Income Tax (Earnings and Pensions) Act 2003 section 215

Limitation of exemption for scholarship income in section 776(1) of ITTOIA 2005

Section 215 restricts the scholarship income tax exemption so that it cannot be used by an employer's family member when the scholarship is provided as a benefit connected to the employment.

• Where a scholarship is provided as an employment-related benefit, the normal tax exemption for scholarship income is restricted.
• The exemption under section 776(1) of ITTOIA 2005 applies only to the actual holder of the scholarship, not to anyone else connected with the employment.
• This provision was introduced to counter a House of Lords decision (Wicks v Firth and Johnson v Firth) which had allowed scholarship income to be fully exempt from all income tax charges.
• The practical effect is that if a scholarship is given to, say, an employee's child as part of an employment package, the employee cannot benefit from the exemption — only the scholarship holder can.