EIM06230 - Employment income: scholarship income: meaning of scholarship

Section 776(3) IT(TOI)A 2005

Section 776 provides that income from a scholarship held by an individual who satisfies the relevant conditions shall be exempt from income tax (see EIM06205). As there is no statutory definition of “scholarship”, the term carries its ordinary meaning but for this purpose section 776(3) explains that “scholarship” includes an exhibition, bursary or any other similar educational endowment.

Generally, scholarship income will consist of payments from an award usually made on merit, which does no more than support a student during a period of study. In practice, the person making the payment is best placed to determine the nature of the income and what it is paid for. In cases of doubt, subject to SP 4/86, we should consider all the relevant facts in determining whether the payments in any individual case actually derive from a scholarship rather than being paid as wages or salary of an employment.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

The following do not normally qualify as income from a scholarship:

  • loans to employees undergoing educational courses released or written off, see EIM01490 and Clayton v Gothorp (47TC168)
  • regular payments from an employer to an employee paid under an existing contract of employment, i.e. monthly/weekly salary or wages
  • payments to students under deeds of covenant. These payments typically are not linked to a course of education, nor are they part of a student grant. In Gibbs v Randall (53TC513) a parent covenanted to pay an amount to his student son for a period of time as part of his parental contribution towards a local education authority grant. He claimed that the payments, being part of his parental contribution to the student grant, were payments to which his son was entitled as “the holder of … an educational endowment” and therefore should not be taken into account in calculating his son’s income. The High Court held that the covenant imposed no obligation as to the use to which the money should be put when received and was not linked to the receipt of an educational grant or to continuance of the son’s education. The payments under the covenant were therefore not income to which the son was entitled as holder of an educational endowment.

As regards research awards or fellowships, see EIM06250.