Annex 1: Minor changes in the law made by the Act: hange 131: Foreign income: special rules: meaning of “relevant foreign income”: treatment of certain payments made by industrial and provident societies arising from a source outside the UK: section 830
This change allows foreign source loan interest, dividends and bonuses or other sums payable by a registered industrial and provident society to benefit from provisions available to income taxed under Schedule D Cases IV and V.
Under section 486(4) of ICTA any share or loan interest paid by a registered industrial and provident society is charged to tax under Schedule D Case III wherever it arises. Under section 66 of FA 1988 a society registered under the Industrial and Provident Societies Acts will be resident in the United Kingdom through incorporation. A society may, however, be non-resident where it also satisfies a residence test in the territory of a treaty partner of the United Kingdom and the treaty awards residence to that other territory. Section 249 of FA 1994 will then apply to treat the society as non-resident. Theoretically therefore share or loan interest paid by a registered society may arise outside the United Kingdom but be charged under Schedule D Case III. In consequence such income cannot, under the source legislation, benefit from treatment specific to Schedule D Cases IV and V.
It is unlikely that share or loan interest would arise to an industrial and provident society from a non-UK source. But it is believed that in principle it ought to benefit from the treatment available to interest within Schedule D Cases IV and V. Section 830 defines “relevant foreign income” as income arising from a source outside the United Kingdom which is charged under certain provisions which are listed. So, section 379 is not excluded from the list of provisions in section 830(2) under which a charge on relevant foreign income could arise. (See the reference to Chapter 2 of Part 4 of this Act in subsection (2)(e)).
This change is in taxpayers’ favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.