ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with current practice.
Change 117: Transactions in land and sales of occupation income: income treated as the highest part of the taxpayer’s income: sections 768 and 786
This change introduces a rule for determining in a case where a person has income chargeable under section 775 of ICTA (sales of occupation income) and income chargeable under section 776 of ICTA (transactions in land) how much of each of those kinds of income is treated as the highest part of the person’s income.
Section 777 of ICTA supplements both section 775 and section 776 of ICTA.
Under both section 775 and section 776, a person (A) may be assessed to tax in respect of consideration receivable by another person (B). Under section 777(8)(a), in both cases A is entitled to recover from B the tax assessed and paid. To this end, section 777(8) entitles A to obtain from HMRC a certificate specifying the amount of income in respect of which tax has been paid.
The last sentence of section 777(8) provides:
“For the purposes of this subsection any income which a person is treated as having by virtue of sections 775 and 776 shall, subject to section 833(3), be treated as the highest part of his income.”
Although the expression “the highest part of [the taxpayer’s] income” in section 777(8) is not expressly defined, it is clear from the context that the expression means the part of the taxpayer’s income which is subject to the taxpayer’s highest marginal rate or rates of income tax.
But, if there is more than one amount of deemed income under section 775 or section 776 or both, and section 775 or section 776 or both take the taxpayer into the next tax bracket (e.g. over the higher rate threshold), section 777(8) does not specify the priority of the charges.
Such a case is unlikely to arise in practice, because section 777(8) certificates are rarely if ever requested. But, if it did, HMRC would resolve the problem by a just and reasonable apportionment under section 777(6)(a).
Sections 768 and 786 rewrite section 777(8). Splitting the last sentence of section 777(8) in this way has highlighted the absence of a tie-breaker in the source legislation. The sections therefore include one: they provide that if the individual is treated as having income under both Chapters, only a just and reasonable proportion of the land income, and only a just and reasonable proportion of the occupation income, is to be treated as the highest part of the individual’s income.