it is reasonable to expect that the relevant arrangements will end or be modified.
Step 2 Condition A is met if, at the relevant time, it is reasonable to expect that at least 80% of the total amount payable by the limited liability partnership in respect of M's performance during the relevant period of services for the partnership in M's capacity as a member of the partnership will be disguised salary. An amount within the total amount is “disguised salary” if it—
is fixed,
is variable, but is varied without reference to the overall amount of the profits or losses of the limited liability partnership, or
is not, in practice, affected by the overall amount of those profits or losses.
(4) If condition A is determined to be met, or not to be met, at a time, the condition is to be treated as met, or as not met, at all subsequent times until the question is required to be re-determined under subsection (1)(b) or (c).
(5) In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).
Condition B is that the mutual rights and duties of the members of the limited liability partnership, and of the partnership and its members, do not give M significant influence over the affairs of the partnership.
(1) Condition C is that, at the time at which it is being determined whether the condition is met (“the relevant time”), M's contribution to the limited liability partnership (see sections 863E and 863F) is less than 25% of the amount given by subsection (2) (subject to subsection (7)).
(2) That amount is the total amount of the disguised salary which, at the relevant time, it is reasonable to expect will be payable by the limited liability partnership in respect of M's performance during the relevant tax year of services for the partnership in M's capacity as a member of the partnership.
In this section “the relevant tax year” means the tax year in which the relevant time falls and an amount is “disguised salary” if it falls within any of paragraphs (a) to (c) at step 2 in section 863B(3).
(3) The question of whether condition C is met is to be determined—
(a) at the beginning of the tax year 2014-15 or, if later, the time at which M becomes a member of the limited liability partnership;
(b) after that, at the beginning of each tax year.
(4) If in a tax year—
(a) there is a change in M's contribution to the limited liability partnership, or
(b) there is otherwise a change of circumstances which might affect the question of whether condition C is met,
the question of whether the condition is met is to be re-determined at the time of the change.
This subsection is subject to section 863F(3).
(5) If condition C is determined to be met (including by virtue of subsection (7)), or not to be met, at the relevant time, the condition is to be treated as met, or as not met, at all subsequent times until the question is required to be re-determined under subsection (3)(b) or (4).
(6) Subsection (7) applies if—
(a) the relevant time coincides with an increase in M's contribution to the limited liability partnership, and
(b) apart from subsection (7), that increase would cause condition C not to be met at the relevant time.
(7) Condition C is to be treated as met at the relevant time unless, at that time, it is reasonable to expect that condition C will not be met for the remainder of the relevant tax year (ignoring this subsection).
(8) If there are any excluded days in the relevant tax year (see subsections (9) to (11)), in subsection (1) the reference to M's contribution to the limited liability partnership is to be read as a reference to that contribution multiplied by the following fraction—
D – E D
where—
D is the number of days in the relevant tax year, and
E is the number of excluded days in the relevant tax year.
(9) Any day in the relevant tax year—
(a) which is before the day on which the relevant time falls, and
(b) on which M is not a member of the limited liability partnership,
is an “excluded” day for the purposes of subsection (8).
(10) If, at the relevant time, it is reasonable to expect that M will not be a member of the limited liability partnership for the remainder of the relevant tax year, any day in the relevant tax year—
(a) which is after the day on which the relevant time falls, and
(b) on which it is reasonable to expect that M will not be a member of the limited liability partnership,
is an “excluded” day for the purposes of subsection (8).
(11) If the relevant time coincides with an increase in M's contribution to the limited liability partnership, any day in the relevant tax year—
(a) which is before the day on which the relevant time falls, and
(b) on which condition C is met,
is an “excluded” day for the purposes of subsection (8).
(12) In subsections (6) and (11) references to an increase in M's contribution to the limited liability partnership include (in particular)—
(a) the making of M's first contribution to the capital of the limited liability partnership, and
(b) M being treated as having made a contribution by section 863F(2).
863E M's contribution to the limited liability partnership: the basic calculation
(1) For the purposes of condition C in section 863D M's contribution to the limited liability partnership at a time is amount A.
(2) Amount A is the total amount which M has contributed to the limited liability partnership as capital less so much of that amount (if any) as is within subsection (6).
(3) In particular, M's share of any profits of the limited liability partnership is to be included in the amount which M has contributed to the partnership as capital so far as that share has been added to the partnership's capital.
(4) In subsection (3) the reference to profits is to profits calculated in accordance with generally accepted accounting practice (before any adjustment required or authorised by law in calculating profits for income tax purposes).
(5) Subsection (3) applies as well for the purpose of construing references to contributions to the capital of the limited liability partnership in sections 863D(12)(a) and 863F.
(6) An amount of capital is within this subsection if it is an amount which—
(a) M has previously drawn out or received back,
(b) M is or may be entitled to draw out or receive back at any time when M is a member of the limited liability partnership, or
(c) M is or may be entitled to require another person to reimburse to M.
(7) In subsection (6) any reference to drawing out or receiving back an amount is to doing so directly or indirectly.