Commentary on Sections Overview Section 531: Exemption for property income etc
1598.This section sets out the exemption from income tax for property income and certain trading income arising from land, provided the income is applied to charitable purposes. It is based on section 505(1) of ICTA.
1599.The exemption applies where income is chargeable to tax under Part 2 of ITTOIA as a result of section 261 of that Act, and provided the income is applied to charitable purposes.
1600.Income chargeable to tax under Part 2 of ITTOIA means profits of a trade, adjustment income and post-cessation receipts. This means that the section includes an exemption for adjustment income, and for post-cessation receipts, in line with practice. See Change 92 in Annex 1 and the commentary on section 524.
1601.There is no requirement for the trade to be exercised in the course of carrying on a primary purpose of the charitable trust. But subsection (1) specifies that the income must be chargeable under Part 2 of ITTOIA, rather than Part 3, as a result of section 261 of that Act.
1602.This makes the effect of the source legislation in section 505(1)(a) of ICTA, as amended by ITTOIA, explicit. There is no other income arising from land and chargeable to tax under Part 2 of ITTOIA which is exempt under that provision.
1603.The exemption also refers to Part 3 of ITTOIA, rather than referring to profits or gains arising in respect of rents or other receipts from an estate, interest or right in or over land, to reflect the fact that such income is charged by ITTOIA as the profits of a property business.
1604.The reference to Part 3 of ITTOIA means that the section provides an exemption from income tax for adjustment income of UK property businesses, provided the income is applied to charitable purposes. See Change 92 in Annex 1. See also the commentary on section 524.
1605.The reference to Part 3 of ITTOIA also makes it explicit that the section provides an exemption from income tax for post-cessation receipts of UK property businesses, provided the income is applied to charitable purposes.
1606.Subsection (2)(b) requires that the estate, interest or right in or over land is vested in a person in trust for a charitable trust or for charitable purposes. A charitable trust has no legal personality and cannot hold land itself, so the land belonging to a charitable trust must be vested in the names of the trustees, or of another person (eg a nominee for the trustees). Hence the reference to the estate, interest or right being vested in any person.
1607.The exemption applies where the income derives from land vested in trust for a charitable trust or for charitable purposes. But if some of the land is vested in trust for charitable purposes and some vested or held for other purposes (for example, as an investment to generate income for non-charitable purposes) it is necessary to allocate the profits of the single property business between the two parts. This reflects the approach of the exemption in the source legislation that looks to particular interests in land, rather than to one overall property business.