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Income Tax Act 2007

Chapter 3: Transactions in land
Overview

2208.This Chapter contains a wide-ranging anti-avoidance rule specifically aimed at transactions in land. It is based on sections 776 to 778 of ICTA.

2209.The sections of this Chapter are arranged in the following order:

  • Sections 752 to 754 – introduction;

  • Sections 755 to 760 – charge on gains from transactions in land;

  • Sections 761 to 764 – further provisions relevant to the charge;

  • Sections 765 to 767 – exemptions;

  • Sections 768 and 769 – recovery of tax;

  • Sections 770 and 771 – clearances and power to obtain information;

  • Section 772 – interpretation.

Section 752: Overview of Chapter

2210.This section provides an overview of the Chapter. It is based on section 776(1) and (2) of ICTA.

Section 753: Meaning of disposing of land

2211.This section explains the expression “disposing of land”. It is based on section 776(4) of ICTA.

Section 754: Priority of other income tax provisions

2212.This section provides for other tax provisions to apply in priority to Chapter 3. It is based on section 777(10) of ICTA.

Section 755: Charge to tax on gains from transactions in land

2213.This section imposes the charge to income tax on gains from transactions in land. It is based on section 776(3A) of ICTA. It is the first of a group of sections (sections 755 to 760) which form the core of the Chapter.

2214.Subsection (2) signposts exemptions from the charge.

Section 756: Income treated as arising where gains obtained from some land disposals

2215.This section sets out the circumstances in which income is treated as arising. It is based on section 776(2), (3), (5), (13) and (14) of ICTA.

2216.Subsection (1) specifies the requirements which must all be met if this section is to apply. One of the requirements is that all or any part of the land is situated in the United Kingdom.

2217.HMRC’s interpretation of the territorial scope of section 776 of ICTA is summarised in the table below.

Residence of taxpayerWhere land is locatedApplication of section 776
United KingdomWholly in the United KingdomSection 776 applies (assuming all the other conditions are met).
United KingdomWholly outside the United KingdomSection 776 does not apply.
United KingdomPartly in the United Kingdom, partly outside the United KingdomSection 776 applies to the whole of the gain (assuming all the other conditions are met).
Non-UKWholly in the United KingdomSection 776 applies (assuming all the other conditions are met).
Non-UKWholly outside the United KingdomSection 776 does not apply.
Non-UKPartly in the United Kingdom, partly outside the United KingdomSection 776 applies (assuming all the other conditions are met), but only to the gain attributable to the UK land.

2218.This section and section 759 reflect this interpretation, and make a minor change in the law (although not in practice). See Change 115 in Annex 1.

2219.The expression “all or part of the land” in subsection (1)(c) is based on section 776(14) of ICTA; it will (for example) cover a case in which several areas of land, some within the UK and some outside the United Kingdom, pass under a single bargain. In such a case, if the person liable is non-UK resident, the total consideration will be apportioned, and the provisions will be applied to the separate gain for each area of land in the United Kingdom to arrive at the non-UK resident’s deemed income.

2220.If this section applies, subsection (2) treats the gain as income and deems it to arise when the gain is realised.

2221.For the sake of consistency with the rest of the section, subsection (5) refers to the opportunity of “realising” a gain, rather than (as in the source legislation) the opportunity of “making” it. This difference is verbal not substantive.

Section 757: Person obtaining gain

2222.This section specifies the person obtaining the gain. It is based on section 776(2)(c)(i) and (ii) and 776(5)(b) of ICTA.

2223.Subsection (3) indicates when a number of transactions may be regarded as constituting a single arrangement or scheme. Subsection (3) differs from the source legislation in that it is not drafted to apply for the purposes of section 753(1). There is no need for subsection (3) to bring a plurality of transactions within section 753(1)(b), since a plurality of transactions will already be within section 753(1)(a).

Section 758: Income charged

2224.This section defines the measure of income and gives a signpost to section 760 (method of calculating gain). It is based on section 776(3B) of ICTA.

Section 759: Person liable

2225.This section defines the person liable, bringing together a number of previously separate provisions. It is based on section 776(3)(b), (3B) and (8) of ICTA.

2226.Subsection (1) states that the person liable for any tax charged under this Chapter on income is the person whose income it is.

2227.Subsection (2) then lays down the general rule: that person is the person who realises the gain.

2228.Subsection (3) states that the general rule is subject to two exceptions, set out in subsections (4) and (6).

2229.Subsection (4) deals with the case where there is a person providing value. If all or any part of the gain accruing to a person (“A”) is derived from value provided directly or indirectly by another person (“B”), the income is B’s.

2230.Subsection (5) makes it clear that it does not matter for the purpose of subsection (4) whether or not the value is put at the disposal of A.

2231.Subsection (6) deals with the case where there is a person providing an opportunity to realise a gain. If all or any part of the gain accruing to a person is derived from an opportunity of realising a gain provided directly or indirectly by another person, the income is the other person’s.

2232.There is no equivalent of subsection (5) to back up subsection (6), because none is needed. This is a change in the law but not in practice. See Change 116 in Annex 1.

2233.Subsection (8) makes a minor change in the law, although not in practice. See the commentary on section 756 and Change 115 in Annex 1.

Section 760: Method of calculating gain

2234.This section lays down how a gain is to be calculated for the purposes of this Chapter. It is based on section 776(6) of ICTA.

Section 761: Transactions, arrangements, sales and realisations relevant for Chapter

2235.Section 761 concerns transactions, arrangements, sales and realisations relevant for this Chapter. It is based on section 777(2) and (3) of ICTA.

2236.This section is the first of a group of supplementary sections (sections 761 to 764). These sections apply for the purposes of the Chapter as a whole; because of their importance, they have been placed immediately after sections 755 to 760, the core sections.

Section 762: Tracing value

2237.This section is about tracing value. It is based on section 777(5) of ICTA.

Section 763: Meaning of “another person”

2238.This section explains the meaning of “another person” in this Chapter. It is based on section 777(7) of ICTA.

Section 764: Valuations and apportionments

2239.This section is about valuations and apportionments. It is based on section 777(6) of ICTA.

Section 765: Exemption: gain attributable to period before intention to develop formed

2240.This section exempts that part of a gain which is fairly attributable to a period before the intention to develop the land was formed. It is based on section 776(7) of ICTA.

2241.It is the first of a group of three exemptions, which are set out in sections 765 to 767.

Section 766: Exemption: disposals of shares in companies holding land as trading stock

2242.This section limits the scope of the charge by providing an exemption for disposals of shares in companies holding land as trading stock. It is based on section 776(10) of ICTA.

Section 767: Exemption: private residences

2243.This section gives exemption in respect of private residences, if certain conditions are met. It is based on section 776(9) of ICTA.

Section 768: Recovery of tax where consideration receivable by person not assessed

2244.This section deals with recovery of tax where consideration is receivable by a person (B) other than the person assessed (A). It is based on section 777(8) and (13) of ICTA.

2245.Under subsection (3) A is entitled to recover from B any part of the tax which A has paid. To assist with this, A may obtain a certificate of tax paid: see the commentary on section 769.

2246.This section also includes a tie-breaker provision. This is a minor change in the law. See Change 117 in Annex 1.

Section 769: Recovery of tax: certificates of tax paid etc

2247.This section deals with certificates of tax paid for the purposes of section 768(3). It is based on section 777(8) of ICTA.

2248.Section 777(8) of ICTA provides that the certificate is to be furnished by “the Board or an inspector”. In 1969, when this legislation was introduced, section 5 of the Income Tax Management Act 1964 provided that all assessments to income tax at the standard rate were to be made by an inspector and all assessments to surtax were to be made by the Board. The reference to “the Board” in section 777(8) appears to be a missed consequential on the abolition of surtax. This section therefore omits “the Board” as redundant and, following section 7 of CRCA, refers to “an officer of Revenue and Customs” rather than “an inspector”.

2249.Subsection (3) gives a signpost to section 944 in Part 15 (Deduction of tax at source) which rewrites section 777(9) of ICTA.

Section 770: Clearance procedure

2250.This section deals with clearances. It is based on section 776(11) and (12) of ICTA.

2251.Section 770 includes a minor change in the law. Section 776(11) of ICTA gives the clearance function to “the inspector to whom [the taxpayer] makes his return of income”. In practice, HMRC do not interpret this restrictively. Section 770 gives the clearance function to the Commissioners for Her Majesty’s Revenue and Customs. This will be consistent with section 707 of ICTA (transactions in securities: clearance procedure), which is rewritten in sections 701 and 702. See Change 118 in Annex 1.

2252.Section 770 will apply solely for income tax purposes and section 776(11) and (12) of ICTA will apply solely for corporation tax purposes. HMRC’s operational guidance will tell officers what action they should take if a clearance application is made which appears to refer to the wrong provision. If HMRC issue a clearance under section 770 of this Act or under section 776 of ICTA which refers by mistake to the wrong provision, HMRC will treat it as if it referred to the correct provision.

Section 771: Power to obtain information

2253.This section enables HMRC to obtain information which is relevant to this Chapter. It is based on section 778 of ICTA.

2254.Section 778 of ICTA refers to “the Board or an inspector” and “the Board or the inspector”. For the reason given in the commentary on section 769, the references to “the Board” in section 778 appear be a missed consequential on the abolition of surtax. Section 771 therefore now omits “the Board” as redundant and, following section 7 of CRCA, refers to “an officer of Revenue and Customs” rather than “an inspector”.

2255.Subsection (1) includes a minor change in the law: it expressly restricts the particulars to be provided to those which an officer of Revenue and Customs may reasonably require. See Change 114 in Annex 1.

Section 772: Interpretation of Chapter

2256.This section is interpretative. It is based on sections 776(13) and 777(13) of ICTA.

2257.Section 777(13) defines “capital amount” to mean any amount, in money or money’s worth, which, apart from the sections 775 and 776, does not fall to be included in any computation of income for purposes of the Tax Acts. It provides that other expressions including the word “capital” are to be construed accordingly. The drafting of subsection (1) reflects the fact that a gain is the result of an arithmetical calculation, arrived at very broadly by deducting receipts from expenses, and cannot itself be said to be in money or money’s worth.

2258.Subsection (2) (meaning of “property deriving its value from land”) is based on section 776(13)(b) of ICTA.

Section 776(13)(a) of ICTA: “land”

2259.This section does not rewrite the second limb of the definition of “land” in section 776(13)(a) of ICTA.

2260.In Schedule 1 to the Interpretation Act 1978 land is defined as including “buildings and other structures, land covered with water, and any estate, interest, easement, servitude or right in or over land.” Although the Interpretation Act 1978 was largely a consolidation, the definition of land was new and only applies from the commencement of that Act.

2261.The origin of section 776(13)(a) of ICTA is section 32(12)(a) of FA 1969. This definition therefore predates the definition of land in Schedule 1 to the Interpretation Act 1978.

2262.The definition of “land” in force in 1969 was that contained in the Interpretation Act 1889. In section 3 of that Act land was defined as including “messuages, tenements, and hereditaments, houses and buildings of any tenure”. This section was derived from section 4 of Lord Brougham’s Act of 1850. The definition was never appropriate for Scotland where messuages and hereditaments were unknown to the law.

2263.There is nothing in the definition of “land” in the Interpretation Act 1978 which is not also within the definition of “land” in section 776(13)(a) of ICTA.

2264.The Interpretation Act 1978 refers to “buildings and other structures”. Section 776(13)(a) of ICTA merely refers to “buildings”. But this cannot be read as excluding “structures”, because what is a building is a question of degree and circumstance and case law makes it clear that virtually any kind of structure is capable of being a building.

2265.Adopting the Interpretation Act definition of “land” for the purposes of this Chapter would only be a change in the law if a “structure” (a) was not, as a matter of normal English usage, “land”, (b) was not a “building” (and was therefore not brought within “land” by the second limb of section 776(13)(a) of ICTA), and (c) was nevertheless brought within “land” by the provision in the Interpretation Act that “land” includes buildings and other structures. There is no reason to believe that there are such “structures”.

2266.The Interpretation Act 1978 refers to “land covered with water”; section 776(13)(a) of ICTA does not. But there is no doubt that for legal purposes land includes every species of ground as well as waters and marshes. The term “land covered with water” has been used in legislation to distinguish, for rating purposes, land covered by artificial bodies of water such as reservoirs, filter beds belonging to water companies, canals, dry docks etc; no such distinction would be appropriate in the context of section 776 of ICTA, and therefore none was made.

2267.Finally, section 776(13)(a) of ICTA refers to “any estate or interest in land or buildings”, whereas the Interpretation Act 1978 is more specific, referring to “any estate, interest, easement, servitude or right in or over land” (emphasis added). Nonetheless, the section 776(13)(a) definition of land includes the rights italicised above. It is couched in generic terms and does not need to mention specific interests in land, including those particular to Scots law.

2268.It is therefore a matter of historical accident that section 776 of ICTA includes its own non-exhaustive definition of “land”, rather than using the standard non-exhaustive definition in the Interpretation Act 1978. The Act therefore omits the second limb of section 776(13)(a) of ICTA as redundant.

2269.The Act does not rewrite the first limb of section 776(13)(a) of ICTA as a Chapter-wide definition. Instead, references to “the land” are expanded to “all or part of the land” where appropriate.

Section 777(13) of ICTA: “receivable”

2270.Section 777(13) of ICTA provides:

For the purposes of the relevant provisions … any amount in money or money’s worth shall not be regarded as having become receivable by some person until that person can effectively enjoy or dispose of it.

2271.Section 777(1) of ICTA defines “the relevant provisions” as sections 775 to 777 of ICTA. On the face of it, therefore, the qualification of “receivable” in section 777(13) of ICTA applies to section 776 of ICTA. But the word “receivable” is not actually used in section 776.

2272.In Yuill v Wilson (1980), 52 TC 674 HL(8) and Yuill v Fletcher (1984), 58 TC 145 CA(9) the courts interpreted “realised” in section 776(3) of ICTA consistently with the explanation of “receivable” in section 777(13) of ICTA. In the House of Lords in Yuill v Wilson, Viscount Dilhorne said (52 TC 674 at page 714):

“I have based my conclusions on the meaning which I think should be given to the expression “the gain is realised”. Section [777] of the Act is as I have said intended to supplement sections [775] and [776]. Subsection (13) of section [777] is a definition subsection and, inter alia, states that for the purposes of sections [775] and [776] “any amount in money or money’s worth shall not be regarded as having become receivable by some person until that person can effectively enjoy or dispose of it.” The operation of [section 776] does not depend on whether money or money’s worth is receivable. One does not find in it any reference to money or money’s worth being receivable. It depends on whether a gain is obtained or realised. So the operation of this definition is, to say the least, obscure in relation to section [776]. It, however, accords with the meaning which I think should be given to the word “realised”, that is to say, that a gain is not realised until it can be effectively enjoyed or disposed of.”

2273.Lord Salmon agreed with Viscount Dilhorne. Other judges interpreted “realised” in the same way as Viscount Dilhorne, but relied on what is now section 777(13) of ICTA to do so(10).

2274.Following Viscount Dilhorne and Lord Salmon, this Act does not rewrite the explanation of “receivable” for the purposes of this Chapter. This omission does not change the law.

8

[1980] STC 460.

9

[1984] STC 401.

10

In the Court of Appeal, Buckley LJ and Goff LJ had used the explanation of “receivable” to interpret “realised” and in the House of Lords so too did Lord Russell of Killowen and Lord Keith of Kinkel. Lord Edmund-Davies did not express an opinion on this point. In Yuill v Fletcher, the Special Commissioners noted this difference of approach, and inferred that the application of what is now section 777(13) of ICTA to what is now section 776 of ICTA could “be legitimately regarded as an open question, or at least as containing open questions”: (paragraph 9.9 of the Decision: 58 TC 145 at page 163). Neither the High Court nor the Court of Appeal expressed any view on this point; the Court of Appeal held that the House of Lords’ decision in Yuill v Wilson should be followed as either a binding precedent or of the highest persuasive authority.

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