Annex 1: Minor changes in the law made by the Act: Change 134: Foreign income: special rules: relevant foreign income charged on remittance basis: allowable deductions under section 65(5)(b) of ICTA: section 832
This change extends the rule in section 65(5)(b) of ICTA allowing deductions from remittances in respect of trade profits to profits of professions or vocations exercised outside the United Kingdom.
Section 65(5) of ICTA contains the rules for calculating the quantum of income within Schedule D Case IV and V that is chargeable to tax under the remittance basis. There are separate rules for Schedule D Case IV (section 65(5)(a) of ICTA) and Schedule D Case V (section 65(5)(b) of ICTA) income.
The rules for Schedule D Case V income are as follows:
“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.”
The italicised words at the end are interpreted as meaning that where the income remitted is the equivalent of income within Schedule D Case I (i.e. profits arising from a trade), then the same deductions are available. The deductions are not available to all types of income remitted. But section 832(3) and (4) extend this rule so that the same deductions may be made from remittances of income in respect of professions or vocations exercised outside the United Kingdom as are made from income in respect of professions or vocations exercised in the United Kingdom.
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.