A capital sum received by an individual in respect of the sale or relinquishment of income derived from their personal activities can sometimes be treated as earned income and chargeable to Income Tax. If this is the case, the amount charged to Income Tax is not also charged to Capital Gains Tax.
The following conditions must all be present before the sale of income legislation can operate.
- The individual must be carrying on an occupation wholly or partly in the UK.
- Transactions or arrangements must have been effected putting some other person in a position to exploit the earnings capacity of that individual.
- A 'capital amount' must have been obtained by the individual or for some other person, as part of, or in connection with, or in consequence of the transactions or arrangements.
- The main object, or one of the main objects, of the transactions or arrangements must be the avoidance or reduction of liability to Income Tax.
The charge to Income Tax will take place in the tax year or years in which the capital amount becomes receivable or the sale or realisation occurs.
There are anti-avoidance provisions which are aimed at arrangements where an individual gives up the prospect of future income but, either he or some other person, receives instead a ‘capital amount’.