BIM14050 - Schedule D: Capital or revenue?

The Income Tax Acts, in principle, charge income and nothing else. To be taxable, a receipt must be of an income nature and not a capital receipt. Similarly, a deduction in computing profits must be of a revenue nature and not a capital outgoing. This principle is not expressly stated in the Acts, which nowhere define “income”, but it is fundamental to the scheme of the tax charge. The Courts have endorsed it on many occasions.

The distinction between income and capital is not one on which the statute provides any guidance; in any particular case it will turn on the facts of that case. Capital can be likened to the tree and income to the fruit of the tree. Many refinements of that simple statement have emerged from decided cases and these are considered further in BIM35000+ and BIM40060.

The treatment of both revenue and capital can be decided by specific statutory provisions which override any general principles which would otherwise apply. Capital sums, which on ordinary principles are not chargeable to Income Tax, are sometimes specifically brought into tax. An example of this is the treatment of profits from certain land transactions in ICTA88/S776 (see BIM14025 and BIM60300+). Conversely, deductions for capital sums are sometimes specifically allowed in computing profits when they would normally be excluded. Examples of this are the deductions allowed for-

• certain premiums paid to obtain the lease of premises occupied for the purposes of a trade etc. by ICTA88/S87 (2): see BIM46250 onwards, and
• waste disposal site restoration payments and site preparation expenditure by ICTA88/S91A and ICTA88/S91B respectively (see BIM67400 onwards).

These statutory overrides are usually introduced for economic or other policy reasons and do not diminish the strength of general principles. If anything, they reinforce them by demonstrating the need for special treatment where wider policy considerations take precedence.