Can an employee claim the scholarship tax exemption if their employer funds a scholarship for their child?

No. Where a scholarship is provided by reason of someone's employment, only the scholarship holder — typically the employee's child who is studying full-time — can claim the exemption. The employee cannot claim any tax relief themselves in respect of the same payments, as restricted by section 215 of ITEPA 2003.

Are payments to care leavers for higher education exempt from income tax?

Yes. Statutory payments made under section 23C(5A) of the Children Act 1989 to former looked-after young people pursuing higher education in England are exempt from income tax. Equivalent payments under sections 110(6) and 112(2) of the Social Services and Well-being (Wales) Act 2014 are also exempt.

How is 'scholarship' defined for the purposes of section 776 ITTOIA 2005?

The definition is deliberately broad. It covers traditional scholarships as well as bursaries, exhibitions and any other similar educational endowments. This ensures the exemption applies regardless of the specific label used by the funding institution, provided the payment is genuinely in the nature of an educational endowment.

Income Tax (Trading and Other Income) Act 2005 section 776

Q: What income is exempt from tax under section 776 of ITTOIA 2005?

Section 776 exempts from United Kingdom income tax all income received from scholarships, bursaries, exhibitions and similar educational endowments held by individuals in full-time education at a university, college, school or other recognised educational establishment. Without this relief, such payments could be treated as taxable income.

Scholarship income

Section 776 provides an exemption from income tax for income received from scholarships, bursaries and similar educational endowments held by individuals in full-time education.

Income from a scholarship held by someone in full-time education at a university, college, school or other educational establishment is exempt from income tax.
Where a scholarship is provided because of another person's employment, only the scholarship holder themselves can claim the exemption — not the employee or anyone else.
Payments made under the Children Act 1989 or the Social Services and Well-being (Wales) Act 2014 to former looked-after young people pursuing higher education are also exempt from income tax.
The term "scholarship" is defined broadly to include bursaries, exhibitions and other similar educational endowments.

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