What does section 775 of the Income Tax (Trading and Other Income) Act 2005 provide?

Section 775 provides a comprehensive income tax exemption for income arising from property held on trust where the trust funds are dedicated to reducing the national debt. The trust must be constituted under valid directions pursuant to section 9 of the Superannuation and other Trust Funds (Validation) Act 1927.

What categories of income are exempt under section 775 ITTOIA 2005?

Three categories of income are exempt: first, income arising directly from the trust property; second, income generated from the accumulation or reinvestment of that original income, including compounded returns; and third, any other profits accruing to the trust property that are required to be accumulated under the trust terms.

What is the practical effect of the section 775 exemption for national debt trusts?

In practical terms, if a trust is properly constituted for contributing to reducing the national debt under the 1927 Act, none of the income or profits generated within that trust bears an income tax charge. The full value of returns can be directed towards reducing the national debt without any deduction for tax.

Which legislation must the trust comply with to qualify for the section 775 exemption?

The trust must be held under valid directions pursuant to section 9 of the Superannuation and other Trust Funds (Validation) Act 1927. That Act validated certain trust funds established specifically for the purpose of reducing the national debt, and compliance with its provisions is essential for the exemption to apply.

Income Tax (Trading and Other Income) Act 2005 section 775

Income towards reducing the national debt

Section 775 provides an exemption from income tax for income arising from property held in trust where the trust funds are dedicated to the reduction of the national debt.

The exemption applies where property is held on trust under valid directions pursuant to section 9 of the Superannuation and other Trust Funds (Validation) Act 1927
Income arising directly from the trust property is exempt from income tax
Income generated from the accumulation of that property income is also exempt
Any other profits accruing to the trust property that are required to be accumulated under the trust are likewise exempt

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