Office of Public Sector Information
(1) This Part imposes charges to income tax under—
(a) Chapter 2 (receipts from intellectual property),
(b) Chapter 3 (films and sound recordings: non-trade businesses),
(c) Chapter 4 (certain telecommunication rights: non-trading income),
(d) Chapter 5 (settlements: amounts treated as income of settlor),
(e) Chapter 6 (beneficiaries' income from estates in administration),
(f) Chapter 7 (annual payments not otherwise charged), and
(g) Chapter 8 (income not otherwise charged).
(2) Part 6 deals with exemptions from the charges under this Part.
(3) See, in particular, any exemptions mentioned in the Chapters of this Part.
(4) The charges under this Part apply to non-UK residents as well as UK residents but this is subject to section 577(2) (charges on non-UK residents only on UK source income).
(5) This section needs to be read with the relevant priority rules (see sections 2, 575 and 576).
(1) Any income, so far as it falls within—
(a) any Chapter of this Part, and
(b) Chapter 2 of Part 2 (receipts of a trade, profession or vocation),
is dealt with under Part 2.
(2) Any income, so far as it falls within—
(a) any Chapter of this Part, and
(b) Chapter 3 of Part 3 so far as the Chapter relates to a UK property business,
is dealt with under Part 3.
(3) Any income, so far as it falls within—
(a) any Chapter of this Part, and
(b) Chapter 2 or 3 of Part 4 (interest and dividends etc. from UK resident companies etc.),
is dealt with under the relevant Chapter of Part 4.
(4) Any income, so far as it falls within—
(a) any Chapter of this Part, and
(b) Part 2, 9 or 10 of ITEPA 2003 (employment income, pension income or social security income),
is dealt with under the relevant Part of ITEPA 2003.
Any income, so far as it falls within Chapter 2 (receipts from intellectual property) and Chapter 3 (films and sound recordings: non-trade businesses), is dealt with under Chapter 3.
(1) Income arising to a UK resident is chargeable to tax under this Part whether or not it is from a source in the United Kingdom.
(2) Income arising to a non-UK resident is chargeable to tax under this Part only if it is from a source in the United Kingdom.
(3) References in this section to income which is from a source in the United Kingdom include, in the case of any income which does not have a source, references to income which has a comparable connection to the United Kingdom.
(4) This section is subject to any express or implied provision to the contrary in this Part (or elsewhere in the Income Tax Acts).
(1) This Chapter imposes charges to income tax under—
(a) section 579 (royalties and other income from intellectual property),
(b) section 583 (income from disposals of know-how), and
(c) section 587 (income from sales of patent rights).
(2) For exemptions from the charge under section 579, see, in particular, sections 727 (certain annual payments by individuals) and 758 (certain interest and royalty payments).
(3) This Chapter also provides for relief from income tax on patent income (see section 600).
(1) Income tax is charged on royalties and other income from intellectual property.
(2) In this section “intellectual property” means—
(a) any patent, trade mark, registered design, copyright, design right, performer’s right or plant breeder’s right,
(b) any rights under the law of any part of the United Kingdom which are similar to rights within paragraph (a),
(c) any rights under the law of any territory outside the United Kingdom which correspond or are similar to rights within paragraph (a), and
(d) any idea, information or technique not protected by a right within paragraph (a), (b) or (c).
(1) Tax is charged under section 579 on the full amount of the income arising in the tax year.
(2) Subsection (1) is subject to Part 8 (foreign income: special rules).
(3) See section 582 for provision about the calculation of the amount of income charged under section 579.
(4) This section needs to be read with section 527 of ICTA (spreading of patent royalties etc. over several years).
The person liable for any tax charged under section 579 is the person receiving or entitled to the income.
(1) This section applies for calculating the amount of income charged under section 579 other than annual payments.
(2) Expenses wholly and exclusively incurred for the purpose of generating the income are deductible.
(3) If an expense is incurred for more than one purpose, a deduction may be made for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purpose of generating the income.
(4) Expenses which would not have been allowable as a deduction in calculating the profits of a trade, if they had been incurred for its purposes, are not deductible under this section.
(5) Expenses for which any kind of relief is given under any other provision of the Income Tax Acts are not deductible under this section.
(6) The relief given under section 600 (relief for expenses: patent income) is additional to the relief under this section.
(7) The frequency with which payments are made is ignored in determining whether they are annual payments for the purposes of subsection (1).
(1) Income tax is charged on profits arising where consideration is received by a person—
(a) for the disposal of know-how, or
(b) for giving, or wholly or partly fulfilling, an undertaking which—
(i) is given in connection with a disposal of know-how, and
(ii) restricts or is designed to restrict any person’s activities in any way.
(2) For the purposes of subsection (1)(b), it does not matter whether or not the undertaking is legally enforceable.
(3) Subsection (1) is subject to the exceptions in section 584.
(4) In this Chapter “know-how” means any industrial information or techniques likely to assist in—
(a) manufacturing or processing goods or materials,
(b) working a source of mineral deposits (including searching for, discovering or testing mineral deposits or obtaining access to them), or
(c) carrying out any agricultural, forestry or fishing operations.
(5) In subsection (4)—
(a) “mineral deposits” includes any natural deposits capable of being lifted or extracted from the earth and for this purpose geothermal energy is treated as a natural deposit, and
(b) “source of mineral deposits” includes a mine, an oil well and a source of geothermal energy.
(1) Section 583 does not apply in the following cases.
(2) Case A is if the consideration is brought into account under—
(a) section 579 (charge to tax on royalties etc.), or
(b) section 462 of CAA 2001 (disposal values).
(3) Case B is if the consideration is dealt with in relation to the person receiving it as a capital receipt for goodwill under section 194(2) (disposal of know-how as part of disposal of all or part of a trade).
(4) Case C is if the disposal of the know-how is by way of a sale and—
(a) the buyer is a body of persons over which the seller has control,
(b) the seller is a body of persons over which the buyer has control, or
(c) the buyer and the seller are both bodies of persons and another person has control over both of them.
(5) In subsection (4) “body of persons” includes a firm.
(6) See also Chapter 14 of Part 2 and section 575 (disposals of know-how used in a trade dealt with by Part 2).
(1) Tax is charged under section 583 on the full amount of the profits arising in the tax year.
(2) The profits charged under section 583 are—
(a) the amount of the consideration, less
(b) any expenditure incurred by the recipient wholly and exclusively in the acquisition or disposal of the know-how.
(3) Such expenditure may not be taken into account more than once, whether under this section or otherwise.
(4) This section needs to be read with section 603 (contributions to expenditure).
The person liable for any tax charged under section 583 is the person receiving the consideration.
(1) Income tax is charged on profits from sales of the whole or part of any patent rights.
(2) The tax is charged if—
(a) the seller is a UK resident, or
(b) the seller is a non-UK resident and the patent is granted under the laws of the United Kingdom.
(3) Where the seller is a non-UK resident company, tax is not charged if the seller is chargeable to corporation tax in respect of the proceeds of the sale.
(4) In this Chapter “patent rights” means the right to do or authorise the doing of anything which, but for the right, would be an infringement of a patent.
(1) A seller’s profits from the sale of the whole or part of patent rights are—
(a) any capital sum comprised in the proceeds of the sale, less
(b) the deductible costs.
(2) The deductible costs are—
(a) the capital cost (if any) of the rights sold, and
(b) any incidental expenses incurred by the seller in connection with the sale.
(3) If—
(a) the seller acquired the rights sold, or the rights out of which they were granted, by purchase,
(b) the seller has previously sold part of the purchased rights, and
(c) the proceeds of that sale, after deducting any incidental expenses, consisted wholly or partly of a capital sum,
the capital cost is reduced by that capital sum.
(4) References in this Chapter to the capital cost of patent rights are to any capital sum included in any price paid by the seller to purchase—
(a) the rights, or
(b) the rights out of which they were granted.
(5) This section needs to be read with sections 600 (relief for expenses: patent income) and 603 (contributions to expenditure).
The person liable for any tax charged under section 587 is the seller of the patent rights.
(1) This section applies if the person liable under section 587 is a UK resident.
(2) If the person does not receive the proceeds of sale in instalments, one-sixth of the amount chargeable is taxed in the tax year in which the person receives the proceeds of the sale and in each of the next 5 tax years.
(3) The person may elect to be taxed instead on the whole of the amount chargeable under section 587 in the tax year in which the person receives the proceeds of sale.
(4) If the person receives the proceeds of sale in instalments, one-sixth of the amount chargeable in respect of each instalment is taxed in the tax year in which the person receives the instalment and in each of the next 5 tax years.
(5) The person may elect to be taxed instead on the whole of any instalment in the tax year in which the person receives it.
(6) An election under subsection (3) or (5) must be made on or before the first anniversary of the normal self-assessment filing date for that tax year.
(1) If the person liable under section 587—
(a) is a non-UK resident, and
(b) does not receive the proceeds of sale in instalments,
the whole amount chargeable is taxed in the tax year in which the person receives the proceeds.
(2) The person may elect to be taxed instead on one-sixth of the amount chargeable in the tax year in which the person receives the proceeds of sale and in each of the next 5 tax years.
(3) An election under subsection (2) must be made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the proceeds of sale are received.
(4) Such repayments and assessments are to be made for each of the tax years affected as are necessary to give effect to the election.
(5) Subsection (4) is subject to the qualifications in section 596 (adjustments where tax has been deducted).
(1) If the person liable under section 587—
(a) is a non-UK resident, and
(b) receives the proceeds of sale in instalments,
the amount chargeable in respect of each instalment is taxed in the tax year in which the person receives the instalment.
(2) The person may, for any instalment, elect to be taxed instead on one-sixth of the amount chargeable in respect of the instalment in the tax year in which the person receives it and in each of the next 5 tax years.
(3) An election under subsection (2) must be made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the instalment is received.
(4) Such repayments and assessments are to be made for each of the tax years affected as are necessary to give effect to the election.
(5) Subsection (4) is subject to the qualifications in section 596 (adjustments where tax has been deducted).
(1) If a seller who is liable to income tax under section 587 dies, any amounts which would have been chargeable in later tax years under—
(a) section 590(2) or (4) (UK resident sellers: spreading rules), or
(b) section 591(2) or 592(2) (non-UK resident sellers: elections for spreading),
are taxed in the tax year in which the seller dies.
(2) The personal representatives may elect that the tax payable by reason of subsection (1) be reduced to the total amount of income tax that the seller and the estate would have been liable to pay if the amounts chargeable by reason of that subsection had been taxed in equal parts in each of the lifetime tax years.
(3) In subsection (2) “the lifetime tax years” means—
(a) the tax year in which the seller received the proceeds or, as the case may be, the instalment, and
(b) each of the next tax years up to and including that in which the seller died.
(4) An election under subsection (2) must be made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the death occurs.
(1) If a body corporate which is liable to income tax under section 587 commences to be wound up, any amounts falling within subsection (2) are taxed in the year in which the winding up commences.
(2) The amounts are—
(a) any amounts which would have been chargeable in later tax years under section 591(2) or 592(2), and
(b) any amounts (arising to the body in a fiduciary or representative capacity) which would have been chargeable in later tax years under section 590(2) or (4).
(1) This section applies if a person who is a non-UK resident is liable to tax under section 587 on profits from the sale of the whole or part of any patent rights.
(2) The rules in section 588 allowing the capital cost (if any) of the rights sold to be deducted in calculating the profits from the sale do not affect the amount of income tax which (by virtue of section 349ZA of ICTA: application of rules for deduction of income tax by the payer) is to be—
(a) deducted under section 349(1) of ICTA, and
(b) assessed under section 350 of that Act (assessment on the payer).
(3) No election made by the seller under section 591(2) or 592(2) (election for spreading) in relation to the proceeds of sale or any instalment affects the amount of income tax which (by virtue of section 349ZA of ICTA: application of rules for deduction of income tax by the payer) is to be—
(a) deducted from the proceeds of sale or instalment under section 349(1) of ICTA, and
(b) assessed under section 350 of that Act.
(1) Where any sum has been deducted from a payment by virtue of section 595(2), any adjustment necessary—
(a) because of section 595(2), or
(b) because of an election under section 591(2) or 592(2),
must be made by way of repayment of tax.
(2) Adjustments necessary to give effect to an election under section 591(2) or 592(2) must be made year by year, treating one-sixth of the sum deducted from the proceeds of sale or instalment as income tax paid for each of the 6 years.
(3) No repayment is to be made of any tax treated under subsection (2) as income tax paid for a particular year unless and until it is ascertained that the income tax ultimately falling to be paid for that year is less than the amount which was paid for that year.
(1) The acquisition of a licence in respect of a patent is treated for the purposes of sections 587 to 596 as a purchase of patent rights.
(2) The grant of a licence in respect of a patent is treated for the purposes of sections 587 to 596 as a sale of part of patent rights.
(3) But the grant by a person entitled to patent rights of an exclusive licence is treated for the purposes of sections 587 to 596 as a sale of the whole of those rights.
(4) In subsection (3) “exclusive licence” means a licence to exercise the rights to the exclusion of the grantor and all other persons for the period remaining until the rights come to an end.
(1) If a sum is paid to obtain a right to acquire future patent rights, then for the purposes of sections 587 to 596—
(a) the payer is treated as purchasing patent rights for that sum, and
(b) the recipient is treated as selling patent rights for that sum.
(2) If a person—
(a) pays a sum to obtain a right to acquire future patent rights, and
(b) subsequently acquires those rights,
the expenditure is to be treated for the purposes of sections 587 to 596 as having been expenditure on the purchase of those rights.
(3) In this section “a right to acquire future patent rights” means a right to acquire in the future patent rights relating to an invention in respect of which the patent has not yet been granted.
(1) This section applies if an invention which is the subject of a patent is used by or for the service of—
(a) the Crown under sections 55 to 59 of the Patents Act 1977 (c. 37), or
(b) the government of a country outside the United Kingdom under corresponding provisions of the law of that country.
(2) The use is treated for the purposes of sections 587 to 596 as having taken place under a licence.
(3) Sums paid in respect of the use are treated for the purposes of sections 587 to 596 as having been paid under a licence.
(1) Relief may be claimed under this section for—
(a) inventor’s expenses, and
(b) patent application and maintenance expenses.
(2) In this section “inventor’s expenses” means expenses which—
(a) have been incurred by an individual who, alone or jointly, devised an invention for which a patent has been granted, and
(b) are attributable to devising it.
(3) In this section “patent application and maintenance expenses” means expenses incurred by a person in connection with—
(a) the grant or maintenance of a patent,
(b) the extension of the term of a patent, or
(c) a rejected or abandoned application for a patent,
but not incurred for the purposes of any trade carried on by the person.
(4) Relief may not be claimed under this section for patent application and maintenance expenses unless they are expenses which would, if incurred for the purposes of a trade, have been allowable as a deduction in calculating the profits of the trade.
(5) Relief may not be claimed under this section for any expenses if relief for them is given under—
(a) section 582 (calculation of income for the purposes of the charge to tax on royalties etc.), or
(b) any other provision of the Tax Acts.
(6) This section needs to be read with section 603 (contributions to expenditure).
(1) This section sets out how relief for expenses is given where a person makes a claim under section 600.
(2) The amount of the expenses must be deducted from or set off against the person’s income from patents for the tax year in which the expenses were incurred.
(3) If the amount to be allowed is greater than the amount of the person’s income from patents for that tax year, the excess must be deducted from or set off against the person’s income from patents for the next tax year, and so on for subsequent tax years, without the need for a further claim.
(4) In this section “income from patents” means—
(a) royalties or other sums paid in respect of the use of a patent (whether chargeable under this Chapter or otherwise),
(b) amounts on which tax is payable under section 587, 593 or 594, and
(c) amounts on which tax is payable under—
(i) section 472(5) of CAA 2001 (patent allowances: balancing charges), or
(ii) paragraph 100 of Schedule 3 to that Act (balancing charges in respect of pre-1st April 1986 expenditure on the purchase of patent rights).
(5) In this section references to a person’s income from patents are to the income after any allowance has been deducted from or set off against it under section 479 of CAA 2001 (certain allowances against income from patents).
Income tax deducted under either of the following sections from a payment of royalties or other income within this Chapter is treated as income tax paid by the recipient—
section 348(1) of ICTA (under which income tax may be deducted from some payments by the payer), and
section 349(1) of ICTA (under which income tax must be deducted from some payments by the payer).
(1) For the purposes of sections 585, 588 and 600, the general rule is that a person (“A”) is to be regarded as not having incurred expenditure so far as it has been, or is to be, met (directly or indirectly) by—
(a) a public body, or
(b) a person other than A.
(2) In this Chapter “public body” means the Crown or any government, local authority or other public authority (whether in the United Kingdom or elsewhere).
(3) The general rule does not apply to the expenses mentioned in section 588(2)(b) (incidental expenses incurred by a seller of patent rights).
(4) The general rule is subject to the exception in section 604.
(1) A person (“A”) is to be regarded as having incurred expenditure (despite section 603(1)) so far as the requirements in subsections (2) and (3) are met in relation to the expenditure.
(2) The first requirement is that the person meeting A’s expenditure (“B”) is not a public body.
(3) The second requirement is that—
(a) no allowance can be made under Chapter 2 of Part 11 of CAA 2001 (contribution allowances) in respect of B’s expenditure, and
(b) the expenditure is not allowed to be deducted in calculating the profits of a trade, profession or vocation carried on by B.
(4) When determining for the purposes of subsection (3)(a) whether such an allowance can be made, assume that B is within the charge to tax.
Income Tax (Trading and Other Income) Act 2005