Annex 1: Minor changes in the law made by the Act: Change 133: Foreign income: special rules: relevant foreign income charged on remittance basis: amalgamation of rules for Schedule D Cases IV and V: section 832
This change relates to the amalgamation of the rules which apply to income assessed under the remittance basis where income is taxed under either Schedule D Case IV or Case V.
Section 65(5) of ICTA contains the rules for calculating the quantum of income within Schedule D Cases IV and V that is chargeable to tax under the remittance basis. There are separate rules for Schedule D Case IV income (see section 65(5)(a) of ICTA) and Schedule D Case V income (see section 65(5)(b) of ICTA).
The rule for Case IV income is as follows:
“Tax shall be computed in the case of tax chargeable under Case IV, on the full amount, so far as the same can be computed, of the sums received in the United Kingdom in the year of assessment, without any deduction or abatement”
And for Case V income:
“Tax shall be computed in the case of tax chargeable under Case V, on the full amount of the actual sums received in the United Kingdom in the year of assessment from remittances payable in the United Kingdom or from property imported, or from money or value arising from property not imported, or from money or value so received on credit or on account in respect of any such remittances, property, money or value brought or to be brought into the United Kingdom, without any deduction or abatement other than is allowed under the provisions of the Income Tax Acts in respect of profits charged under Case I of Schedule D.”
These separate rules date from the Income Tax Act of 1803. Schedule D Case IV covers income from securities and Schedule D Case V income from possessions. The Case IV rule is more succinct, possibly because the rule did not need to cover so many eventualities as the rule applying to income from possessions, which covered income from more diverse sources.
The leading case of Thomson v Moyse (1960), 39 TC 291 HL established that the Case IV rule charging to tax “sums received in the United Kingdom” included all the examples of “sums received” listed under the Case V rule. There was some disagreement as to whether the Case V rule was narrower in its scope. This turned on whether or not the list of examples given in the rule was intended as a complete list of possibilities or merely examples of how sums might be received.
Although there was not a complete consensus of views, even those who did not think that the Case V rule was as wide in its scope as the Case IV rule agreed that the examples given for the Case V rule appeared to cover every conceivable way sums might be received in the UK.
In practice, the Inland Revenue treat the scope of the two rules as the same. There have been no cases since Thomson v Moyse where the point has been raised again.
Therefore no distinction between Schedule D Case IV and Case V type income is made in this Act and the two rules concerning the remittance basis have been merged to cover all Schedule Case IV and Case V income (in this Act “relevant foreign income” as defined in section 830). No list of how sums might be received has been included, because of the impracticality of producing a finite list, and the amount of detail required for a list of mere examples.
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.